Doing business in the summer of 2020 sure ain't easy.
I have clients all over the spectrum — some whose businesses are on their last legs because of social restrictions and lockdowns, some who are hanging steady, and some who have found ways to grow.
Many have taken advantage of the Paycheck Protection Program (PPP), and I will be addressing issues related to loan forgiveness today. As of this writing, Congress has authorized no automatic forgiveness or other such significant move that changes what we have already known.
So status quo ante rules, for now.
I will say this: if you are down 50% year over year and don’t have any idea when you’ll recover, you might be better off using the Employee Retention credit than the PPP. This can potentially cover 50% of your entire payroll cost for the rest of 2020 or until your income recovers. Contact us for details if this might apply to you.
Either way, we're here to help guide you through the process, if you need it: 763-493-3940
PPP Forgiveness Reminders For Businesses
“Success is the sum of small efforts, repeated day in and out.” –Robert Collier
I will start by saying this: this process is NOT as easy as it should be.
In many ways, that's because these were such rushed bills (the CARES Act and the PPP Flexibility Act), that every implication of every policy decision wasn't fully understood.
That's why, when preparing to apply for PPP forgiveness, here's the big idea: DOCUMENT as much as you can.
For example, you might already know that there are two things that can reduce the amount forgiven. They are the Full-Time Equivalent employee (FTE) count and the wage count. So, if your full-time employee count goes down, then you may have LESS forgiven. Also, if your overall wages go down, you may have LESS forgiven.
That's why it is important to DOCUMENT the daylights out of any of these events.
Let's take your wage levels, as an example…
What if you pay some of your employees with a base wage plus commissions and COVID impacted sales such that some employees didn't earn commissions? Now it appears that wages are down….but only because of a COVID problem.
Also, what if you have an employee that voluntarily asks for a drop in hours (from full-time to half time, for example) and, thus, there is a drop in pay? That shouldn't hurt your forgiveness request, right? Sadly, it's not completely clear (and I am researching this issue like crazy — even the industry leaders aren't fully clear.)
Hence my main point: DOCUMENT any dips in # of employees and/or dips in wages.
Now, to the nitty gritty…
Because of the PPP Flexibility Act, you now have until 24 weeks (previously 8 weeks) from receipt of the PPP loan or December 31, 2020, whichever is earlier, to use the proceeds and qualify for forgiveness.
This changes the annualized payroll amount for full loan forgiveness to $46,154 per FTE. ($100,000 x 24/52)
However, this rule doesn’t apply the same way for owner compensation for those businesses that file under Schedule C. If that's you, the calculations are:
- For 8 week period = 8/52 x 2019 Profit; maximum of $15,385
- For 24 week period = 2.5 months (2.5/12) of 2019 profit; maximum of $20,833
The amount of loan forgiveness used for mortgage interest, rent, and utilities increased to 40% (it was previously 25 percent). But keep in mind, you CANNOT use more than 40% for non-payroll costs, or your loan will not be forgiven.
This is nice: if you take a loan and it is forgiven, you are now eligible for the deferral of the employer’s portion of Social Security taxes provided by the CARES Act.
For the portion that is NOT forgiven: A minimum 5-year term is now in place for loans taken after June 5 instead of the previous 2 year term. The maximum maturity of 10 years is still in place.
So what should you do right now if you have a PPP loan?
1) If you are still quarantined and/or struggling, make sure you’ve used up the Sick Pay and FMLA Credit you qualify for.
2) If you have NOT applied for the PPP, you still have until the end of this week to do so: Friday, August 8th is the deadline. Contact me if you need help determining if you should.
3) If you received a PPP loan, make sure you fill out the forgiveness application. I suggest you elect for the 24 week period – that way, if you keep your pay consistent you WILL qualify for the forgiveness. Mark your calendars and do not forget to complete the application.
Most of my Minnesota clients SHOULD be using this EZ form.
You can use this if you…
- Are self-employed with no employees
- Did not reduce the wages of your employees by more than 25% and did not reduce # of hours of your employees; OR
- Reductions were a result of health protocols related to Covid-19 and did not reduce wages by more than 25%
If you think you do not qualify to use it, please contact me.
Detailed EZ Application Instructions (from the SBA)
This includes step-by-step instructions on how to perform the calculations required. Have this on hand as you fill out the form, and of course, contact us with any questions!
We are in your corner, my friend.
The Business Advisors