UPDATE 7/1: It has passed the House as well and is expected to be signed by the President today.
Total shock and surprise… out of nowhere, the Senate unanimously passed a five-week extension to the Paycheck Protection Program application deadline, just a few hours before it was set to expire.
Sen. Ben Cardin, D-Md., the top Democrat on the Small Business Committee, said on the floor that senators picked August 8th because that’s the end of the Senate’s next work period and lawmakers are hoping to pass the next relief package by then.
Additionally, Sen. Susan Collins, R-Maine, who helped negotiate the initial small business portions of the March coronavirus relief legislation, said that the extension would make certain we “don’t see an interruption in this program” while a fifth relief bill is being negotiated in Congress.
The unanimous agreement Tuesday night was unexpected, as lawmakers have clashed over issues regarding the program, including legislation regarding how to possibly redirect the unused $130 billion.
The deadline had recently been extended for a few specific borrowers who challenged some of the requirements in court and won — but this ruling only applied to those specific instances. However, their challenge pointed out some unfair restrictions in the PPP application requirements regarding criminal records that have since been remedied (though none of the online applications I have seen have incorporated the new rules yet). Given the timing of the recent guidance, there were certainly many would-be applicants that would not have been able to apply, and hopefully this extension will help.
There also is simply a huge amount of money left — $130 billion. There was so much confusion and fear about applying and getting loan forgiveness that the funds didn’t make it to many of the intended recipients; many never even applied. For example, I helped three folks this week who thought the program “didn’t apply to them”. Now that the rules are easier to follow, make more sense, require less work, and are clearer, hopefully small business owners will come out of the woodwork and get some much-needed assistance.
The House is expected to pass the measure and the President is expected to sign it. The bill passed in the Senate by unanimous consent.
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As promised in my most recent PPP blog post, there’s tons of good news on the PPP front. This past Friday, June 26th, I led a webinar for clients and colleagues to summarize the newest guidance, give tips on next steps, and walk through the newly-updated AICPA forgiveness spreadsheet.
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So much has happened since my last PPP posts, just a week-and-a-half ago, I hardly know where to begin.
Let’s start with the good news: all of it is good news!
As you may recall, Congress passed the June 5th PPP Flexibility Act, and SBA & Treasury came out with new guidance on June 11th, which I covered extensively. They followed up by reducing the non-financial felony threshold a couple days later. Then the new forgiveness application and EZ-version (thank goodness) were released shortly afterward, on June 17th. However, I held off publishing blog posts or holding webinars on the new applications, since they were released without guidance — and like many of us, waited for the answers to our many outstanding questions.
Well, in the past week that guidance continued to trickle in, culminating in some key answers from the June 22nd Interim Final Rule (IFR) that — believe it or not, after almost three months — actually leave us with most of our concerns answered, and a clear path forward for most small business borrowers.
<This is the part where your blog writer takes her hard-earned glass of wine and raises it in a gesture of cheers.>
The confidence in the piecemeal guidance released since June 5th was evident this morning, when the AICPA decided to re-release their most excellent PPP Forgiveness Calculator Spreadsheet. Mind you, it’s in draft form, and I did find a couple mistakes when I took it on a test-run tonight — but they are quick to incorporate correction requests, and more importantly, this indicates to me that the folks there feel that we’ve gotten most of what we can expect to get from SBA/Treasury on the topic, and we can get back to work on forecasting. (Oh yeah — and tax preparation, as my clients and staff are reminding me.)
Another small win is that the SBA finally agreed to release names of recipients of PPP loans larger than $150,000. SBA loan recipients have always been a matter of public record, so I admit that I was confused by the political angle on this — but in the end, I think the compromise struck is one that will allow single-owner and other closely-held small companies the privacy they need for payroll purposes, while balancing the demands of the public to know where their taxpayer dollars are going. Reportedly, this will account for nearly 75% of the loan dollars approved.
So — what’s new?
