As our economy adjusts to various forms of reopening, businesses are needing to adjust to what that means for us going forward. One major piece of the stimulus legislation that was enacted during this pandemic was the Payroll Protection Program loans (PPP loans). Many small businesses have qualified and received this funding and are now trying to figure out how the forgiveness process works.
The initial guidance on the loan forgiveness was that employers would track their payroll costs, including health insurance, employer retirement plan contributions and state employer taxes, along with costs for utilities, rent and mortgage interest during the 8 week period following the receipt of their PPP loan funds. This also included comparison of the full time equivalent (FTE) employee count for this period as compared to pre-covid19 periods. This led to numerous questions which has produced an ever-expanding list of clarifications from the SBA.
Now new stimulus legislation is being discussed in the Senate as the House has already passed a new HEROES act. This act adds additional changes to the PPP loan forgiveness. It calls for 16 and 24 week periods to track expenses and extends the dates for getting your FTE count back to pre-covid levels. While the house bill will certainly be modified with the bill the Senate is crafting, some changes to the forgiveness process are likely to be in the new legislation.
That places business owners like us in a quandary. Many who received funding early are already looking toward the end of their 8 week period. This leads to the question of do you need/ or want to apply for the forgiveness as soon as possible or wait?
Since all of this is still in flux, we recommend upon the termination of your 8 week period, you review the calculations for your forgiveness with the current rules first. If this calculation provides for 100% of your loan proceeds being forgiven, go ahead and file for forgiveness. However, if those calculations provide for a portion of the loan not being forgiven, wait for new legislation.
Most banks aren’t even ready to accept the forgiveness applications as they realize that changes are forthcoming. The frustration is that we don’t know when those changes will take place.
In addition to the PPP loan changes, the new legislation is expected to expand the Employee Retention Credit. Currently this credit is allowed for those who did not receive a PPP loan but have had a significant impact from the government shutdowns due to Covid19. This credit currently is 50% of an employee’s wages up to $10,000 per employee. Discussions for new legislation increases the $10,000 cap, allows for the credit even if a business has received a PPP loan and expands the definitions of significant impact.
Along with the PPP loan and ERC, the initial legislation provided access to the SBA Economic Injury Disaster Loans. These loans are still available for up to 2 million dollars. These loans have a 30 year term and an interest rate of 3.7% for a for-profit business and 2.75% for non-profits. These funds can be used for other operating expenses as well as payroll. The loan funds can be used in conjunction with a PPP loan, however, these loan funds cannot be used for the same expenses as the PPP loan.
For additional cash flow assistance, also remember that the initial legislation provided for payroll tax deferral (for employer FICA taxes) and credits when paying covid related Family Medical Leave for your employees. These tools are still available to employers.
We understand that this can all be overwhelming. That is why we are always available to answer your questions, and if you need assistance with any of these calculations or in planning how to best utilize these benefits and credits, we can put together a package of services and the cost so you can know exactly how we can help you through the maze and the related costs and benefits.
The positives in all of this, is that business owners who have been impacted by Covid19, being most businesses, do have expanding forms of assistance through the loan forgiveness, tax credits and emergency loan funds from the SBA. It is important to keep this in mind in planning your cash flow for this year as well as looking into 2021.
Let us know if you need our help! Most importantly, take care through all of this! We hope you are all able to be up and running profitably again soon!