On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act (PPPFA) in order to address many concerns by the small business community. Here are a few highlights of the changes made.
1. Paycheck Protection Program Flexibility Act changes minimum requirement needed for payroll to 60%
This amount was originally required to be at least 75% of the expenditures in order to qualify for forgiveness. For many businesses, this was very difficult to achieve because they were not able to operate. By reducing the amount of the loan needed to be spent on payroll from 75% to 60%, the amount of funds that can be used for other expenses was able to increase from 25% to 40%. The law does not change the list of expenses eligible for forgiveness. These still include: rent, mortgage payments, utilities and interest on loans.
2. Paycheck Protection Program Flexibility Act extends time period to use funds from 8 to 24 weeks
For businesses shut down by government mandate, the ability to spend the PPP funds within 8 weeks was almost impossible. This should allow the forgiveness to be more easily achieved because the loan amount was based on 2.5 months of 2019 payroll or about 10 weeks. Individual employee compensation eligible for forgiveness is still capped at $15,385. The extension of time allows flexibility for business owners to spend the loan after reopening but does not require businesses to wait the full 24 weeks to apply for forgiveness. They can apply for forgiveness after 8 weeks if they prefer.
3. Paycheck Protection Program Flexibility Act pushes back June 30 deadline to rehire workers to December 31, 2020
In the initial PPP instructions for forgiveness, employers were to maintain their employee headcount or restore headcounts by June 30th in order to achieve full loan forgiveness. Many businesses were concerned that this may prove to be difficult because they may not be open or if they have reopened, they may be functioning at less than full capacity by this date. The salary forgiveness calculations have still remained the same.
4. Paycheck Protection Program Flexibility Act eases rehire requirements
As the intent of PPP was to keep the same number of employees on the payroll as was used to calculate the loan, it required a business to rehire the same number of full-time employees or full-time equivalents by June 30, 2020. The only exception to this rule was if an employer could document in writing an attempt to rehire an employee who rejected this offer.
The new law makes two significant changes to these requirements. First, it extends the rehire date to December 31, 2020, and second, it adds additional exceptions for a reduced head count. The law states a business can still receive forgiveness on payroll amounts if it:
- Is unable to rehire an individual who was an employee of the eligible recipient on or before February 15, 2020;
- Is able to demonstrate an inability to hire similarly qualified employees on or before December 31, 2020; or
- Is able to demonstrate an inability to return to the same level of business activity as such business was operating at prior to February 15, 2020.
It remains unclear how to “demonstrate the inability to rehire similarly qualified employees” or what the standard “to demonstrate the inability to return to previous levels of business activity” would be, but hopefully forthcoming guidance will elaborate.
5. Paycheck Protection Program Flexibility Act extends the repayment term from 2 years to 5
Businesses will now have 5 years to repay the loan at 1% interest instead of the 2 years initially expected. The first payment will also be deferred for six months after the SBA makes a determination on forgiveness. Since under current regulations your bank has 60 days to make a forgiveness determination and the SBA an additional 90 days. Be sure to talk to your lender about extending this time period if you closed your PPP loan before the PPPFA was passed. The timing on requesting loan forgiveness can have a big impact on the financial health of your business.
6. Paycheck Protection Program Flexibility Act allows for Social Security tax deferment
In addition, the Paycheck Protection Program Flexibility Act also allows borrowers to take advantage of the CARES Act provision allowing deferment of the employer’s payroll taxes for Social Security. Previously, PPP did not permit deferment of these taxes on the forgivable portion of the loan.
The new law changes are a win for small businesses and address many concerns and ease the requirements in order to achieve full PPP loan forgiveness, but as we have seen over the last few months, we can expect more information to come. Let us know if you have any questions about your PPP application, forgiveness or accounting strategy throughout this process. Call us at 281-440-6279!
How can I get my PPP forgiven?
On May 18, 2020 the SBA released the official form you will need to fill out in order to apply for forgiveness on your PPP loan. Hopefully you are tracking all of your expenses and can show very clearly what has been paid and when. Even if you do not get the entire loan forgiven, this does not mean you now have to pay back 100%. You can be partially forgiven.
What documents are needed for PPP forgiveness?
While each scenario, lender and small business are different, here is a basic list of items from the approved uses list that you may need to provide:
- Documentation verifying the number of employees on payroll and pay rates—including IRS payroll tax filings and state income, payroll, and unemployment insurance filings
- Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities
- Certification from an authorized business representative that the documentation provided about the small business is true and that the amount being forgiven was used in accordance with the program’s established guidelines
Is PPP still available? How long will PPP funds last?
The initial round of funding for the PPP ran out of cash in 13 days. Now that a second round of funding was passed, the SBA has distributed $510 billion of the $659 billion allocated to the PPP as of June 5th. This means that less than $149 billion remains. and has probably saved as much as 50 million jobs” by requiring employers to rehire laid-off and furloughed workers in order to receive loan forgiveness.
Molen PPP Forgiveness Webinar Transcription
So I hoped many of you joined us on our original payroll protection program and economic injury disaster loan webinar. If you did not see that in your interested, in that information, you can find out on our Website. Otherwise, again, welcome today. Joining us, as is me, Kevin Molen. I’m the advisory services manager here, Melon Associates.