These game-changers: – Non-owner employee compensation can be forgiven based on their full 24-weeks of pay — up to a $46,154 (24/52 x $100,000) cap — if the 24-week period is elected; – Owner compensation limits increase to 2.5 months of 2019 income capped at $100k (20.833%) if the 24-week period is elected (compared to 15.385% of 2019 if the 8-week period is used); – Borrowers may submit application early — as soon as requirements are met (including FTE calculations, meaning that even if a borrower does not meet either of the FTE Safe Harbors, they can determine the period for which FTEs must be maintained, between 8 and 24 weeks); – FTE Safe Harbor #1 (business activity limited by government mandate) will apply to the vast majority of borrowers, and frees them from performing the hellish FTE calculations; – FTE Safe Harbor #2 (the original Safe Harbor) allows choice of December 31st or the date of forgiveness application.
What does this mean?
First-off: any business owner(s) with no employees should elect the 24-week forgiveness period. Instead of the 8/52-week limit x 2019 compensation available for those who stick with the original 8-week period, those who elect the 24-week period will have 2.5 months x 2019 compensation forgiven instead. That’s an increase from 15.384% to 20.833%. And since most of these small business owners received their loan based on 2.5 times their 2019 monthly average, this will clearly earn them full forgiveness. (Furthermore, it eliminates the challenging situation whereby the loan amount was determined in months and the compensation limit was determined in weeks, putting most Schedule C and partnership filers in a position where full forgiveness was impossible.)
Secondly: once you have spent the money consistent with the rules, go ahead and submit your forgiveness application early, regardless of whether you have employees or not. You can elect the 24-week period, allowing for more generous caps, but then end the period early. There are many advantages to this approach: – having a shorter period over which to meet the FTE test, or an earlier date to qualify for the FTE Safe Harbor #2 (the original FTE safe harbor) – getting the loan off the Balance Sheet and freeing up any leverage you might need to be able to borrow from other lenders – avoiding the possibility of straddling a tax year with potentially non-deductible expenses to address – peace of mind
What don’t we know yet?
One unanswered question is whether or not the owner-compensation limitation applies to spouses or other relatives. So far there are no attribution rules, so presumably they fall under the (more generous) calculations for regular (non-owner) employees (assuming the wages are legitimate compensation for services rendered to the company).
What happens if the FTEs cannot be maintained due to a limitation on business activity that was not caused by government agency mandate? I am thinking of some professional services, for example, dog-walking, where technically the company was allowed to continue activities at full capacity, but the drop-off in business was precipitous. In this case the FTE rule will not be met, nor Safe Harbor #1 (government mandate). They could aim for the December 31 Safe Harbor #2 (the original safe harbor test), but that would be a gamble, and would presumably delay forgiveness by many months. This is not a large group of borrowers, but the consequences faced by them are certainly inequitable.
Are retirement contributions on behalf of owners allowable? Capped? The guidance makes it clear that these costs are not allowable for Schedule C filers or partners, as any funds earmarked for retirement are already counted in net income before being contributed. For owner-employees, there’s language in the EZ application — but not the main application — that makes it sound like retirement contributions are only allowed to the extent they are included in income, and are capped at 2.5 months x the 2019 amount. Why the discrepancy is unknown. This article discusses that topic in more detail.
There was concern about the announcement that S-Corp owners were suddenly not able to include health insurance in the payroll total — but it turns out that’s because by law those costs are already considered part of the Box 1 W-2 wages. It just means you can’t double-count them. (Schedule C filers and partners were already disallowed health insurance costs for forgiveness, as similarly, they are paid out of net income, which has already been counted for forgiveness purposes.) This article discusses that topic in more detail.
And for a step-by-step explanation of how to calculate forgiveness, I’ll also point you to the AICPA (no, I do not receive any remuneration from them — I’m just impressed by their resources). This step-by-step guide is quite helpful, and also points you to their greatest contribution to the PPP forgiveness thus far — the AICPA PPP Forgiveness Calculator Spreadsheet. Don’t fill out your forgiveness application or plan accordingly without it!
