We Received the PPP Loan – What Do We Do Now?
by Hal Levenson on Apr 29, 2020 3:45 PM
The second wave of funding for the PPP loan has been approved. This has many of our customers asking, “We Received the PPP Loan – What Do We Do Now?” This week’s Trilogy Town Hall Call focused on what companies should do after receiving the PPP loan.
To offer guidance, Trilogy invited the following professional advisors to join our call:
- Joel Greenwald, Managing Partner – Greenwald Doherty | firstname.lastname@example.org
- Brian Mills, Shareholder – Maselli Warren, P.C. | email@example.com
- Mark Lenski, Partner – Tarlow & Co., CPA’s | firstname.lastname@example.org
I have received the PPP for my business. I’m told that the loan forgiveness will be granted if I use 75% of the proceeds for payroll. In applying for the loan, my bank asked for my business expenses (e.g. rent, utilities, lease payments, etc.). When I finally was approved, the amount deposited took into account my business and was not just 2.5 times my payroll expenses. Because I received an amount greater than 2.5 times payroll, won’t it make it harder for loan forgiveness?
- Call the bank to determine how they calculated the loan. Since you signed the application, you may be required to pay back
- If you keep the full amount, calculate if 75% of the loan would cover 8 weeks of payroll
For amount not forgiven, there is 1% interest on the loan with 6-month deferral on first payment
Can more than 75% go toward payroll?
- Yes, but must be paid within 8 weeks
I recently applied for State of New Jersey unemployment as I lost appreciable income from my subcontractor work. Did I make the right decision in not applying for the second round of PPP money as a subcontractor?
- Compare payroll calculation for PPP vs. Unemployment to make the best decision
PPP forgiveness calculations – what formula will be used for calculating total full-time equivalents from part-time hourly workers will be used?
- Not yet clear. Statutes say 30 hours/week
- Waiting for guidance to define
Do you advise moving to a weekly payroll?
- It could be beneficial since forgiveness may be based on what is incurred and paid in 8-week time period
Is the payroll forgiveness timing cash or accrual based? I have a payroll due with only 3 of 14 days after the loan funded.
- See response above, use cash basis as must be paid & incurred in 8 weeks
Do I need to calculate the 75% hurdle on each of 35 employees and not the aggregate total?
- No, you can base on the aggregate
Can you explain key calculations (for example, for employees making over $100K) since PPP is for 8 weeks, not 2 months?
- Forgiveness capped at 100K: $100,000/52 weeks = $1923.07/week x 8 weeks = $15,384.62
- For anyone making over $100K, you can elect to pay full salary and only receive forgiveness for up to $100K
- Recommend opening a bank account for PPP funds
What is covered in payroll calculation?
- State & Local employer portion of taxes, 401K, group medical contributions
- Medical, sick leave, PTO may or may not be covered depending what is included in FFCRA
- Worker’s comp not included since this is paid from an insurance plan
Any guidance with respect to payback provisions that are to be issued on April 27th?
- No provisions yet re: 4/27 funding
We have not paid our 2019 401k contribution, yet. Can we use the PPP we were awarded, and does it qualify for forgiveness?
- Do not think it qualifies for forgiveness. Still some confusion around provisions but understanding is that it needs to be incurred and paid during 8-week period.
What is the significance of Loan #?
- SBA provides a loan # for tracking
While salaries were limited to $100,000 annually for determining the calculation for the loan amount, are the same limitations in place for determining loan forgiveness?
- See Question #8 re: salaries over $100K
- Recouping money for owners & partners – capped at $100,000
- LLC: up to $100K of 2019 net profit that is subject to self-employment tax (could be in the form of guaranteed payment)
- SCorp: up to $100K of 2019 W2 Salary (limited to the wages you are taxed on)
- owner draws, distributions, or loans to shareholders, are not included in calculation because none of these transactions are subject to payroll or self-employment tax
Methods for Maximizing the forgiveness on PPP? Are there any templates or tracking tools that have been developed you are aware of?
- Accounting firms and banks are creating workbooks to help in calculations.
Will the second wave of funds have a similar 8-week period to measure use of funds?
- Yes, 8 weeks begin when your loan is deposited into your account
Current forgiveness date is June 30th. Waiting on provisions to see if date is extended for one or both rounds of funding
What do you do if you have to rehire people and there is no work?
- If there is no work, you must consider these 3 important aspects, based on the amount that you want to have forgiven, not the amount of the loan:
- you must use 75% for payroll
- If your full-time equivalents drop below last year (i.e., FTE’s only 90% of 2019, you may not be forgiven for 10% of the loan)
- forgiveness will be reduced if salaries are reduced more than 25%
Also, employees must be on the payroll by June 30th
Do we need to go through the full rehire paperwork for old employees coming back to work treating them as fresh new hires?
- Terminated: Yes
- Furloughed: No
For QSR (quick service restaurant) employees, staying home outperforms the benefits of coming back to work. Is there any provision where we can show/prove our efforts to re-hire but where employees refuse to come back to work?
- This is a first for employers as we have never had to ask employees to work during a pandemic
- Need to ensure that you are providing a safe work environment
- Can share with employee that they will need to be replaced or may not hired back but opening door for lawsuits; consult with a labor attorney
- The intent of the PPP is to pay employees for 8 weeks – to keep money flowing
What happens if the world is not up to full employment speed by end of 8 weeks and economy and COVID does not allow full return to work?
- PPP intent is to make sure that employee payroll is covered for 8-weeks
I received my PPP Loan but am not allowed to open my non-essential business. Should I pay my employees to not work from home?
- See answer to #19. Alternative is to furlough employees, allow them to collect employment, and payback the loan
If we follow calculations and do not use our entire loan amount, are we allowed to prepay salaries, healthcare, profit sharing rent, mortgage, utilities as part of the forgiveness?
- Not recommended, not in the spirit of the program
Are real estate taxes included?
- Mortgage interest included
- Not clear if taxes and other “triple net” expenses paid by a tenant to a landlord are deemed “rent” for purposes of permitted and forgivable uses of PPP funds
What is definition of utilities?
- Electricity, gas, water, internet, phone
What happens if you have an operating company that pays rent to one company, that then pays to a lease to a real estate holding company?
- Rent payment would be forgiven so long as contract started prior to 2/15/20 and you have been paying it all along
About Hal Levenson
Hal Levenson is the Founder and Chief Visionary Officer at Trilogy Partners. Trilogy Partners is an advisory & implementation firm whose mission is to help companies grow and transform. We accomplish this by focusing on 3 critical business areas: Financial, Strategy & People.
DISCLAIMER: Please check with your trusted professionals prior to acting for your business. This Q & A recap should not replace professional services from legal, financial, payroll, HR, insurance, or consulting professionals. If you need a resource in one of these areas, please reach out to Hal Levenson at email@example.com or contact Trilogy Partners at 609-688-0428.
Also, as expressed by the professionals on the call, it is critical that you do a personal examination of the many factors of your business to make the best decision for you and your employees.