PPP Updates: More Interim Final Rules and FAQs

May 12, 2020

PPP Updates: More Interim Final Rules and FAQs

Addressing A Few Frequently Asked Questions

This is an update with some of our most recent frequently asked questions and to provide clarity on Friday's released interim guidance from the SBA. There is still much that needs to be clarified, and the government is slowly addressing these unanswered questions.

 

QUESTION REGARDING PENALTIES:

 

Should I be worried about the new interim rule regarding certification in good faith of needing the PPP loan funds? Should I return my PPP loan? 

In short, No.  In response to the blowback against large companies like Marriott, Shake Shack and Ruth’s Chris receiving multi-million dollar PPP loans at the expense of small businesses, the SBA effectively changed the CARES Act to prohibit these.  In its “frequently asked questions” #31, the SBA declared that large corporations with adequate sources of liquidity cannot reasonably certify that they need PPP money to maintain their business operations.  And, if they already borrowed money, they should return it ASAP.

 

This is politically motivated and is not intended to be used against small businesses, particularly doctors’ offices that have been forced to cease all operations.  They should feel comfortable making the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.”

 

QUESTIONS REGARDING LOAN FORGIVENESS:

 

Who decides that the loan is going to be forgivable? 

The banks (the administrators of these loans) will make the final decision.  We expect the banks to be generous.  First, they can rely on the borrowers' certifications that the forgiveness requests are accurate - and not face federal liability.  Second, the carrying costs of maintaining these PPP loans on their books may exceed the 1% interest rate they are collecting on the loans.

 

The SBA did specify that it will review loans over $2 million, "in addition to other loans as appropriate."  This is pretty good assurance that PPP loans being made to dental and other professional practices will not come under federal scrutiny.

 

What if I cannot get all of my employees to come back to work? Will that affect my FTE and penalize my forgiveness amount because of those that refused? 

No. According to the SBA, as long as you make a (written, individually) documented "good faith" offer to your furloughed employees, and they decline the offer, you will receive an exception for those employees. However, your employees' rejection may forfeit their eligibility for any future unemployment benefits. This is important to take into account because if you're going to use your furloughed employees (who don't wish to return right now) to help your FTE count for your loan forgiveness, then please be prepared to report their denials, which can potentially affect their unemployment.

 

 

This is a very fluid process.  Brandon Collier and the rest of the C&A team will keep our subscribers and website visitors abreast of the evolving rules as they continue to be updated and released.

 

Collier & Associates, Inc. will update our blog as the CARES Act progresses. We take pride in continuing to keep our subscribers and website visitors updated on current events during this extraordinary time.

We will work diligently to answer general inquiries via our website if time permits and in a little more detail within our Newsletters. However, if your questions are detailed in nature, please request to set up a conference call for a formal legal consultation. Thank you.

DISCLOSURE

Collier & Associates, Inc. provides this information as a service to clients and other friends for educational purposes only. It should not be construed or relied on as legal advice or to create a lawyer-client relationship. Readers should not act on this information without seeking advice from professional advisors.

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13 Comments

  1. Elizabeth Fleming, DDS on at 8:18 pm

    In AZ after the housing market crashed in 2008, there were many dental offices that went bankrupt. I was lucky enough to have made it through without closing, although financially it was tough. In 2020, I had been waiting for a letter of intent to sell my practice after 36 years of practicing, when the Covid shutdown hit, stopping the negotiations immediately. I applied for EIDL and PPP loans and much to my surprise, received both. We have reopened the practice and are on track to get the PPP loan forgiven. Will the EIDL loan be a detriment when picking up negotiations again to sell my practice by the end of the year?



  2. Stan Heleniak on at 1:56 pm

    Since I am a W-2 employee of my S-Corp, and have been rejected for state unemployment due to being the corporation president and owning 100 % of stock in the company, can I use the PPP monies I received to use for my own payroll that I stopped taking early April? If so, how far back can I go to claim this? Can I make up for lost wages from early April or can I only start since being funded? Can this apply to any other employees i wish too?



    • C&A on at 9:22 am

      Applying backpay may be a question for your banker; however, you can pay yourself and your employees for their time worked during the 8-week period, plus perhaps a bonus for their returning to work during the pandemic conditions. Remember, if you or any of your employees made over 100K per year, you will be capped at 100K (or at approx. 1923 per week). You can also make usual and customary retirement contributions (modeling your lookback period) if you’re seeking a way to maximize your funds. I hope this helps.



