Q&A from CFOS2GO Webinar on Paycheck Protection Program Loan
By: Tong Qin, Jerry Johnson, Chris Burns
Salary Payment Related Questions:
- If we reduce the salary of a couple of our employees by 20%, will we have problems with Forgiveness later?
A: Forgiveness will be impacted if employees paid less than $100,000 annually have their salaries reduced by more than 25% and are not restored by June 30
- If we terminate one of our employees next month, will we have problems with Forgiveness later?
A: As long as your headcount is restored to the monthly average FTE headcount in your baseline period (Jan 2020-Feb 2020 or Feb 15 2019-Jun30 2019, forgiveness will not be reduced via the forgiveness reduction formula)
- How do you calculate FTEs (full-time equivalent)?
A: We expect further guidance from SBA/Treasury on this. For now, we are using 40 hours per week times 52, divided by 12. There may be situations where the standard workweek is less than 40 hours per week.
- Are the federal payroll tax amounts forgivable?
- For loan forgiveness, if you reduced your headcount and want to increase it, can you increase it on June 30, or do you need the increase to be averaged over the 8 weeks?
A: Per the legislation, you should be able to get forgiveness by restoring headcount by June 30, but we expect further guidance to clarify how this will work.
- Can the Corvid-19, 80 hr. per employee for sick, etc. be used after the PPP is funded?
- We are a private school and received a PPP loan and are retaining all employees until June 30 which is our fiscal year-end. In July we are planning to furlough and layoff a few of our staff. Will this affect our loan forgiveness.
A: No, it will not.
- Our loan was funded on 4/20 but our bi-monthly payroll is from the 1st – 15th and 16th – EOM. Do we prorate or just ask the bank?
A: While we anticipate further guidance from SBA/Treasury, the expectation is that payroll costs incurred and paid for the overlapping periods of the 8-week forgiveness period will be prorated.
- Do we need to pay-out the payroll on a cash basis by June 30 to meet the deadline? What if cash pay date falls on July 1?
A: We anticipate further guidance on this, but expectation is that payroll costs are to be incurred during the 8-week period after funding (which may run past June 30) to qualify for forgiveness. Payment would be timely for the incurred period but may fall outside the 8-week period.
- Does the payroll expense cover commissions and bonuses?
- Referring to the earlier Q&A regarding bringing employees back BEFORE the PPP is Funded; can those expenses be in the measured period? e.g. Bring back employees on 4/28; PPP funding on 5/15; Would the expenses be counted from 4/28 to 8 weeks after?
A: The 8-week forgiveness period starts on the date of PPP loan funding.
Business Entity Related Questions:
- Is pass-through business qualify for PPP?
A: LLC’s can qualify for the PPP if they meet the requirements for number of employees (less than 500 or the qualifying level for their NAICS code), comply with the affiliate rules and the business is not excluded otherwise (type of business activity).
- I had an LLC client (2 members) with no employees receive a PPP loan. The loan was based on a retirement plan contribution to one of the partners in the amount of $55,000. Each member is capped at $100,000 of income. They don’t have rent or utilities. Wouldn’t the member have to contribute the same amount in 2020 to receive full forgiveness?
A: To get some or all of the PPP loan forgiven, the business will have to incur and pay eligible payroll costs during the 8-week period after PPP funding. Retirement plan contributions would be an eligible payroll cost.
- If you are an S Corp and have applied for PPP Loan, but as the owner, you are not paid through payroll but are given a form 1099. Can you apply for an SBA loan for an independent contractor and use both loans?
A: Typically, S Corp owners derive their income from a combination of payroll and distributions. The payroll costs would qualify for PPP loan, but the distributions do not. Payments made in the form of 1099 contractor do not qualify for the S Corp, but it is not clear that the owner could qualify for PPP on 1099 income.
