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Traveling Through The Endless Mind of the Paycheck Protection Program

Published on September 2, 2020


One must take a deep breath and take a step back to absorb the magnitude of the Paycheck Protection Program (PPP) as well as the enormity of changes, iterations, and nuances which have occurred in five short months. The eyes of every small business loan recipient are probably dazed and battling perpetual confusion, and rightly so.

In studying and researching the (PPP) since April, I am reminded of the movie Inception, which involves traveling through multiple levels of someone’s mind and moving back and forth through their subconsciousness. I stayed in a state of confusion watching that movie. So, I would like to offer an update and hopefully, this article will enable a small business owner to have a semblance of confidence and clarity concerning the (PPP). Not covered in this article, but equally important, are enforcement actions involving audits and tax provisions.

The (PPP) was established as part of the CARES Act on March 27, 2020 and began April 6 to protect employee paychecks as a result of shelter at home orders and was scheduled to cover a period of eight weeks of payroll.  

Recent Interim Final Rule’s (IFR): 

1.     Appeals of Small Business Administration (SBA) Loan Review Decisions under the (PPP) (8/11/2020):

·        Creates the process for appeal by a borrower to (SBA)’s Office of Hearings and Appeals (OHA) of certain final (SBA) loan review decisions.

·        Appeal must be filed within 30-days of receipt of the written (SBA) final decision or notification thereof by the (PPP) lender; decision to be made within 45-days of the record of the appeal being closed.

·        This is an administrative review – (PPP) borrower must first appeal to the (SBA)’s (OHA) and request a review of the (OHA)’s decision by the Administrator, or the (PPP) borrower loses its right to judicial review. Must go through this process to be able to have the right to request a Federal review.

·        If the (SBA) makes a decision on your loan (for example, a borrower was ineligible for a (PPP) loan, or borrower was ineligible for the (PPP) loan amount received, or used the (PPP) loan for unauthorized uses; or borrower is ineligible for loan forgiveness in the amount determined by the lender in its full or partial approval decision issued to the SBA; or borrower is ineligible for loan forgiveness in any amount when lender has issued a full denial decision to the (SBA)).

2.      (IFR) on Treatment of Owners and Forgiveness of Certain Non-payroll costs (8/24/2020):

·        Owners of less than 5 percent in a C or S Corporation are not subject to the owner-employee compensation rule.

·        Tenants – (PPP) borrower cannot include any amount attributable to the business operations of a tenant or sub-tenant.

·        Rent/lease payments to related parties (ownership in common between the (PPP) borrower and the property owner is a related party). (PPP) borrower cannot request forgiveness for more than the amount of mortgage interest on the property during the Covered Period.

Changes to (PPP) and The Flexibility Act:

·        On June 5, the Flexibility Act was signed into law and included extending the (PPP) from 8-weeks to 24-weeks (or Dec. 31, 2020, whichever is earlier). The default is now a 24-week period. The deadline for forgiveness is 10-months from the last day of the Covered Period to apply for forgiveness.

·        Amount that must be spent on payroll reduced from 75% to 60% for the entire (PPP) loan and at least 60% of the forgiveness amount must be spent on payroll.

·        Safe Harbor on re-hires has been extended from June 30, 2020 to December 31, 2020 and loan forgiveness will not be reduced if (PPP) borrower can establish in good faith it was unable to:

o  Rehire an individual laid off after February 15, 2020; or

o  Hire similarly qualified employees for unfilled positions; or

o  Return to the same level of business activity that existed on February 15, 2020 due to compliance with HHS, CDC, or OSHA guidance.

·        Payment of Principal and Interest on any portion of the (PPP) loan that remains a loan are deferred until:

o  If no request for forgiveness submitted by the date that is 10-months after the end of the covered period; then the end of such 10-month period; or

o  If a request for forgiveness is submitted, the date on which the amount of forgiveness determined in accordance with Section 1106 of the CARES Act is remitted to the lender.

·        All (PPP) loans made on or after June 5, 2020 have a 5-year term, all made prior to June 5, 2020 have a 2-year term (but the (PPP) lender and borrower can jointly agree to extend it to a 5-year term).

·        A (PPP) borrower can now take advantage of the payroll tax deferral program under the CARES Act even after it has received (PPP) loan forgiveness (previously, could not take advantage after receiving (PPP) loan forgiveness).

·        If the (PPP) borrower uses the 24-week period, the maximum cash payroll costs for any individual employee cannot exceed $46,154 and for any owner/self-employed it cannot exceed $20,833; if the (PPP) borrower elects to retain its 8-week period, then the maximum cash payroll costs for any individual employee, owner/self-employed cannot exceed $15,385.

The Forgiveness Process:

·       New guidance on June 17, 2020 with a (PPP) Loan Forgiveness Application Form EZ (EZ Form), a revised (PPP) Loan Forgiveness Application Form (Full Form) and Interim Final Rules updating the 3rd and 6th (IFR)’s.

·       Under the 8-week period and the 24-period, (PPP) borrower may opt for an Alternative Payroll Covered Period.

·       To apply for forgiveness a borrower must apply within 10-months of the last date of its covered 24-week period (except for those borrowers whose loan was disbursed prior to June 5, 2020 who may elect to keep the 8-week covered period and apply within 10-months of the end of that period) and use either the EZ Form or the Full Form.

Small business owners face ongoing threats including maintaining sufficient liquidity, positive cash flow, declining revenues even with assistance from the CARES Act and the (PPP). A fractional, interim, or project based CFO can provide strategic planning support and a trackable, measurable path to profitability. Closely monitoring the ever-changing events on Capitol Hill and circling the wagons with a team of advisors will position small businesses to overcome these threats, survive, and still be standing in 2021.

Call us and let's put a plan and strategy together.

*(PPP) Notes from Holland & Knight Law Firm, YouTube, 8/28/2020

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