If you haven’t applied yet, please do. There are only a few days left in which to do so, and $130 Billion still available. The SBA has recently relaunched its Lender Match site, which connects small businesses with SBA-approved PPP lenders to get their loans approved before the June 30th deadline. I’ve had excellent luck with Cross River Bank, which has provided approximately 70% of my clients’ PPP loans, either directly or through various FinTech companies — and there was a great article in the New York Times about them recently. (Nope, those links aren’t monetized and I receive nothing from them. Just hoping to help out some small businesses.)
After a few more webinars on the topic — see the most recent one here — I plan to take a break from PPP planning for a short while and focus on tax preparation. I can’t begin to express my relief that we finally have a comprehensive PPP rule book that takes the real world into account.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
As a reminder — EIDL is considered a “working capital” loan, which means it’s meant to be used to make payments that would have been required to sustain operations if the disaster hadn’t occurred in the first place. The only items that EIDL can’t be used on are a) expansion costs (which includes new assets only if they are part of the expansion; therefore regular replacement or investment in equipment for increased efficiency is allowable), b) consolidating long-term debt (so regular LOC and debt service payments are fine, but not anything that essentially refinances existing long-term debt), and c) shareholder payroll or distributions that are not in the usual course of business (in other words, you can’t use the EIDL to essentially give yourself a bonus).
From their press release today, June 15: “The SBA is strongly committed to working around the clock, providing dedicated emergency assistance to the small businesses and non-profits that are facing economic disruption due to the COVID-19 impact. With the reopening of the EIDL assistance and EIDL Advance application portal to all new applicants, additional small businesses and non-profits will be able to receive these long-term, low interest loans and emergency grants – reducing the economic impacts for their businesses, employees and communities they support,” said SBA Administrator Jovita Carranza.
EIDL assistance can be used to cover payroll and inventory, pay debt or fund other expenses. Additionally, the EIDL Advance will provide up to $10,000 ($1,000 per employee) of emergency economic relief to businesses that are currently experiencing temporary difficulties, and these emergency grants do not have to be repaid.
The SBA is offering low interest federal disaster loans for working capital to small businesses and non-profit organizations that are suffering substantial economic injury as a result of COVID-19 in all U.S. states, Washington D.C., and territories.
These loans may be used to pay debts, payroll, accounts payable and other bills that can’t be paid because of the disaster’s impact, and that are not already covered by a Paycheck Protection Program loan. The interest rate is 3.75% for small businesses. The interest rate for non-profits is 2.75%.
To keep payments affordable for small businesses, SBA offers loans with long repayment terms, up to a maximum of 30 years. Plus, the first payment is deferred for one year.
In addition, small businesses and non-profits may request, as part of their loan application, an EIDL Advance of up to $10,000. The EIDL Advance is designed to provide emergency economic relief to businesses that are currently experiencing a temporary loss of revenue. This advance will not have to be repaid, and small businesses may receive an advance even if they are not approved for a loan.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The eligibility threshold for those with felony criminal histories has been changed. The look-back period has been reduced from 5 years to 1 year to determine eligibility for applicants, or owners of applicants, who, for non-financial felonies, have (1) been convicted, (2) pleaded guilty, (3) pleaded nolo contendere, or (4) been placed on any form of parole or probation (including probation before judgment).
The period remains 5 years for felonies involving fraud, bribery, embezzlement, or a false statement in a loan application or an application for federal financial assistance. The application also eliminates pre-trial diversion status as a criterion affecting eligibility.
SBA issued revised PPP application forms to conform to these changes. The guidance and revised application forms are available on SBA’s and Treasury’s websites. SBA will issue additional guidance regarding loan forgiveness and a revised forgiveness application to implement the PPPFA in the near future.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
Late night on June 10th, the SBA and Treasury released the 17th interim final rule to reflect changes made by the Paycheck Protection Program Flexibility Act. SBA also published updated application forms to use for loans made on or after June 5, 2020.
