PPP Forgiveness Update

To Our Valued Friends & Clients,

Many Harmony Group clients have recently received correspondence from their PPP Lenders regarding the PPP Forgiveness application process. The rules, as you likely know, have changed time and time again over the last several months - both for how you could spend your PPP funds as well as how to apply for forgiveness. Just over a week ago, for example, the SBA released an entirely new, simplified version of the forgiveness application for the smallest borrowers (<$50,000).

Your Harmony Group team is constantly monitoring these developments and we currently anticipate that there may be further changes to the forgiveness process and parameters as a result of the election, pressure from Congress, or as part of the ever-elusive ‘Next Stimulus Bill.’ Our current plan is to wait until the end of November to monitor these developments and then help you file PPP forgiveness applications based on the latest guidance at that point, or, conversely, guide you to wait if it seems more prudent. This plan is largely in line with the *actual* current processing planning for most banks, per our conversations with banking partners, and gives us the opportunity to wait to see if there are any advantageous changes over the coming month.

We will be in touch further as we monitor the PPP forgiveness (as well as stimulus negotiations) and look forward to wrapping up 2020 and getting into a better year!

- Matt Hetrick
President

News Alert: SBA Reopens EIDL Process

Valued Friends & Clients:

The SBA notified the public last night that it is reopening the EIDL process and will begin accepting new Economic Injury Disaster Loan (EIDL) and EIDL Advance applications on June 15 to qualified small businesses and U.S. agricultural businesses.

If you have not received an EIDL at this point and believe that one may benefit you (these are generally loans of up to $150,000 - in an amount determined by the SBA - with 30 year repayment terms), we encourage you to apply at this link: https://covid19relief.sba.gov/

If you are a client in need of some assistance with the application, please reach out and we will be happy to help you.

PPP Forgiveness Application Released

To our valued clients & friends,

Last night, the SBA released its first public version of the PPP Loan Forgiveness Application. The application codifies the calculations we’ve spoken about and given classes on, and provides us with much clearer guidance on what supporting documents to gather as well as draft calculation forms to show the forgiveness calculations.

The PPP Loan Forgiveness Application was not expected to codify major changes to the PPP forgiveness calculations or change the rules - that set of adjustments, which we still expect to be forthcoming, looks like it will most likely come directly from Congress or from bi-partisan Congressional appeal / guidance to Secretary Mnuchin. We find the PPP sections of yesterday’s HEROES Act illustrative in providing insight into what at least part of Congress is thinking regarding adjustments to the PPP program (namely: a 24-week forgiveness period, adjustments to the 75/25 ratio, and movement of the FTE Reduction Safe Harbor Date to 12/31/20).

Almost everything on the PPP Loan Forgiveness Application is in line with what we’ve expected, with the following useful clarifications or pleasant surprises:

A. FTE Calculation: We counseled you to use a 30 hour FTE calculation as the basis for your planning, as it would protect you, conservatively, from using too low of an FTE count for your planning purposes. The SBA decided the FTE calc will be based on 40 hours per week, which is the best possible interpretation for small businesses, and you'll have to hire fewer people to get back to your FTE count.

Under the clarified rules, all full time employees will count as 1.0 FTE. All part time employees will be converted to FTE by adding up their collective hours in a week and dividing by 40 (e.g. one worker at 10.0 hours plus one worker at 20.0 hours = 30.0 hours / 40.0 hours = 0.75 FTE). You can also choose to simply count all full time employees as 1.0 FTE and all part time employees as 0.5 FTE. We will obviously guide our clients to the most beneficial calculation for their specific forgiveness application.

B. Alternative Payroll Covered Period:A number of us worried about how to align bi-weekly payroll cycles with the 8 week period. For simplicity, the SBA is allowing you to align your forgiveness request with the nearest 8-week / 56 day period after receipt of the loan that corresponds with your payroll cycle, so you won't have to run off-cycle payrolls to get your payroll counted.

To share the SBA example: “...if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.”

This Alternative Payroll Covered Period only aligns the payroll portion of forgiveness with your pay cycle. Your non-payroll expenses are still on the original eight-week period that starts the day you receive your loan.

C. Utilities:the SBA has clarified that these will be for electricity, gas, water, transportation, telephone, and internet access

D. Owners / Partners:these individuals are not included in the FTE calculations (either before or after). The SBA has also provided clear space for guaranteed payments, etc, so owners do *not* need to have their pay run through a payroll system for you to be able to easily report it. Given this guidance, please revert to / or continue with normal guaranteed payment processes.

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We hope these clarifications are helpful to you - they certainly are for us. For our clients: don’t worry, we’ve got you covered on all of this and will be training internally to make sure we maximize your forgiveness with timely, accurate forgiveness applications...assuming we don’t get an extension of the due dates. We will continue to monitor guidance over the weekend and beginning of the week and will run Zoom conferences to clarify any questions about the PPP Forgiveness Application mid-week.

Matt Hetrick, CPA
President
Harmony Group & CPA Eats

PPP Deadline Extension

The Treasury has extended the deadline for decisions to return PPP funds through Monday, May 18th. The previous deadline was today, 5/14.

