Webinar – PPP Loan Forgiveness: What You Need to Know June 2020 1
Welcome Todd Jones Executive Vice President, Wholesale Banking First Horizon Bank
Meet your panelists David Popwell Todd Jones Adrienne Sipe Darin Johnson D. Jeffrey Wagner Chad Boyd President Executive Vice President Director, Government Credit Risk Manager Attorney CPA Banking Wholesale Banking Guaranteed Lending Gov’t Guaranteed & Shareholder Tax Partner CRA Lending 3
SBA PPP Loan Results David Popwell President, Banking First Horizon Bank
Access to Funds: Paycheck Protection Program (PPP) by the numbers Information as of 6/8/2020 5
SBA PPP Loan Forgiveness Overview Adrienne Sipe Director, Government Guaranteed Lending First Horizon Bank
How long do I have to use my PPP funds? The recently approved PPP Flexibility Act extends usage of PPP funds from 8 weeks to 24 weeks after loan weeks origination or until 12/31/2020. For more details, visit the U.S. Treasury website 7
How can I use the PPP funds? To qualify for full forgiveness, at least 60 percent of the loan proceeds must have been used for Borrower’s payroll costs. IF & & THEN $100,000 $50,000 $50,000 $83,333 BORROWER ACTUAL AMOUNT ELIGIBLE FORGIVENESS LOAN AMOUNT SPENT ON PAYROLL NON-PAYROLL CALCULATION (Did not meet SPENT ($50K / .60) 60% minimum) For more details, visit the U.S. Treasury website 8
What is included in payroll? Payroll costs include compensation to employees whose principal place of residence is the U.S.A. in the form of: Salary Wages Bonuses Commissions Cash Tips including to furloughed including furloughed or hazard pay or similar compensation or the equivalent employees. Annual employees salary capped at $100k per person Leave Allowance Benefits Contractors Taxes Payment for for separation Payment for the provision For independent contractor Payment of state and vacation, parental, or dismissal of employee benefits or sole proprietors, wages, local taxes assessed on family, medical or consisting of group health commissions, income or compensation of sick leave care coverage, including net earnings from employees insurance premiums self-employment or and retirement similar compensation For more details, visit the U.S. Treasury website 9
Let’s look at an example Calculation to monthly salary x 2.5 = $20,832 Average Determine Loan Amount $1,923 x 8 weeks = $15,384 $100k+ 8-Week Covered Period Annual Salary $1,923 x 24 weeks = $46,152 24-Week Covered Period Per week cap for Payment under new rule, if purpose of forgiveness Borrower can cover 24 weeks For more details, visit the U.S. Treasury website. 10
How can I use the other 40%? Mortgage Rent or Lease Utilities Payments of interest on any Business rent or lease payments Business utility payments for a service business mortgage obligation pursuant to lease agreements for the distribution of electricity, gas, for real or personal property for real or personal property in water, transportation, telephone, or incurred before 2/15/20 force before 2/15/20 internet access for which service began before 2/15/2020 For more details, visit the U.S. Treasury website. 11
Let’s look at an example Jun 1 Jul 26 COVERED PERIOD Aug 10 Jun 1 Jun 10 Jul 10 MAY ELECTRICITY BILL JUNE ELECTRICITY BILL JULY ELECTRICITY BILL For more details, visit the U.S. Treasury website. 12
When can I apply for forgiveness? months weeks months Deferment period changed The earliest a Borrower can The latest a Borrower can apply from 6 months until the date the apply for forgiveness is 8 weeks for forgiveness is 10 months forgiveness amount is determined after receiving their PPP funds after their covered period ends As of 6/8/2020, the release of revised SBA Loan Forgiveness Application is pending. 13 For more details, click here to read <IFR or SBA FAQ Page 5, Section 2>.
How do I calculate full-time employees? In addition to how the funds are spent, a Borrower needs to also calculate reduction in wages and salaries, as well as full time equivalent employees (FTE). For more details, visit the U.S. Treasury website. 14
How do I apply? 3. Submit app 2. Collect Documents 1. Receive Email BORROWER Borrower will receive an Borrower will collect and save Borrower will submit the invitation to start the documents from the Forgiveness Loan Forgiveness Application forgiveness application Checklist in a single folder on their with supporting documentation. process via email. computer for ease. 6. Confirmation Email 4. Review Material 5. Determine Forgiveness Amount BANK First Horizon will then make a Borrower will receive an email with this First Horizon reviews and determination of what amount of decision. The bank has up to 60 days after receipt of confirms documentation complete application package to notify borrower of the loan, if any, should be forgiven. and calculations. decision and report it to SBA. Process may vary for Borrowers receiving more than $2mm in funds. 15 For more details, visit the U.S. Treasury website.
