SBA PPP and EIDL Small Business Loans (some money is forgivable)

[Iz]

https://www.wsj.com/articles/u-s-expected-to-revise-small-business-aid-program-11589707801


U.S. Expected to Revise Small-Business Aid Program

Changes likely to give firms more flexibility and time to spend funds from the Paycheck Protection Program

By Yuka Hayashi
May 17, 2020 5:30 am ET

WASHINGTON—Lawmakers and government officials are preparing to make significant changes to the Paycheck Protection Program, amid cooling demand for government-backed loans and criticism from business owners who say they can’t tap the funds.

The changes are likely to include giving businesses more flexibility to spend the money, according to lawmakers and others following the deliberations. Under the original terms, 75% of the funds were required to be spent on employee salaries for the loans to be forgiven.

The government also is expected to extend the time to spend the loan money beyond the two months it originally set. Both changes follow complaints from restaurants, hair salons and others who say they can’t hire back staff while they are closed during the coronavirus pandemic and need more money to cover their overhead costs.

“When we conceived the program, we thought businesses would be able to get up and running after eight weeks, but we know now that’s not the case,” Sen. Ben Cardin of Maryland, the top Democrat on the small business panel, said in a statement.

Officials from the Small Business Administration, which administers the program, didn’t respond to requests for comment. But Treasury Secretary Steven Mnuchin, who has been steering SBA policy on the program, indicated in a televised interview last week that “technical fixes” would be made to address concerns raised by some businesses.

The steps being considered will mean a shift in the program’s focus—from one that was primarily aimed at keeping employees on the payroll, to also helping to keep small businesses from failing.

“Liberalizing the rules by lowering the requirement to spend 75% on payroll-related costs and/or extending the time frame that funds can be used is critical for the survival prospects of millions of small businesses, and the ultimate success of this program,” said Ann Marie Mehlum, a former top SBA official and senior adviser at FS Vector, a financial advisory firm.

Change is being driven in part by cooling demand for loans, which business advocates say reflects an inability of companies to use the money.

The initial tranche of $350 billion in loans ran out April 16, after about two weeks. But three weeks after the second $310 billion tranche of funding was opened up, about 37% of the funds remained available, according to figures on the SBA website.

Changes to the program could help business owners like Janice Riordan, who runs a women’s clothing boutique in Venice, Fla.

After receiving her PPP loan, she has only been able to bring back three of her six employees. She lost $250,000, or 70%, of her revenue between mid-March and early May, a peak season.

Even after her store reopened on May 4 after a month’s closure, sales are running at 30% below normal levels. Unopened boxes of merchandise are piled high in the back room and paying her expenses, vendors and business credit-card debt is a struggle, she says.

“Mostly, I have become angry. I think it’s part of the grieving process,” she said. “I feel it isn’t worth taking this chance. At the push of a button, it could be halted again,” she said.

Changes are expected to come in two waves. Technical fixes in a new guideline on loan forgiveness from the Treasury Department and the SBA to be unveiled in the coming days.

Treasury and SBA released Friday an application form for loan forgiveness and said that regulations and guidance will be issued “soon” to help borrowers and lenders.

Broader changes could require congressional action. The National Federation of Independent Businesses has asked Congress to expand the repayment period for the amounts that aren’t forgiven to five years from the current two years, and to allow businesses to apply for the paycheck program loans more than once if needed.

Alfredo Ortiz, president of Job Creators Network, an advocacy group close to the GOP, said small businesses immediately need administrative guidance from the SBA and Treasury, adding that he expects broader changes to come later as part of the next stimulus package. His group recommends the eight-week period for using funds start once each business is permitted to operate at full capacity by its local government.

“Because otherwise you may have 25% of revenues coming in, which is the maximum mandated by law, but you are being asked to bring in 100% of your payroll. That is a mismatch of cost and revenue. As a business person, you will never do that,” Mr. Ortiz said.

The program generally aims to provide businesses that employ 500 or fewer people with loans that can be forgiven if the money is used primarily to pay employees.

The SBA’s Inspector General issued a report May 8 that said the SBA veered from congressional intent in some cases, noting that the 75% payroll rule was never mandated by the legislation.

The SBA told the Inspector General that the 75% rule was imposed to “effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll.” Mr. Mnuchin and Sen. Marco Rubio (R., Fla.) contend it would require legislative action to change the 75% rule.

Write to Yuka Hayashi at yuka.hayashi@wsj.com

[shapsam]

https://www.wsj.com/articles/u-s-expected-to-revise-small-business-aid-program-11589707801

Can you post the article?

[Dan]

Anybody have any good ideas where to park the 25% I won’t be receiving forgiveness on?

Any savings account earning more than 1%?

[Iz]

Anybody have any good ideas where to park the 25% I won’t be receiving forgiveness on?

Mutual fund money market funds. I.e. Vanguard Prime Money Market.

[Iz]

Can you post the article?

Look again.

[shapsam]

Look again.

Thanks

[Hjay]

Any savings account earning more than 1%?

True I’ve seen DOCs list. Wondering if anybody has any better ideas

[cgr]

https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application.pdf

-Line 9 of Schedule A is for amounts paid to owners. Looks like you'll need to cut yourself a check for that 8/52 after all. Not sure how this would work for those who have one personal/business account.

