Sound Off: Q+A with PPP Experts

Welcome to the fourth installment of our blog series where we ask three finance professionals the same questions to see what they have to say! This week, we are talking to three professionals about the Small Business Administration’s Paycheck Protection Program. From the current state of the program to advice about loan forgiveness, here is what they had to say.

The Power Group: Please describe the current state of the PPP program? What do businesses need to know?

Craig Scheef, Chief Executive Officer, Texas Security Bank:  As a result of the PPP Flexibility Act, the program has changed quite a bit since the origination phase of the PPP. For the most part, the changes favor the borrower and should optimize forgiveness. Banks have yet to receive guidance from the SBA on how we are to submit the application received from the borrower to the SBA. Until banks receive this guidance we are unable to process the forgiveness application.

  • The borrower may choose to extend the previous 8-week period to instead be the earlier of 24 weeks or December 31, 2020.
  • The previous 75 percent payroll expenditure requirement has been reduced to 6 percent. However, the requirement now has a cliff effect. The Act is written in such a way that if the borrower does not reach the 60 percent payroll requirement, then none of the loan will be forgiven. Previously this requirement was not an all or nothing calculation.
  • Previously, in order to avoid a reduction in forgiveness, borrowers had until June 30, 2020  to restore their headcount and wages to the levels in existence prior to the pandemic. Under this new Act, the June 30, 2020  deadline has been pushed back to now be the earlier of Dec 31, 2020, or the end of the borrower’s 24-week period.
  • This new Act creates a couple of new exceptions which will allow a borrower to avoid being penalized by a reduction in workforce. These two new exceptions take into account situations in which a borrower is unable to find qualified employees as well as situations where the borrower is unable to restore its operations due to a restriction that is in place due to COVID-19.
  • The previous 2-year loan term would be extended to 5 years for loans which originated after the passage of this Act.
  • Under this new Act, the previous 6 month deferral period has been extended to last until the date on which the amount of forgiveness is remitted to the Lender.
  • Additionally, the Act will allow borrowers to take advantage of the payroll tax deposit deferral provision which was put in place under the CARES Act. Under previous law, recipients of PPP funding were prohibited from taking advantage of this CARES Act provision.

Keith Davidson, Chief Financial Officer, Business Operations CLA: The PPP program has evolved considerably since it was first passed at the end of March. While there have been several waves of rule clarifications from the SBA and Treasury, the most impactful is the recent “Paycheck Protection Program Flexibility Act of 2020” law that was signed on June 5. This law addresses some of the original problems and uncertainties, such as extended time for the covered period, moving the payroll cost requirement from 75 percent to 60 percent, and more clarity on FTE reduction safe harbors. If you haven’t applied for a loan, you have until August 8. With little time left, utilize the SBA’s lender match program on their website. If you received the loan, start working with your CPA on how to approach the forgiveness applications and what documents you will need for support.

Ami Kassar, Chief Executive Officer, MultiFunding LLC: The Paycheck Protection Program has been extended to August 8. Most companies who want the money have already taken the funds, it is now time to focus on the forgiveness process.

TPG: Larger companies may have better systems or more professional support. What does the typical American small business need to know about obtaining PPP Forgiveness?

CS: Working with your banker, payroll provider and accountant, the process should not be that difficult.  Texas Security Bank has a number of resources on its website to assist business owners.  

KD: First, understand that if some or all of your funds aren’t forgiven, it’s still a loan with exceptionally good terms. I have clients who worry about the potential for penalties if it’s not all forgiven. That is not true. Of course, you want all of it to be forgiven if possible. To do that, focus on spending the funds on the allowable uses during the 24-week or 8-week period. Work with your CPA to track that spending, along with compiling the support needed for the forgiveness application. Most importantly, review the forgiveness application (already available on the SBA site) and the SBA website itself for the latest official guidance (as opposed to a news article) and address any specific questions or gray areas with your CPA and bank.

AK: You must keep systematic records of your allowable expenses (payroll, rent, utilities, or interest expenses on your property) until you have used up your loan proceeds.

TPG: What’s the best advice you can offer right now with respect to obtaining forgiveness? Do you have any examples, either bad or good to share?

CS: First and foremost, keep good records. Second, stay current on the changes. Third, read the instructions associated for the Application for Forgiveness. Know that the Forgiveness Application and the supporting documentation are the borrower’s responsibility – not your bank’s. The borrower is required to make the certification, in this regard. So be certain it is correct. Finally, make sure you submit a complete file of information, along with your Forgiveness Application. Your bank is processing hundreds, if not thousands of applications. Incomplete files slow the forgiveness process, significantly.  

KD: Support, support, support. With so many interpretations of the various PPP guidelines, ensure your forgiveness applications are supported by the facts and intent. Additionally, have your CPA or attorney review it. The last thing a small business needs is to not utilize the full forgiveness due to a spreadsheet error or an inaccurate interpretation of the application or guidelines. However, the best advice I can offer is to not make a bad business decision for the sake of forgiveness. I have seen some businesses either hire new employees they didn’t need or make other payments that weren’t necessary in order to spend all of the PPP funds. Instead, taking part in those funds as a loan would have been a far better business decision for the long-term.

AK: There are critical decisions that everyone has to make. Those who received their funds before June 5, 2020, have to decide to apply under the 8 or 24 weeks programs. My recommendation is to calculate how much you will be forgiven after eight weeks, and if it is the maximum amount or close to it, wrap up the application with your CPA and submit it to your bank where you got the loan. If your numbers do not look good after eight weeks, it is smart to wait for the 24 weeks.

The second decision is whether or not you will apply under the EZ process or the expanded process, which is more complex and time-consuming. You want to check with your CPA to determine if you are eligible for the EZ application and if you are, you should insist on this route. It will save you time and aggravation.

Irrespective of which approach you take, I encourage you not to tackle the forgiveness application alone. It is complex, and there are many rules and regulations.  It will be wise to use your CPA firm to help you.  They will likely be assisting many clients, and their collective knowledge could save you a costly mistake.

Craig Scheef
Keith Davidson
Ami Kassar