- Slides: 29
June 25, 2020 PPP Loan Forgiveness Update Presented For New Hampshire Aerospace & Defense Export Consortium (NHADEC) and New Hampshire Tech Alliance
This Presentation is Being Recorded Presenters Matthew H. Benson, Esq. Stephen A. Gould, Esq. Cook, Little, Rosenblatt & Manson, pllc www. clrm. com
Navigating the PPP Loan Objectives of this Presentation • Review and Background of PPP Loan program • Overview of the Updates to the PPP Loan Program • Summary of the PPP Flexibility Act • New PPP Loan Forgiveness Application and “EZ Application” • Additional Clarity on PPP Loan Forgiveness issued by the US Treasury and IRS • Questions & Answers
Legal Disclaimer These materials and the presentation are intended to provide a high-level overview of the current PPP requirements, and do not purport to be a comprehensive guide to the Program. The purpose of these materials and this presentation is not to provide legal advice, nor should the same be used as a substitute for legal advice in specific situations. Since the CARES Act’s enactment on 3/27/2020, the SBA and US Treasury have issued regular updates to their regulatory guidance; in some instances this guidance has included requirements that were not in the CARES Act and which may apply retroactively. Note that this presentation is based on information current as of the date of the presentation. You should consult your own legal and tax advisors for updated information and for advice regarding your particular circumstances.
PPP Loan Context and Intent – Review and Background • Payroll Protection Program – part of the $2 Trillion CARES Act enacted on March 27, 2020 • Purposes: • Quickly assist small businesses with 500 or fewer employees • Assist businesses with payroll cost • Help keep workers employed during Covid-19 shutdowns • As of June 20 th – almost $515 Billion loaned to over 4. 6 Million businesses nationwide (over $2. 5 Billion loaned to over 23, 000 NH businesses)
PPP Loan – Permitted Uses • At least 60% of PPP Loan proceeds must be used for payroll costs, including: • Payroll costs • Employer paid benefits for group health care benefits and payment of retirement benefits • Employee benefits
PPP Loan – Permitted Uses (continued) • At least 60% of PPP Loan proceeds must be used for payroll costs, including: • State and local taxes on payroll • For owner-employees: • Wages, commissions, income or net earnings from self-employment are limited to 8 weeks of 2019 net profit (up to $15, 385 for an 8 week covered period) OR • 2. 5 months’ worth of 2019 net profit (not to exceed $20, 833) for a 24 week covered period.
PPP Loan – Permitted Uses (continued) • Up to 40% of the PPP Loan Proceeds may be used for: • Mortgage interest • Rent/Lease Payments • Utilities
PPP Loan – Permitted Uses (continued) • Up to 40% of the PPP Loan Proceeds may be used for: • Interest on other debt obligations • Refinancing an EIDL loan made between January 31, 2020 – April 3, 2020
Guidelines for Loan Forgiveness • Forgiveness amount may be reduced: • Headcount Adjustment • Applies if there is a reduction in full time equivalents • Subject to new exceptions provided by Treasury and SBA in new guidance • Compensation Adjustment • Applies if any employee’s compensation is reduced more than 25%
PPP Loan Forgiveness Update – What is New Since May 15 th? • May 22 nd – New Interim Final Rules from Treasury Department and SBA • June 5 th – PPP Flexibility Act • June 17 th – New PPP Loan Forgiveness Application and New “Form 3508 EZ” and Revisions to Third and Sixth Interim Final Rules • More to Come – Definite maybe!
May 22 nd – New Interim Rules • Clarification on “incurred or paid” for payroll and non-payroll costs • Change to period for calculating payroll costs • Full-Time Equivalent (FTE) – Clarified • Clarified treatment of employees fired for cause, voluntarily resign or voluntarily request a reduced schedule • Clarified loan forgiveness calculations for owner-employees
May 22 nd – New Interim Rules Continued • PPP Lenders must issue decisions on PPP Loan forgiveness applications within 60 days from receipt of completed PPP loan forgiveness applications. • SBA must remit the PPP loan forgiveness amount to the PPP lender within 90 days after the PPP Lender has approved the forgiveness amount (subject to SBA eligibility review). • SBA can review ALL loan applications, uses of proceeds and loan forgiveness applications • PPP borrowers must retain all applicable records for 6 years
June 5 th – PPP Flexibility Act • “Covered Period” to spend PPP loan proceeds is now 24 weeks by default • Reduced minimum percentage of PPP Loan proceeds required to be spent on payroll from 75% to 60%. • Time period to restore FTEs and wages to the levels they were prior to the COVID-19 pandemic has been extended from June 30, 2020 to December 31, 2020.