The new IFR is mostly a restating and clarification of what we already knew from the statute, its accompanying statement, and the recent Treasury statement.
We are still waiting for guidance for most of our questions, which is especially frustrating given that many PPP loan borrowers have reached or are nearing the end of the original eight-week covered period. As has been a consistent theme, the SBA and the Treasury have promised additional regulations and guidance soon. The concern over the constantly-changing, difficult-to-understand rules — which have been impossible to plan around thus far — has caused a big slow-down in applications. As of now, PPP loans must be approved by June 30th (not applied-for, but approved-by).
(For those who haven’t yet applied: these days I’m finding Funding Circle to have the quickest turnaround and easiest application process for new borrowers. No, I do not receive any benefits from them.)
The biggest problem with the PPP is that you will likely need an accountant (or you could possibly get away with an advanced degree in mathematics) to figure out how to calculate the forgivable portion of the loan — which is hard enough on its own, but even harder when trying to plan, as the rules keep changing. The government did not — in any of the three Acts that involve these loans — realize the administrative burden these rules place on business owners… especially at a time when they’re trying to figure out how to survive the coronavirus shutdown and cautious reopening of our economy.
That said, it may no longer be “free” money, but in most cases, it is definitely still worth it. I’ve been attending the weekly AICPA Town Hall meetings and reporting on them to my clients and colleagues, and making some of those recordings available for the public, in hopes that it will help guide you (or your clients) to making better decisions about how to use the funds.
Here are my notes from the above zoom session, in case it’s easier to read than to listen/watch, or in case you’d like to follow along.
I have taken three webinars on the new PPP forgiveness rules in the past week — and gotten three different interpretations, and a lot of misinformation. So please keep in mind that I am only AN expert, not THE expert.
AICPA Town Hall 6/11 – WHAT WE KNOW
Treasury statement came out 6/8 and more guidance released 6/10.
60% cliff fixed!
Extension to 24 weeks is automatic; can elect 8-wk period on forgiveness application.
The Interim Final Rule released today does not address FTEs. As-written, we’ll have to keep FTEs up for 24 weeks. Alternatives: expansion of FTE reduction exemptions AND/OR Safe Harbor of 12/31/20.
May not use the old application… wait for new one.
Simplified application expected for those with no employees — at the very least, AICPA will release simplified spreadsheet.
You do not have to wait until the end of the 24 weeks to apply for forgiveness if you meet the requirements.
If you use the 8-week period, the new 60% rule applies – you do not still need to meet the 75% rule.
They are trying to get every loan forgiven as much as possible – guidance will be lenient; more relief may come.
Treasury referred to ACIPA forgiveness spreadsheet as the gold standard (yay!)
You can reapply for PPP if you returned the money or didn’t get full funding.
RECOMMENDATION — OPT IN TO PAYROLL TAX DEFERRALS!
June 10: Sec. Carranza indicated new EIDL applications will be accepted starting next week!
WHAT WE DON’T KNOW
1) Owner compensation limits – extended to 24/52 of 2019… or remain at 8/52? Waiting for guidance.
2) Will the FTE reduction rule remain in place as-is? It was hard enough for clients to keep average FTE at 100% of their comparison period for 8 weeks, but 24 weeks will render this new “flexibility” useless. Currently, for clients in this situation who cannot use expansion of FTE reduction exemptions or Safe Harbor of 12/31/20, we are encouraging sticking with original 8-week covered period. (Compass Tax agrees this is the largest remaining concern.)
3) FTE reduction flexibility — the examples I’m seeing are when companies don’t have the same level of activity due to agency standards. But what if you’re “allowed” to open at 100% capacity, but you just don’t have enough business anymore? Currently “too bad” as-written… will this change with SBA interpretation?
4) FTEs – the 1.0 vs 0.5 shortcut calculation… do we still have to calculate this on a weekly basis? I have two colleagues who say you can just count any PT staff who worked at any point during the forgiveness period as 0.5, and similarly for FT, but none of the FTE calculators or case-studies I’ve seen have used this approach. This would make passing the FTE test SO MUCH EASIER.
