New PPP Forgiveness Applications, Rules

On Friday the Treasury Department issues yet another Interim Final Rule on the PPP. These IFRs offer more in-depth guidance on applying the ever changing rules for this program. The SBA also released two new forgiveness applications in line with the new guidance. A summary of the major changes are below.

Do the math for 8 or 24 weeks

If you applied for the PPP prior to June 4th you can now choose either an 8 week covered period in which you must comply with FTE and wage levels as well as spend all the PPP funds, or a new 24 week period. 

The big question here is: did you spend the PPP fully on approved costs in the right ratio by the end of 8 weeks? If so, there is no pressing reason for you to elect the 24 week period. 

If not, you may want to choose the extended 24 week period. But keep in mind that would mean you'd have SBA oversight and reporting requirements for a full 6 months. Keeping your FTE count in line as well as your wage levels consistent would be required during that entire time.

If it makes sense overall to choose the 24 week period note that S-corp owner-employees, partners and sole proprietors can now use the PPP for slightly more of their wages, capped at $20833 vs $15385. This is because the SBA will allow you 2.5 months of owner pay at 2019's rates for the longer period vs 8 weeks for the shorter. 

June 30th is now Dec 31st...sort of

If you had your eye on June 30th as the date by which you had to raise low FTE counts or wage rates in order to avoid a penalty in the forgiveness calculation you've now got some extra time. You can either raise those levels by Dec 31st or by the date you apply for forgiveness, whichever comes first. 

That said, the forgiveness application process will be much easier and faster if you maintain those levels throughout your covered period rather than relying on the "magic moment" of Dec 31st to make the cut. 

Forgiveness application deadline & loan deferral extension:

You will need to apply for forgiveness within 10 months following the end of your covered period (the 8 or 24 weeks). If you haven't applied for forgiveness by then you would need to begin making payments on the full amount.

Originally you had to begin making payments within 6 months following the end of your covered period. Now, once you apply for forgiveness you will not be required to make payments on any non-forgiveable portion of the loan until the SBA has given your forgiveness amount to the lender. If you apply near the end of this year it will be well into 2021 before any payments are due.

Need a little extra (temporary) cash?

PPP loan recipients can now also defer the 6.2% Social Security taxes on employee wages. This applies only to the Employer's obligation, not amounts withheld from employee pay. If you choose to defer these tax deposits they will be due as follows:

• On December 31, 2021, 50 percent of the deferred amount; and 

• On December 31, 2022, the remaining amount.

Don't forget to tell AZ Unemployment

In order to qualify for certain exceptions to the FTE threshold you may need to take an extra step. If you have had any employee turn down an offer to return to work at the same rate of pay and same hours they held previously you should make a report of this in writing to the Arizona Department of Economic Security's Unemployment Insurance division and keep a copy for your records. The SBA has yet to put out guidance on exactly how you should make this report, but they require it nonetheless.

"EZ" or full application?

There's another piece of good news. If you have checked all the boxes and complied with all requirements for FTE and wage levels during the entire covered period you may be one of the lucky ones who can use the shorter EZ forgiveness application. The catch is you will still have to do all the background calculations in order to prove you met the various tests. So in reality it is almost the same amount of work to prepare, however it is possible these EZ applications may be fast tracked. 

If you are nearing the end of your covered period and have questions on the ever-changing forgiveness process please feel free to reach out.

Waiting for the stimulus bill to pass? 3 things you can do now

No doubt you're watching the progress of the stimulus bill as I am and wondering how it may impact your business. There's a lot of speculation out there on just what could be a part of the final version, who will qualify and how much it will truly help. Even if it does pass soon and without significant changes, many of the stimulus provisions will take weeks or longer to reach your business with any real impact.

But things are changing now, so what can you do?

1. Apply for a SBA loan

You don't need to wait for the additional small business loan provisions of the stimulus package to be finalized. You can apply now for an Economic Disaster Recovery Loan. On March 19th, the Small Business Administration approved an Economic Injury Disaster Loan declaration for Arizona that will help small businesses impacted by COVID-19. Individual businesses can be eligible for up to $2 million through the program. For more information, visit the SBA website, the office of the Governor website, or click here to apply.

If you expect your business is one of the many that simply needs a temporary cash infusion to make it through a difficult couple of months, then beginning the process of a SBA loan is well worth your time. It can take weeks or months to be approved, so getting your documents together now will help speed up the process.

A word of caution: these are loans, not grants. Do not count on meeting the currently vague criteria for having any of these loan balances forgiven in the future. Go into it with open eyes expecting to repay this debt. 

2.Consider the impact of layoffs vs tax credits 

You have some hard choices to make: Whether to lay off employees now, or keep your staff and navigate the changing parameters of various labor related tax credits. Obviously, if you need to cut staff in order to adapt to reduced demand or temporarily closed doors then your options may seem pretty clear. 

However, if you're on the fence and wondering which option is best for your business and your employees please feel free to reach out. The choice you make now will impact your business in the near future. If you lay off a large section of your workforce they will invariably file for unemployment, which means next year and for several years following you will be seeing much higher unemployment tax rates for all wages you pay. If, on the other hand, you choose to keep some or all of your staff you'll need to have a clear understanding of what types of tax credits and tax postponements you may be eligible for to help offset the cost. 

See the IRS News Release IR-2020-57 here for some plain language on the already passed tax credits for paid leave. Keep in mind the official IRS guidance on the "how" of these provisions, specifically addressing questions such as eligibility for business owners/employees, forms to be filed, or elections to be made, has yet to be issued.

Also remember there's language in the pending stimulus that states some of the terms of small business loan forgiveness expressly require retaining employees during this time.

3. Build up your personal reserves

Leading financial experts have consistently recommended we each have 3 - 6 months of living expenses set aside in an emergency fund. But who's had time for that? You've been reinvesting any cash surplus in your business, right? Besides, it's the business' survival you're concerned about. 

So why is this important now? We all make better decisions when calm. Give yourself the breathing room to make sound, well considered choices about operating, funding, scaling or closing your business. When you can see your choices from a place of (relative) security more options appear. Often ones you're not seeing while in a panic.

This may be easier said than done, especially if the business has already slowed down and you're concerned about taking any compensation out. Again, some hard choices may be on the table. Consider personal household budget cuts. What would you have considered a necessity 2 weeks ago that now may be viewed as a luxury (gym membership anyone)? Are there assets you can easily convert into cash? It is tempting, but try to avoid including available credit as part of this "cushion." To be a true emergency fund it must be in cash, easily accessible with no strings attached. 

You might also want to check out Dave Ramsey's  "A Message of Hope” which aired Thursday March 26th and is still available on his site. It is said to include "answers to your top questions on money, career and life during this time of uncertainty."

Again, if you have questions about small business resources, tax credits and offsets, budgeting, financial forecasting or planning during this time please reach out. When the stimulus bill comes in I will no doubt be posting on the aspects which impact small business the most.

Take care and be safe.