Loan forgiveness by the numbers Prior to notification, the SBA will pay If the entire PPP Loan is forgiven, the Borrower will receive a 100% First Horizon the principal balance plus statement/letter reflecting the balance has been paid in full. all accrued interest. If part of the Borrower’s PPP Loan is not forgiven, the remaining <100% balance will be amortized over the remaining term of the loan. The borrower will receive monthly statements for the payment owed and begin remitting payment. If none of the Borrower’s PPP Loan is forgiven, the remaining 0% balance will be amortized over the remaining term of the loan. For more details, visit the U.S. Treasury website. 16
Q&A Todd Jones Executive Vice President, Wholesale Banking First Horizon Bank
Are all funds used for payroll always forgiven, regardless of percentage used and regardless of the FTE count? D. Jeffrey Wagner For more details, visit the U.S. Treasury website. 18
Payroll Calculation + FTE Calculation = Maximum Forgiveness + PAYROLL CALCULATION FTE CALCULATION 9 FTEs Rehired 2/15/19 to 6/30/19 12 FTEs during $100k $50k x .75 = $37.5k Borrower Loan Amount Maximum 25% reduction New Maximum $50k Forgiveness in sales force Forgiveness Based on Payroll + FTE Spent on Payroll Based on Payroll $0k – 9 FTEs Rehired Spent on Non-payroll 1/1/20 to 2/29/20 10 FTEs during $50k x .90 = $45.0k Maximum Forgiveness $50k Maximum 10% reduction New Maximum based on payroll Forgiveness Based Forgiveness in sales force calculation only on Payroll + FTE Based on Payroll For more details, visit the U.S. Treasury website. 19
If payroll and benefits costs over the 24-week period exhaust all of a Borrower’s SBA PPP funds, does that mean the full amount of the loan would be forgiven? Are pre-level spends measured by just money, by headcount – or both? Chad Boyd, CPA For more details, visit the U.S. Treasury website. 20
Is the payroll calculation accrual or cash? If cash, do certain payments need to be timed? Chad Boyd, CPA For more details, visit the U.S. Treasury website. 21
If a borrower knows or does not think they can reach the 60% payroll requirement, should they repay the projected surplus or simply hang on to it and expect that portion not to be forgiven? D. Jeffrey Wagner For more details, visit the U.S. Treasury website. 22
Does the deferral amount of an employee’s 401(k) have to be backed out of wages for eligible forgiveness amounts? If employee 401(k) matches are accrued and paid out at year-end, can the “matches” accrued on the balance sheet as a payable be Example counted toward the compensation calculation even though they have not been paid yet technically? Chad Boyd, CPA For more details, visit the U.S. Treasury website. 23
Is a Borrower able to pay bonuses or vacation pay to “incentivize” employees to return to work and include these bonuses as payroll, thus helping the Borrower reach the 60% threshold? Chad Boyd, CPA For more details, visit the U.S. Treasury website. 24
How are expenses for withholdings like FICA, unemployment, federal and state taxes, etc. covered? Chad Boyd, CPA For more details, visit the U.S. Treasury website. 25
What about future expenses? What are the cut-off times for expenses before and after the date of the loan? For example, if rent is usually paid 10 days after its Example due date, can it instead be paid 20 days before its due date and that expense qualify under the program? D. Jeffrey Wagner For more details, visit the U.S. Treasury website. 26
Is SBA PPP a taxable event? Chad Boyd, CPA For more details, visit the U.S. Treasury website. 27
What is the process to repay a portion of the loan amount early if a Borrower wants to avoid interest and additional scrutiny? Darin Johnson For more details, visit the U.S. Treasury website. 28
Can Emergency Disaster (EIDL) funds be used for different business expenses other than the payroll for which a Borrower has used the PPP funds? If you received an SBA EIDL loan, the SBA will email you directly. If you are concerned about the validity of an email, call 800-659-2955 option 1 to verify. Darin Johnson For more details, visit the U.S. Treasury website. 29
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