5) Our clients who (for various reasons) did not apply for PPP beforehand, we had them take the ERTC instead. So now that the forgiveness rules have changed, they want to apply for PPP; but they are disqualified because you can’t do both. Best solutions here? Backing out the credits before filing the 941? Amending the 941? AICPA response: “If they receive the ERC, they are ineligible for PPP per the CARES act.”
6) EIDL advance grant — subtract from PPP forgiveness or not? Some folks are saying you have to deduct EIDL advance grant from PPP forgiveness — some say you only do this if you spent it on same costs as PPP. It looks like on the PPP application you have to deduct it… BUT it says “if applicable”. Since the CARES Act is clear about the fact that it does NOT have to be deducted if taken after April 6 and not used for the same costs, many are saying the “if applicable” means only if pre-April 6th or if used on the same costs as PPP. It sounds like you’re saying that’s not your interpretation, even though it’s in the CARES Act? AICPA had previously said on their FAQ that we’re waiting for SBA guidance on this. Now they’re saying it has to be subtracted. “If an advance is received, it will reduce PPP forgiveness. If they are used for different purposes, a borrower is able to take loans from both programs but it does not impact the reduction of the advance from the PPP forgiveness.”
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They summarized the main points of the Act and clarified a few things that were previously unclear to folks who didn’t read it in full and who missed the accompanying Congressional Statement of Intent. Luckily if you are a regular reader of this blog, you got the news correct first-time around.
(And yes, I am annoyed by old-white-cis-male attorneys telling me that the points I pulled directly from the AICPA Town Hall and their summary were “matters of my opinion”. Anyone who knows me knows I do not take being condescended to well — especially not by lawyers, and especially not by white male lawyers. But I digress.)
But they also made a very important additional point: they eliminated the 60% “cliff” Rubio was worried about, and stated unequivocally, “If a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.”
They also noted that they “will promptly issue rules and guidance, a modified borrower application form, and a modified loan forgiveness application implementing these legislative amendments to the PPP”.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
The Chicago Department of Business Affairs and Consumer Protection is no longer offering their usual onsite workshops, but they are announcing a few virtual ones — not a whole month at-a-time, so I’ll just append this post as I learn of new ones. Here’s what we know about so far.
Wednesday, 5/13 at 3:00 PM Webinar Protecting Yourself Against Business COVID and Cybersecurity Scams – Stop Perpetrators in Their Tracks Presented by the Better Business Bureau of Chicago and Northern Illinois and Sagin IT Services/Data Protection and Network Security
Better Business Bureau of Chicago and Northern Illinois and Sagin IT Services/Data Protection and Network Security will team up for “Protecting yourself against Business COVID and Cybersecurity Scams – Stop Perpetrators in their Tracks.”
Click here to register for the Wednesday, 5/13 Webinar.
Thursday, 5/14 at 9:30 AM Webinar Paycheck Protection Program & Other SBA Resources for Small Businesses Presented by the SBA Public Affairs Specialist Jessica Mayle
If your small business has been impacted by coronavirus, join this free online training to learn more about serveral funding programs to address the COVID-19 outbreak, including the Paycheck Protection Program. We’ll discuss eligibility requirements, how to find a lender, and timelines for disbursement. Bring your questions.
Click here to register for the Thursday, 5/14 Webinar.
Friday, 5/15 at 9:30 AM Webinar Manage Your Business Remotely Presented by JinJa Birkenbeuel, Birk Creative, A Certified Grow With Google Partner
In this live class, I will share the free and easy to access Google tools that can help you stay productive no matter where you are. In this session we’ll show you how to: – Update your customers with critical business information through your Business Profile, Google Ads, and your website. – Communicate remotely with your customers and employees with tools like Google Meets and Gmail, and how to access and collaborate on files with your team through Google Drive. – And we’ll share next steps and resources available to help you manage remotely.