  3. David Feinerman on at 12:17 pm

    I have 2 employees are do not want to come back to work due to preexisting medical issues. Do you have to rehire the SAME employees or just the same NUMNER?



    • C&A on at 12:21 pm

      No. It’s just about matching your FTE number within your lookback window. Your administrator should not be lining up names or SSNs. I hope this helps 🙂



  4. Douglas Valentine on at 11:12 pm

    HI,

    Thanks again for the updates. Can you please clarify how the FTE calculation is supposed to be made. It is my intention to use the FTE from the 2/15/19-6/30/19 dates and, like many, pay the employees twice per month on the 15th and last day of the month. Please also clarify how the FTE calculation for the 8 weeks of the PPP loan is supposed to be made. Thanks in advance.



    • C&A on at 11:46 am

      The SBA has yet to provide official guidance on the definition of what qualifies as FTE. However, I am basing it on information released in 2015 from the SBA

      “Full-Time Employee: an employee who is employed on average 30
      hours or more per week (or at least 130 hours of service in a given
      month).

      Full-Time Equivalent (FTE) Employee: a combination of employees,
      each of whom individually is not a full-time employee because they are
      not employed at least 30 hours per week, but who, in combination, are
      counted as the equivalent of a full-time employee.
      – For example, two employees each of whom works 15 hours/week
      are added together to equal one full-time employee.”



  5. Abdurrahman Engur Kilic on at 3:04 pm

    I was under the impression $ 600.00 weekly federal unemployment benefit was going to be for eight weeks but now it says until July 31 for four months.
    Most PPP loans are already funded and it says they should be used within the following eight weeks to qualify for forgiveness s according to the CARES act. That is long before July 31 and employees who practically got a raise and they may not want to give that up. If you force them that would create a unpleasant relation to say the least.
    Is there a chance loan forgiveness period could be extended.
    PS : Miss Harvey and Richard. I hope they are in better place than us, under the circumstances.



    • C&A on at 4:01 pm

      Unfortunately, there are no extensions for the PPP loan window.



  6. Ken Versman on at 2:45 pm

    You have not talked about the pros and cons of converting to a Roth IRA, especially when stocks are so low.
    It would seem one would have to calculate future rmd’s and subtract living expenses and income taxes and reinvest the difference vs
    paying the income tax, no rmd’s and investing in the Roth without future tax on withdrawls, particularly for future heirs.
    Any plans to explore this in depth and provide formulas for evaluating one vs. the other.

    Thanks and stay safe and be well,
    Ken Versman
    (Very long time subscriber and Harvey actually did legal work for me back in 1974)



  7. ,Richard C. Brigleb DDS on at 1:52 pm

    Thanks for your input and clarification. I have been a subscriber for over 50 years. I’m retired and enjoy reading everything you send and so happy to be retired!!



  8. Mark Anderson Crabtree on at 1:05 pm

    How will a repayment penalty be levied against a practice that needs to not bring back a few employees?



    • C&A on at 2:51 pm

      Good Question. Based on the knowledge that we currently have from the SBA and The Cares Act. Your FTE should match the specified (averaged) lookback window (Option 1: Average FTE 2/15/19 to 6/30/19 or Option 2: Average FTE 1/1/20 to 2/29/20), in order to maximize your forgiveness. However, if you’re unable to bring back the average matched FTE, then the loan is reduced in comparison to your lookback period.

      For Example: If you have a loan for 100K and have the FTE of 10 employees in your previous lookback period and can only bring back 6 employees during the 8-week PPP loan period, even if you match the payroll within that lookback period and use 75% of the loan on payroll, you’ll still receive a proportional reduction due to your reduced FTE. So, essentially this now allows for potential forgiveness for only 60K of the loan and not the full 100K, leaving 40K subject to rate and term. Additionally, this changes the amount (25% x 60K) of the non-payroll portion of the loan. Now, the 25K that could be used on qualified non-payroll expenses is reduced to 15K for qualified non-payroll expenses, leaving anything spent over that amount also subject to rate and term. There are exceptions to this. 1. as long as you restore all FTE by 6/30, you may be granted full forgiveness. 2. There is information on an exception written above regarding furloughed employees. I hope this information helps. Good Luck!



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