- For the 100% shareholder in an S-Corp who gets an annual payroll amount every year in December, can that amount be paid to the shareholder in the 8 weeks after receipt of the PPP to increase the forgiveness? We have 20 total employees.
A: The PPP loan will be sized on the monthly average payroll cost x 2.5. The payroll costs eligible for forgiveness are to be incurred the 8-week period and be paid (although timing of payment may fall outside the exact 8-week period). Therefore, the pro-rata share of the 100% shareholders payroll for 8-week period would be eligible for forgiveness.
- If you are a shareholder in a Subchapter S corporation, how are distributions treated? Do you count them in the PPP calculation?
A: Distributions are not counted in the PPP calculation. Please see this link regarding partners and PPP applications. Even though each partner is a Sched. C filer, they are NOT permitted to apply for a PPP separately from the partnership. https://home.treasury.gov/system/files/136/Interim-Final-Rule-Additional-Eligibility-Criteria-and-Requirements-for-Certain-Pledges-of-Loans.pdf
See top of Pg. 5 of the link: “However, if you are a partner in a partnership, you may not submit a separate PPP loan application for yourself as a self- employed individual.”
Other Forgiveness Questions:
- For forgiveness, can you prepay any expenses like rent, health insurance, or profit-sharing contributions?
A: The guidance states eligible expenses are incurred during the 8-week period after loan funding (timing on payment has to be clarified). Expenses which are prepaid during the eight-week period and which will be incurred after the 8-week period would not qualify for forgiveness.
- When documenting costs are we looking at a cash or accrual basis for the eight week period?
A: The costs should be incurred during the 8-week period and be paid, although payment may fall outside of the 8-week period. However, we believe payment for expenses incurred during the 8-week period will need to be paid reasonably soon after the end of the 8-week period (e.g., by the month-end).
- The remaining principal of the PPP loan, after 8 weeks, would require interest payments. Could the remaining sum be used for any expenses? Are the types of expenses paid limited as they are with the initial loan?
A: At least 75% of the loan must be used for payroll purposes and the remaining 25% of the loan can be used for mortgage interest, rent, and utility, interest on debt incurred before 2/15/2020. Even if you do not meet the eight weeks requirement, you still can’t use the fund for other purposes that are not listed.
Economic Injury Disaster Loan Questions:
- I applied for an EIDL grant 2 weeks ago today and it was accepted with the instruction that there would be no acknowledgment email, but that I would get an email when they started working on it. Soon after that, they ran out of money and I never got an email. They stopped accepting applications. Do I need to reapply? Or just wait?
A: Just wait.
- Do you have a link for a disaster loan? Do they accept applications again?
The SBA will begin accepting applications for the U.S. agricultural businesses.
Click here to watch the webinar.
Chris Burns co-leads the firm’s Start-ups, Rapid Growth & pre-IPO Practice. His hands-on financial leadership has helped deliver increased shareholder value, growth in cash flow and profits to startup and established market leaders. His strong foundation in large public technology and CPG companies, including Oracle and Clorox, combined with twenty years of experience in industry-leading global eCommerce, software and SaaS startups, developed Chris’ ability to bring hands-on financial leadership and partnership to CEO’s, boards, their investors and staff.
Tong Qin co-leads the International Practice, bringing to clients a deep experience and knowledge of international business within and between the Asian basin and the United States. Tong helps small and big companies to design and implement financial controls needed for compliance with various government regulations, enabling management to focus on opportunities for growth instead of dealing with regulatory concerns.
Jerry Johnson is an expert in Cleantech financial matters and has over 25 years of executive and CFO leadership experience guiding companies through financial and regulatory challenges. He leads the Cleantech practice group at CFOs2GO and is a member of Financial Modeling and Analysis; Small Business; Startups, Rapid Growth Companies and pre-IPO; Financial Systems & Reporting practice teams. Jerry has a BA in Physics and Economics from Washington University in St. Louis and a MBA from the University of Rochester. He is a Certified Management Accountant.