Wednesday, 5/20 at 3:00 PM Webinar A Focus on Empathy: Storytelling in Branding Presented by Adam Arcus, VP, Creative at 1871
Learn the importance of storytelling in branding that engages empathy alongside design, multimedia, and copywriting with Adam Arcus, VP, Creative at 1871. Take away tangible and actionable methods on how to lead with empathy as a business in order to connect with your customers during the Coronavirus Pandemic including: memory making science, multimedia storytelling made simple, and the importance of narrative in a brand.
Click hereto register for the Wednesday, 5/20 Webinar.
Friday, 5/22 at 9:30 AM Webinar Small Business Capital and Coaching During the Recovery Presented by Accion Serving Illinois & Indiana
As Chicago’s economy starts to reopen, how can your business be best prepared? Join this presentation, with moderated Q&A after, in which Accion Serving Illinois & Indiana CEO Brad McConnell will discuss capital and coaching options for small business during the COVID-19 recovery period.
Click here to register for the Friday, 5/22 Webinar.
Wednesday, 5/27 at 3:00 PM Webinar Transform Your Dream Into a Real Startup Presented by Score Chicago
Do you have what it takes to start and run a successful business? If so, do you know what the start-up journey is like? Or what initial steps you need to take? This webinar will help you assess your prospects, give you the initial direction you need, and inspire you to move forward to realize your dream. The webinar will also cover pricing, promotion, competition and marketing to give you a competitive edge. Topics Covered in the Start-up Webinar: · Identifying Successful Traits · Assessing Your Journey · Navigating Organization and Regulations · Gauging Market Potential · Avoiding Failure
Click here to register for the Wednesday, 5/27 Webinar.
Friday, 5/29 at 9:30 AM Webinar Marketing Strategy and Tactic Presented by Chimbly Consultants
Are you wondering what a marketing strategy can look like? Are you interested in learning about how marketing tactics are connected to strategy? In this workshop, Francisco Ramirez from Chimbly Consultants will cover the basics of marketing starting with strategy. Participants will leave with an understanding of the importance of marketing strategy and what tactics to use and measure to be successful in business.
Click hereto register for the Friday, 5/29 Webinar.
To view the Paycheck Protection Program & Other SBA Resources for Small Businesses, click here.
To view the Resources Small Businesses During the COVID Pandemic, click here.
To view the Navigating the New Stay at Home Order, click here.
To view the Workers’ Rights and Resources During COVID-19 webinar-Spanish, click here.
To view the Workers’ Rights and Resources During COVID-19 webinar-English, click here.
Partner Webinars:
To view the Coronavirus (covid-19): Small Business Guiance & Loan Resources by The Small Business Administration (SBA),click here.
To view Coronavirus (covid-19) Small Business Guidance & Loan Recovery for Sole Proprietors by The Small Business Administration (SBA),click here.
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
From the American Bankers Association at 8:52 am on April 25th:
With the Small Business Administration reopening its E-Tran system for Paycheck Protection Program applications on Monday morning, SBA last night issued guidance to help borrowers and lenders calculate and document the maximum PPP loan amount a business may be eligible for. The guidance covers several situations about which lenders have sought clarity.
The guidance addresses calculations and documentation requirements for applicants that are:
Self-employed with no employees.
Self-employed with employees.
Self-employed farmers who report income on Schedule F.
Partnerships.
Subchapter S and C corporations.
Nonprofit organizations.
Eligible nonprofit religious organizations, veterans’ organizations and tribal businesses.
Limited liability company owners.
“Borrowers and lenders may rely on the guidance provided in this document as SBA’s interpretation of the CARES Act and of the Paycheck Protection Program Interim Final Rules,” SBA added in the guidance. “The U.S. government will not challenge lender PPP actions that conform to this guidance and to the PPP Interim Final Rules and any subsequent rulemaking in effect at the time.”
If this or any other posts on the website were useful to you, and your financial situation permits it, please consider contributing to my tip jar. This allows me to continue to provide free accounting resources to small businesses who do not have the funds available to hire a CPA.