For anyone who has received a PPP loan and is still mulling over the decision to return the funds, you now have several more days to review your situation and make a choice. As always, we will guide clients at every step of the way.

This week has seen a number of updates to the SBA's PPP Loan FAQ - click to read the full document. Question #47 elaborates on today's deadline extension.

PPP News Alert

Within the last 30 minutes, the SBA just added Item #46 to its PPP FAQ, indicating that, "Any borrower that, together with its affiliates, received PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith."

We believe that PPP FAQ #46 provides clear guidance for any clients with loans of under $2,000,000 in aggregate who were on the fence with the question of whether or not they needed to return their PPP loans due to uncertainty about whether the certifications they made in taking the loans were in good faith.

We look forward to further guidance from the SBA and Treasury this week re: changes to the PPP forgiveness rules and will share them as soon as they are available.

Please find the full text of the SBA's PPP FAQ here: https://home.treasury.gov/system/files/136/Paycheck-Protection-Program-Frequently-Asked-Questions.pdf

Another PPP Loan Update

Confusion and frustration have dominated the conversation about the PPP loan process in the past few weeks. Perhaps you’ve seen the heated response to Shake Shake returning their loan or Matt’s own candid comments to Washingtonian about the situation in DC. We’ve been working round the clock with clients and through our partnership with RAMW  to ensure everyone has access to the relief they need and understands the next steps of this constantly evolving process.

Below is a summary of where we are right now, and what you should be thinking about moving forward, depending on your loan situation. Of course, this is merely a framework - consult with your own financial team for proper guidance, or get in touch at our CARES Act Assistance page for more specific advice.

If you received the PPP loan, the determination to keep the loan will largely come down to working capital on hand and your expectation of being able to achieve forgiveness.   

• We highly recommend putting the money from the PPP loan into a separate bank account and only spending it on qualified expenses (payroll, rent, and utilities, generally). If the loan is spent, make sure to have an accurate accounting of each dollar spent.

• Determine if you need an immediate cash infusion from PPP funds. This is determined by examining your working capital, cash on hand, money in the bank, operating status and sales.

• When to return the loan:

• If you are in a strong working capital position and are currently closed, without plans to bring staff back at full force within the timeframe currently required by the PPP rules, be careful about your spending decisions with the PPP loan funds. You may find that the best course of action is to monitor how the PPP rules evolve over the next several weeks, rather than rushing to spend the money in a fashion that is not consistent with the long term success of your business. If the PPP rules do not change in a beneficial manner and you are not able to open up and bring your staff back by June 30th, you may be better off simply returning the money as you are not able to spend it in accordance with the rules.

• When to keep the loan:

  • If you are operating at a high volume on delivery and takeout (more than 50% of prior year period sales) and have some money in the bank then PPP is likely highly beneficial for you, even if you have only a limited amount of employees on payroll and can only get partial forgiveness.  Whatever you have forgiven is of benefit to you--you were still going to employ the employees and pay rent, regardless of the PPP.

  • If you’re out of money and open or closed, but still have the expectation that you will be bringing back a full workforce eventually, the PPP is likely an outstanding program to help provide you with the working capital you need to keep going. 

  • If you don’t have cash right now, this is the most realistic way to get working capital. It is the only real source of working capital that is available.

• While a small portion of the PPP funds can be used for rent and utilities, you should be focused on rent abatement conversations with your landlords at this time, particularly if you are shut down. The PPP loan rules do not allow you to achieve forgiveness without spending the vast majority of PPP funds on payroll, and you should be looking for a sustainable long term structure for success that works for your restaurant, your employees, and your landlord. Borrowing short term money to pay rent during the shutdown should not be your default if you do not expect PPP forgiveness, especially in an environment where landlords are able to adjust mortgage terms and are obligated to pass the savings through to tenants.

• Remember - any PPP funds that are not spent can be returned. You should not spend wastefully.

If you didn’t get the PPP loan in the first round, there are a few steps that should be taken immediately. 

• Connect with your bank now. If we learned anything from the first round of applications, it is that the money will go quickly. If you aren’t hearing back from your main bank at all, look into non traditional lenders that aren’t banks. Click here for lender recommendations from SBA.

• If you submitted an application and it was denied, make sure whoever you worked with before is going to effectively execute your loan. You should not assume that your loan application will automatically be resubmitted, and you should take every step to ensure that it is resubmitted.

• Make sure you are connecting with a person at your bank during this process. You need to look for a firm answer. Call and email until you speak with someone directly. 

PPP vs. Employee Retention Credit (ERC)  

• The ERC might be a better option for any business that has a decent-sized working capital reserve that is either operating at a limited ongoing level (less than 50% of ongoing sales) or currently dormant. The PPP loan might work better for businesses who are either about to run out of money, or who already ran out of it.

• What is the ERC?

