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For the past several weeks, we have all experienced a crash course on business readiness, solvency, and resilience. We are starting to see signs of re-entry and many have turned their focus back to preparing their companies for what is next.

Our team has studied, digested and done scenario planning around the CARES Act with all of its programs applicable to businesses and individuals. From there we outlined the planning and completed the calculations and the necessary applications for maximizing the benefits to you from these programs. Soon thereafter, many of you began receiving your PPP and EIDL loan proceeds, and we’ve met with many of you to map out a tentative eight-week spending plan.

So far, so good… right? Well, kind of!


Paycheck Protection Program (PPP) – Forgiveness Phase

On May 15, 2020, the Small Business Administration (SBA) released its long awaited loan forgiveness requirements for those who have obtained PPP Loans. As has been the case since the original CARES Act was passed by Congress, the updates of the actual details of the program have been evolving and keeping us on our toes. We’ve done our best to research, study, compare notes with others, and outline our strategy for each of you.

This second phase of the PPP loan process is the important forgiveness aspect. As a refresher, the loan forgiveness happens generally based on the following criteria:

  1. Restore your employee levels to pre-COVID-19 levels
  2. Spend 100% of your PPP loan funds over an 8 week period starting with the date you received your PPP loan funds.
  3. At least 75% of the forgivable PPP loan funds go toward payroll related costs and 25% toward rent, utilities and mortgage interest

In order to arrive at these qualification requirements, the borrower must document, gather, schedule out and report a number of key financial related aspects for the loan program.

For now, we have been given the SBA loan forgiveness application – and to be honest, it reflects some pretty significant changes from the original language provided when your loan applications were made.

Let’s try to review some of the key provisions that have been clarified:

Full-time equivalent (FTE) is now 40 hours per week (the original application said 30 hours per week)

  • Borrower may use actual hours per week OR
  • Borrower may apply a calculation of 1 for any 40 hour per week EE and .50 for any less than 40 hour per week EE

Maximum loan forgivable compensation paid to individual employees over the 8 week forgiveness period is capped at $15,385

The number of employees counted for purposes of maintaining or returning your employee headcount uses a denominator based on the average number of employees during the period February 15, 2019 to June 30, 2019 or January 1 to February 29, 2020.

The numerator is based on the average weekly payroll during the 8 week loan spending period. Some key new information here is that the following safe harbor exceptions are allowed in order to count employees for the 8 week loan spending period if:

  • A terminated employee for cause
  • An employee who voluntarily resigned
  • A position for which a bona-fide offer was made and rejected
  • No other person was hired in place of this terminated, resigned or rejected position.

Covered employees must be paid at least 75% of their wage rate during the 8 week spend period as compared to their wage rate from 2019 or the period January 1, 2020 to March 31, 2020.

A new salary/wage reduction restoration safe harbor is established that says if you restore your FTE count as of June 30, 2020 to what it was on February 15, 2020.

Then your loan forgiveness amount is not reduced for not carrying the same number of employees during the 8 week loan forgiveness period.

Documents that are required to be submitted with your PPP loan forgiveness application include the following:
Payroll related

  • Bank statements or third-party payroll reports indicating the amount of cash compensation paid during the 8 week spend period.
  • Form 941 and state unemployment compensation tax filing for Q2 2020.
  • Receipts, cancelled checks or account statements indicating amounts for health insurance and/or employer retirement plan contributions.

Employee count related (line item employee lists)

  • Average number of employees for the period February 15, 2019 to June 30, 2019
  • Average number of employees for the period January 1, 2020 to February 29, 2020

Non-payroll related (e.g. rent and utilities)

  • Business mortgage interest payments (including February 2020 and 8 week spend period invoices) with lender amortization schedule
  • Business rent or lease payments (including February 2020 and 8 week spend period invoices)
  • Business utility payments (including February 2020 and 8 week spend period invoices)

These are the loan forgiveness requirements as we understand them right now. And quite honestly, there are other possible nuances that are not included here. It is highly likely that the SBA will continue to provide additional clarifications around these forgiveness guidelines. However, this is a good starting point for us in working together to maximize your PPP loan forgiveness options.

PPP Loan Forgiveness Application submissions

The loan forgiveness application instructions tell borrowers that your Application must be submitted by October 31, 2020. Your lender then has 60 days to review your submission and draft the necessary forgiveness documentation and any new promissory notes based on any unforgiven portion of the loan. Any unforgiven portion will need to be paid back to the lender within two years at a 1% annual interest rate.

The goal here is that by December 31, 2020 taxpayers will know the status of their PPP loans, the forgiven portion, the repayment terms on any remaining funds and a complete accounting of the activity with the loan proceeds. All of this information will be critical for completing your annual business tax returns for the 2020 tax year.

The steps involved for the PPP loan forgiveness application involve:

  • Preparing Form 3508 PPP Loan Forgiveness Application
  • Preparing all applicable supporting schedules to the Application
  • Analyzing and assess the optimal FTE counts under the respective covered periods and/or alternative periods to maximizing your loan forgiveness
  • Providing a fully bookmarked PDF file of your forgiveness application and supporting documentation
  • Being available for questions and guidance throughout the forgiveness period

Please contact us for more information on how we can help.

Final thoughts

We don’t know exactly what the next six months or next six years will look like. Some of us long for being back to the way things were. Some of us are looking for significant changes in how we conduct ourselves in this ‘new normal”. Either way, I have great hope and expectation that small business owners will find a way in this wilderness. We are being called on more than ever to lead, to care and to innovate in our respective circles of influence.

As you take on this calling, Kregel & Company is here with you in this – our aim is to provide Opportunity, Peace of Mind and Inspiration. Let’s do this together!