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Published on September 10, 2020

There are so many aspects to the Paycheck Protection Program (PPP) that keep changing, I am reminded of the David Bowie song, “Changes,” you know the one, “Ch-ch-ch-ch-changes, turn and face the strange, ch-ch-ch-ch-changes.” Since February, small business owners have had to turn and face the strange, including an unprecedented, modern day pandemic with the resulting economic disruption. The disruption resulted from shelter in place orders, social distancing, temporary business closures, and the ripple effect of approximately 55 million filing for unemployment and 13.2 million continuing claims. 

Clarity and understanding regarding the (PPP) are in high demand among small business owners, particularly the (PPP) Loan Forgiveness provisions recently update by the Treasury department. Highlighted below are the most recent updates:*

1.      Loans of less than $2M receive ‘Safe Harbor’ status from the Small Business Administration (SBA) and are determined to have met the good faith standard regardless of having savings or credit available at the time of the (PPP) loan application. Larger loans will be required to submit documentation to support the basis for the loan request.

2.      Covered Period: Businesses are given the flexibility and option to use an 8-week period that more closely syncs with their payroll period and provides the possibility to include any deferred pay from prior payroll cycles.

3.      Exceptions for FTE (Full Time Equivalent) Reductions. The (SBA) is going to allow exceptions for those employee reductions who were, (a) laid off but refused to return to work, (b) voluntarily resigned, (c) terminated with cause, or (d) requested and received a reduction in hours.

4.      Rent and Prepayments. The forgiveness application now includes more liberal language that may allow lease payments for capital or equipment rentals in addition to allowing borrowers to include rent and utility costs that occur on or before the next regular billing date, even if the date is outside the eight weeks.

5.      The Forgiveness Formula. It is complicated and will involve more than a dozen steps, many times on an individual employee basis, comparing several different time periods for each employee. Documentation must be maintained up to six years.  

Bottom line: the amount forgiven will be the lesser of (a) the original loan principal amount, (b) payroll costs over the eight weeks divided by 0.75, or (c) a formula taking the sum of allowable costs incurred and paid during the eight weeks and reduces that figure based on reductions in wages or the number of FTE’s.

The challenge to plan properly for any small business is undermined by the uncertainty for a proposed 2nd round of stimulus in a deadlocked Congress, especially with a Presidential election 54 days away. Now is an opportune time to huddle up with a team of advisors and game plan a variety of scenarios to ensure a predictable result in such unpredictable times. A fractional CFO can bring added value and ROI and help create a trackable, measurable path to profitability. 

*Research, article by Alex Ladage, CEPA, UBS, and Jorge Garcia, CEPA, UBS – Sept. 10, 2020

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