• The Employee Retention Credit is a fully refundable tax credit for employers equal to 50 percent of qualified wages (including allocable qualified health plan expenses) that Eligible Employers pay their employees. This Employee Retention Credit applies to qualified wages paid after March 12, 2020, and before January 1, 2021. The maximum amount of qualified wages taken into account with respect to each employee for all calendar quarters is $10,000, so that the maximum credit for an Eligible Employer for qualified wages paid to any employee is $5,000. You can get access to this credit by reducing upcoming deposits or requesting an advance credit on Form 7200, Advance of Employer Credits Due To COVID-19. Click here for Form 7200, and for more information.

• You CANNOT utilize both PPP and ERC, so make sure to weigh the pros and the cons on the front end.

As ever, we’ll be communicating regularly as more information becomes available. There’s every indication that needed fixes to the PPP won’t come until Congress is back in session in May. Until then, we’re here for you as we all continue to weather this unprecedented storm.

Next Steps on the Stimulus Loans

Now that the CARES Act has passed, our next big project during the social distancing shutdown will be to access the Payroll Protection Program Loans (PPPL) program for affected small businesses. While many businesses, including ours, applied for loan consideration under the Economic Injury Disaster Loan (EIDL) program, the SBA was overloaded with millions of applications and the latest word is that it will take months to access these funds.

In the days leading up the the CARES Act and immediately after its passage, we communicated about the most important facets of the bill. Almost every business owner in the country has heard about the loans, which promise to lend 250% of our average monthly payroll, unguaranteed, and get us back on our feet. If you haven’t read our earlier analysis of the bill, or read the CARES Act itself, links to download some great summaries can be found here.

Treasury Secretary Steven Mnuchin has stated that the regulations regarding loan applications will be available as early as today and that loan applications will be available this week… we are skeptical that a program of this size will be in place and active that quickly, in real life, but we are rapidly preparing to apply for the loans. On a behind-the-scenes level, we are actively working with bankers to identify the most expedient way to get our clients through the system and get loans issued. On a direct level, our team members are reaching out to you today to gather all of the information we need to help process the loans for you when they are available.

The law itself calls for a wonderfully easy calculation and underwriting process for the loans, and Secretary Mnuchin has stated in interviews that he expects the process to be very, very easy, but we are approaching the process as if the banks who issue the loans will require more information than Congress requires. To prepare for that, we are gathering all possible required information to have everything ready for your applications and our team members will have reached out to many of you by the time you read this. If you need help preparing for the PPPL process and are not an ongoing retainer client, please go to our CARES Act Assistance Page to get started.

#WeGotThis #CARESAct #RestaurantRelief

- Matt Hetrick, CPA
President and Owner of CPA Eats & Harmony Group

The CARES Act Passes. Read Our Initial Breakdown.

Last night the Senate passed a historic piece of legislation called the CARES Act to bring meaningful relief to all sectors of the economy and support to the healthcare system. A link to the 880 page final bill can be found at the bottom of this post, as well as a great Executive Summary produced by the National Restaurant Association (the bill applies to all small businesses in America, but this happens to be a good summary).

The most important provisions of the bill for the economic security of small businesses are the Payroll Protection Program Loans (PPPL) and the forgiveness provisions for those loans. In a nutshell, there will be loans available from your bank, through the SBA 7(a) program, to help make it through the crisis. You should expect it to take at least until May to get these loans; if the banks are able to get them faster, that will be amazing, but things take a lot of time. 

In addition to the notes on the forwarded NRA summary and the actual language of the law, I wanted to share some of my colloquial running notes on the loan sections to help you start your planning. We will be holding a lot of conversations to go through this planning.

PAYROLL PROTECTION PROGRAM LOANS (Section 1102)

1. Who Is Eligible?  

Every small business is an 'Impacted Borrower.' Any small business with less than 500 employees per physical location, including self-employed and non-profits. The loan criteria will be incredibly simple: the company has to have been in business on 2/15/20 and paying employees.

2. How Much?

2.5 x the average monthly payroll during the 1 year period before the date on which the loan is made. Wages over $100,000 per person and FFCRA reimbursable wages are both excluded from the average payroll calculation. 

3. What Can the Money be Used For?

Payroll costs, including benefits, interest on mortgages, rent, utilities, and interest on debt incurred prior to 2/15/20.

4. What Are the Terms?

Not personally guaranteed. No collateral. No need not to have credit elsewhere. Anything not forgiven will be at <4% interest, up to 10 year terms. No payments for 6 months.

LOAN FORGIVENESS (Section 1106)

1. How much? - 8 Weeks of payroll costs, plus occupancy costs and interest expenses, starting from the date the loan is taken.

2. Reduction? - Loan forgiveness will be be reduced:

• proportionately by the amount your average number of FTE (30 hour) employees from 2/15-6/30/20 are less than 2/15-6/30/19 or 1/1/20-2/29/20; and

• reduced directly by any reduction in pay of employees (making less than $100,000) beyond 25% of their most recent full quarter's compensation

• for employers who have laid staff off or reduced salaries, if you have restored the number of FTE employees or restored their salaries, by June 30, you will not be subject to loan forgiveness reduction.

As always, our team is working around the clock to get you access to everything you need. We are proud to help get you through the crisis and keep all of you on your feet - look for more communication soon.

Matt Hetrick, CPA
President and Owner of CPA Eats & Harmony Group