June 5 th – PPP Flexibility Act Continued • Two new exceptions - allow borrowers to make adjustments to requirements for loan forgiveness that FTE levels be maintained • Must provide documentation showing: (a) they are unable to rehire similarly qualified employees for unfilled positions on or before December 31, 2020; OR (b) they are unable to return to the same level of business activity between March 1, 2020 and December 31, 2020, as they experienced before February 15, 2020 for certain reasons.
June 5 th – PPP Flexibility Act Continued • PPP borrowers can defer employer portion of federal payroll taxes for up to two (2) years, even if the PPP loan has been forgiven. • The minimum term of any PPP loan which is not forgiven will be extended from two (2) years to five (5) years for loans taken on or after June 5.
June 17 th – New PPP Loan Forgiveness Application; New EZ Loan Forgiveness Application; and New Guidance • New streamlined (and shorter) PPP Forgiveness Application • New Form 3508 EZ (even shorter) PPP Forgiveness Application, for those PPP borrowers for which one of the following three scenarios applies: • Self-employed, independent contractors or sole proprietors who had no employees at time of PPP loan application; OR
June 17 th – New PPP Loan Forgiveness Application; New EZ Loan Forgiveness Application; and New Guidance (Continued) • OR (a) Did not reduce the wages/salaries of any employees (earning less than $100, 000) by more than 25% during the covered period as compared to the period between January 1 st – March 31 st, 2020; AND (b) did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the covered period;
June 17 th – New PPP Loan Forgiveness Application; New EZ Loan Forgiveness Application; and New Guidance (Continued) • (a) Did not reduce the wages/salaries of any employees (earning less than $100, 000) by more than 25% during the covered period as compared to the period between January 1 st – March 31 st, 2020; AND (b) was not able to operate during the covered period at the same level of business activity as before February 15, 2020, due to compliance requirements issued by HHS, the CDC or OSHA regarding sanitation, social distancing or other safety requirements relating to COVID-19.
June 17 th – New PPP Loan Forgiveness Application; New EZ Loan Forgiveness Application; and New Guidance (Continued) • Clarified that (for loan forgiveness) owner compensation replacement for individuals with self-employment income who file Schedule C or F, is limited to: 8 weeks of 2019 net profit (up to $15, 385 for an 8 week covered period), or 2. 5 months’ worth of 2019 net profit (up to $20, 833) for a 24 week covered period. • Deferral period for PPP loan payments extended from 6 months to 10 months after the end of the 24 - week covered period.
PPP Loan terms if not fully forgiven • 2 -year term if loan taken before June 5 th (unless lender agrees to extend to 5 -year term) • 5 -year term if loan taken on or after June 5 th • 1% fixed interest rate • Payments of principal and interest commence 10 months after end of 24 -week covered period. • No security or collateral • No prepayment penalties • No personal guarantees
Fraud Cases – Enforcement Actions have started • Safe Harbor for PPP Loans of $2, 000 or less as to certification of “necessity” of loan • DOJ charged two men who obtained PPP loans over $500, 000 who had no employees • DOJ charged several businesses with fraud when businesses did not exist or were not open prior to the pandemic
Next Steps – Work with your PPP Lender • Discuss PPP Loan Forgiveness Application with your PPP lender (each lender may use its own forgiveness application form) • Discuss timing for filing your PPP forgiveness application with your lender. • Keep detailed records and carefully document all PPP loan expenditures • You should wait to file your forgiveness application until you have all the appropriate receipts, cancelled checks, payroll records and quarterly payroll tax filings.
Documentation – Forgiveness Application • Documentation verifying the number of FTE employees on the payroll and pay rates for 24 week period (or 8 week period if borrower elects to retain original 8 week covered period) • • • Payroll tax filings to IRS State income, payroll and unemployment insurance filings Documentation verifying payments on mortgage obligations, rent payments and utility payments • • • Canceled Checks Bank Statements Documents verifying payments
Documentation – Forgiveness Application • A certification from a representative of the business authorized to make such certifications that: • • The documentation presented is true and correct The amount for which forgiveness is requested was used • to retain employees, • • • make interest payments on a covered mortgage obligation, make payments on a covered rent obligation or make utility payments • Other documentation determined necessary by the SBA or your lender
Takeaways • You can still apply! • Approximately $128 Billion in PPP Funds remain available • Deadline for PPP loan applications is June 30, 2020 • Document all PPP loan expenditures carefully and maintain all records • Keep eyes and ear open for further updates • Work closely with your PPP lender on loan forgiveness application and process • Don’t get creative – follow the guidance issued.
Top Primary Resources • SBA PPP website • U. S. Treasury PPP website • NH SBDC COVID-19 website • SBA/Treasury’s FAQs for the PPP • PPP Flexibility Act • PPP Loan Forgiveness Application • PPP EZ Loan Forgiveness Application
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