-Line 10 of the Forgiveness Application reduces any amounts over 25% for other costs so this will apply to sole props who are using the 8/52 for payroll as well. By looking at that it would seem that 1% of your loan would be cut, however:

If you look at the instructions it refers you to 85 FR 20811 which states as follows:

which provides a loan amount 75 percent of which is equivalent to eight weeks of payroll (8 weeks/2.5 months = 56 days/76 days = 74 percent rounded up to 75 percent). Limiting non-payroll costs to 25 percent of the forgiveness amount will align these elements of the program, and will also help to ensure that the finite appropriations available for PPP loan forgiveness are directed toward payroll protection. SBA will issue additional guidance on loan forgiveness.

So there won't be a reduction?

[shapsam]

https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application.pdf

-Line 9 of Schedule A is for amounts paid to owners. Looks like you'll need to cut yourself a check for that 8/52 after all. Not sure how this would work for those who have one personal/business account.

Why can't it be amounts paid to owners without actually cutting a check?

[cgr]

Why can't it be amounts paid to owners without actually cutting a check?

How would it be considered paid if no check was cut?

[shapsam]

How would it be considered paid if no check was cut?

If you say that it was paid then it was paid. The same way the 2019 net profit didn't have to be a check cut to the owner. I don't know.

[Shua]

Im a S-corp and I usually write myself a check (or transfer into my personal) every 2 weeks. My accountant wants to switch to a monthly payroll schedule because since the forgivness loans arent clear, he wants that extra 2 weeks to get clarification. He says that the bank wont know that we used to have a bi-weekly payroll (as it based on last years 940 and 941) last year. I hear what he is saying but I also dont want to rock the boat with something unusual (monthly payroll not as common as bi-weekly, maybe they will ask for last year bank statements?).

Am I overthinking this? Is it better to wait and just do a monthly payroll and get clarification? My PPP loan was funded 2 weeks from tomorrow so if Im going to insist on a bi-weekly I need to cut a check tomorrow.

[cgr]

If you say that it was paid then it was paid. The same way the 2019 net profit didn't have to be a check cut to the owner. I don't know.

I'm not so sure about that. They could have just said that owner compensation counts as 8/52 of Schedule C instead of saying paid. Also you need to provide proof. They list cancelled checks...

[cgr]

Im a S-corp and I usually write myself a check (or transfer into my personal) every 2 weeks. My accountant wants to switch to a monthly payroll schedule because since the forgivness loans arent clear, he wants that extra 2 weeks to get clarification. He says that the bank wont know that we used to have a bi-weekly payroll (as it based on last years 940 and 941) last year. I hear what he is saying but I also dont want to rock the boat with something unusual (monthly payroll not as common as bi-weekly, maybe they will ask for last year bank statements?).

Am I overthinking this? Is it better to wait and just do a monthly payroll and get clarification? My PPP loan was funded 2 weeks from tomorrow so if Im going to insist on a bi-weekly I need to cut a check tomorrow.

Now that the rules have been released you're in the clear. Anything paid or incurred goes. Not clear how far back so don't crazy but reasonable should do it. I would do things same as they have been til now- like you said don't rock the boat.

[TBD]

If I fired a FTE who worked 40 hrs a week and earned $5K a month, rehired 2 P/T employees each of them working 5 hrs a week earning $500 a month, will there be any reduction in forgivable amount? It seems that NO reduction(If I spend all other expenses on eligible items) 

[cgr]

If you say that it was paid then it was paid. The same way the 2019 net profit didn't have to be a check cut to the owner. I don't know.

Total amount paid to owner-employees/self employed individual/general partners: _____________________
This amount may not be included in PPP Schedule A Worksheet, Table 1 or 2. If there is  more than one individual included, attach a separate table that lists the names of and payments to each.

[cgr]

If I fired a FTE who worked 40 hrs a week and earned $5K a month, rehired 2 P/T employees each of them working 5 hrs a week earning $500 a month, will there be any reduction in forgivable amount? It seems that NO reduction(If I spend all other expenses on eligible items)

Of course. 40 hours vs 10 hours...
I wrote up a detailed post on this so I studied that part well...

[cgr]

Of course. 40 hours vs 10 hours...
I wrote up a detailed post on this so I studied that part well...

Unless your dates work out. Lots of comparison dates to choose from.

[TBD]

Unless your dates work out. Lots of comparison dates to choose from.

-1

 FTE=1  P/T employee=0.5 2 P/T employees = 1  NO REDUCTION


Average FTE:

To determine the average full-time equivalent employees (FTEs) for the 8-week covered period (or the alternative payroll covered period, if elected), for each qualifying employee, determine the average number of hours worked per week and divide by 40, before rounding to the nearest tenth. The maximum amount for each employee is 1.0. Alternatively, you can skip the math and use 1.0 for every employee who worked 40 hours per week and 0.5 for every employee who didn’t meet that standard. Either way you get there, you will ultimately arrive at the average FTE throughout the relevant covered period.

[TBD]

-1 FTE=1  P/T employee=0.5 2 P/T employees = 1  NO REDUCTION


Average FTE:

To determine the average full-time equivalent employees (FTEs) for the 8-week covered period (or the alternative payroll covered period, if elected), for each qualifying employee, determine the average number of hours worked per week and divide by 40, before rounding to the nearest tenth. The maximum amount for each employee is 1.0. Alternatively, you can skip the math and use 1.0 for every employee who worked 40 hours per week and 0.5 for every employee who didn’t meet that standard. Either way you get there, you will ultimately arrive at the average FTE throughout the relevant covered period.

A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.