Surviving COVID-19 Paycheck Protection Program Path to Loan Forgiveness Welcome! Today’s event will be starting shortly.
Your Hosts Jim Laube Anne Gannon, CPA Joe Erickson The Largo Group
Disclaimer Disclaimer The information provided on this webinar does not, and is not intended to, constitute legal or accounting advice; instead, all information, content, and materials available on this webinar are for general informational purposes only. Attendees of this webinar should contact their attorney or accountant to obtain advice with respect to any particular legal matter. No attendee or viewer of this webinar should act or refrain from acting on the basis of information on this webinar without first seeking legal or accounting advice from counsel in the relevant jurisdiction. Only your individual attorney or accountant can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. All liability with respect to actions taken or not taken based on the contents of this webinar are hereby expressly disclaimed. The content on this webinar is provided "as is;" no representations are made that the content is error-free. Consult with your lender and the Small Business Administration Paycheck Protection Program
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Webinar Agenda Webinar Agenda 1. PPP Overview 2. Answers to Most Common FAQs 3. Requirements for Loan Forgiveness 4. Step thru the Forgiveness Application 5. Q&A Paycheck Protection Program
PPP Overview PPP Overview Paycheck Protection Program • $659 billion appropriated by Congress thru the CARES Act • Provides loans to pay for 8 weeks of eligible payroll costs up to $10 million • Funds can also be used to pay rent, and utilities and interest on mortgages • Entire loan amount may be forgiven if P/R is maintained or restored by June 30 • Application period April 3, 2020 thru June 30, 2020 while funds last Paycheck Protection Program
PPP Overview PPP Overview Loan terms: • 1.00% fixed rate • 2-year term; no prepayment penalties or fees • No collateral or personal guarantee required • All payments are deferred for 6 months; however, interest will continue to accrue over this period Paycheck Protection Program
PPP Overview PPP Overview Proposed changes that could greatly benefit restaurants: • Extend the payback period from 2 to 5+ years • Extend the forgiveness period to 24 weeks or more • Allowances for state mandated closures • Change forgiveness formula to allow less reduction penalties Paycheck Protection Program
PPP FAQs PPP FAQs Lack of clear guidance Paycheck Protection Program
PPP FAQs PPP FAQs Answers to Most Common FAQs • Must be used for authorized expenses only ◦ Payroll costs — including designated benefits ◦ Interest on mortgage obligations, incurred before February 15, 2020 ◦ Rent, under lease agreements in force before February 15, 2020 ◦ Utilities, for which service began before February 15, 2020 • Forgiveness based on expenses incurred during the forgiveness period ◦ No prepayment of mortgage interest ◦ Allowance for accrued payroll periods (Alternative Covered Period) • 8-week forgiveness period begins on first funding date Paycheck Protection Program
PPP FAQs PPP FAQs Answers to Most Common FAQs • Bonuses, hazard pay and raises for staff are included in forgivable payroll calculation • Owner’s compensation generally allowed • Forgiveness for owner’s compensation limited to 2019 average 8 -week pay (cannot increase pay) • Employees who decline to come back will not reduce your forgiveness (FTE Reduction Exemption) • Once approved, loan must either be funded or refused. www.restaurantowner.com/public/PPP-FAQ.cfm Paycheck Protection Program
PPP FAQs PPP FAQs Most asked PPP question: What if I can’t fully restore my payroll by June 30 th ? Paycheck Protection Program
PPP Loan Status PPP Loan Status Have you already applied for the PPP If so, when does your 8-week forgiveness period end? Paycheck Protection Program
Should I Apply? Should I Apply? • Take the loan but only spend money on eligible expenses • Reduced forgiveness is better than nothing – it’s a grant • 1% interest on $100K is only $83 per month • You can always return unused portion or use it for future payroll • Don’t carry unneeded staff just to increase forgiveness amount • Consider restoring FTEs (less exemptions for staff refusing to come back) to pre-COVID levels before June 30th Paycheck Protection Program
Loan Forgiveness Loan Forgiveness 1. Objective – maintain same staffing levels and wages 2. 8-week window beginning on loan origination date 3. Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount (FTE). 4. Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. 5. Covered non-payroll expenses capped at 25% of payroll cost 6. Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020. (Safe Harbor Clause) Paycheck Protection Program
FTE Calculations FTE Calculations SBA Form 2483 941 Tax Return Application most likely reflected total employees, not FTEs
FTE Calculations FTE Calculations Average FTE: This calculates the average full-time equivalency (FTE) during the Covered Period or the Alternative Payroll Covered Period. For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower. Paycheck Protection Program
Loan Forgiveness Loan Forgiveness www.restaurantowner.com/snip/441.htm
FTE Restoration FTE Restoration What percentage of FTEs you had before Covid-19 do you think will be restored by June 30th? If not 100%, when (if ever) do you think you can fully restore to previous levels? Paycheck Protection Program
FTE Restoration FTE Restoration Download Recall Letter Template www.restaurantowner.com/ppp Paycheck Protection Program
PPP Forgiveness Explained… Anne E. Gannon, CPA Principal The Largo Group, Inc.
What PPP has been like so far…
Step-by-step walk through of forgiveness rules as it stands now As of May 15 th Calculation and documentation Forgiveness requirements Application Options for reaching forgiveness
Step 1: Gathering Key Business Data ➢ Date loan proceeds were received ➢ Payroll frequency ➢ EIDL loan application and # ➢ Employees at the time of the loan application ➢ Employees at the time of the forgiveness application New in forgiveness application: *Option to adjust covered period (8 week period) to match pay dates instead of check dates
Step 2: Gathering key payroll data Payroll reports (payroll register) showing FTE during the following dates: ➢ 2/15/29 – 6/30/19 ➢ 1/1/20 – 2/29/20 ➢ 2/15/20 – 4/26/20 ➢ 2/15/20 stand alone ➢ If seasonal, any 12 week period between 5/1 – 9/15 ➢ 8 week period
Step 3: Gathering Non-Payroll Expenses Rent ➢ Utilities ➢ Business Leases (Equipment/vehicle) ➢ Health Insurance ➢ Contribution to retirement plan ➢ Employer payments to state and local taxes ➢
Loan Application: Line 1: Payroll Costs $6,000 ➢ Line 2 – 4: Rent/utilities/mortgage interest: $2,000 ➢ Line 6: Total $8,000 ➢ Line 7: FTE REDUCTION QUOTIENT: ? ➢ Line 8: Modified Total ➢ Line 9: Loan Amount ➢ Line 10: Payroll Cost 75% requirement ➢ Line 11: Smallest of the above ➢
What is FTE REDUCTION QUOTIENT Calculation: Average FTE during covered period (8 weeks) as compared to chosen reference period. ➢ Can choose to compare to 1/1/20 – 2/29/20 or 2/15/29 – 6/13/19 ➢ SAFE HARBOR RULE – if employees return by 6/30 = 1 FTE calculated using 40 hours instead of 30 hours per guidance issued 5/15
FTE During covered period exceptions Indicate the FTE of ➢ 1. Any position for which the borrower made a good-faith, written offer to rehire an employee during the covered period which was rejected by the employee ➢ 2. Any employee fired for cause during covered period ➢ 3. Any employee who voluntarily resigned ➢ 4. Any employee who voluntarily requested reduction of hours ➢ These employees are INCLUDED in calculation of FTE only if position was not filled/replaced.
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