And when I was Charles, I’m a senior advisor, your sources as well.
So we’re gonna be going over play a little tag here as we go over a couple of the primary differences between what originally was passed through their payroll protection program and now what the flexibility act adjusts. So we’re not going to be going over any of the economic injury disaster loan information today. If you have questions about that, let us know. But today primarily focuses on what I’ll start to for reference as the PPFA. That’s a mouthful. OK, but we’re gonna go ahead and jump in. So, Clark, if you will, pull up our information here. OK. Thank you so much. So let’s go out and move on to the next slide and we can dive into some of these initial differences. First, what I’ll mention is, of course, this was signed into law, passed by the House, I think, on May the twenty eight and then by the Senate on June the 3rd. And then the president signed it into law on June the 5th. So it was pretty fast moving. And a lot of this was to clear up some of the we’ll call it ambiguities through the payroll protection program.
And a lot of the difficulties that everybody was trying to figure out. So if we can go out and populate that, thank you. So the first kind of difference that I want to mention is the period of time in which they are allowing businesses and applicants to be able to spend the funds in regards to the payroll and the other qualifying expenses. Again, if you want to dive into those details, our first webinar had that information in it. But but this eight week transition to 24 weeks, is super important because this eight week period was actually really difficult. When you’re getting two and a half times your average monthly payroll and you have two months to pay it all out. It was it was really complicated because it’s also depended on what day your payroll fell on. Right. And when you paid your employees. And so for some people, it was really difficult to get to those those paying amounts. Those limitations they were required to pay in just that eight week window.
So things there were challenges on the business side of things, but there was exceptional challenges for those who are self-employed because you’re considering your payroll. What you paid yourself was just that. The other component was something you were looking at. So I’m just gonna have to pay. This has a low a low loan, but a loan at the same time.
Yeah. And what Charlie specifically is referencing is if the payroll protection program says here’s two and a half times your monthly payroll. Right. That’s 10 weeks of payroll and you’re paying yourself eight weeks of payroll. You’re not going to hit the full 10 weeks.
So for independent contractors, there was this potential issue of a portion of that loan just couldn’t be forgivable unless you were meeting some of the other requirements. So this alleviates that concern. It gives you 12 hour I’m sorry. Twenty four weeks in order to pay everything out. And so everybody should be able to meet their requirements at that point. So that was beneficial. They also did. And Charlie, I don’t know if you read this, but they they changed some of the verbiage as well to make sure that it indicated for employees that were working, you could include payroll costs for the employee when it was worked, not just when it was paid, because under the old rules, it was when it was paid. And so if your payroll fell on eight weeks and one day, then you didn’t have that payroll within that eight week period and so caused issues. But now they have they have extended it to cover when it was worked, not just when it was paid. Which, again, in a 24 week period shouldn’t be a problem.
Right. So it’s a nicety. But if we have 24 weeks to pay at all, it shouldn’t in the end make a big impact, which is good.
Yeah, it just I think that they just were trying to make it real clear that they didn’t want it to be as as hard and fast as it would be. Yeah. So then the next piece that we’ll cover is the loan payback period. Now this assumes that not all of your loan is forgiven. So if you meet the qualifications for all of the loan to be forgiven, this piece is not important. Right. But for those of you who won’t qualify for all of the loan to be forgiven, the loans not bad. I mean that the interest rate is what is one percent. And and so it basically the way that it started was you had six months to begin paying back the loan. And it had to be paid back over two years. This was changed to where now you have 10 months after the cover period, the covered period was extended to December thirty first of twenty twenty, which means it’s October of twenty twenty one before you have to start paying back any of it. And you have five years to pay back the amount. And so, so you know, a lot more flexibility and flexibility act for you for the loan repayment portion which is nice. The, the next piece is the loan forgiveness. So this is where now take the paying back part out of that. Now we’re looking at what portion is forgiven. And when it is forgiven. So now it’s the cover period, again, extended from June the 30th instead to December thirty first. And so or I’m sorry, it was a mix of my dates here. It was six months after the.
Proved payment through the through the six months to apply for the forgiveness. So when you’re covered period, eight weeks was up, you had X amount of time to submit the paperwork to have it forgiven. So now that the date has been moved, it’s not, you know, X amount of time from June 30th. The way that it’s all written is that it’s X amount of time from December thirty first. And that’s now that X amount of time has been expanded to 10 months.
Yeah. The one thing. So there’s still some ambiguity left. Of course we’re talking about our wonderful federal government. And so Congress is going to be able to keep everything completely under percent clean. So there are a few things that I want to bring up. One of the things is that technically the way the bill is currently written is that the application window, in order to to apply for the payroll protection program has been extended again. Technically, the way it’s written until December thirty first. However, there are several members of Congress who have already written and supported a letter of intent that has been put through to indicate that Congress intended that the application window still end on June the 30th. So if you have not applied yet for your payroll protection program loan, you have a very short window to get it done right. You still can do it. But I know that some banks I know there are a couple of Texan bank. I told one of my clients that they were shutting down their applications. I think Chase is no longer, I believe, but I believe the chase is no longer, you know, approving those applications. I know that Wells Fargo is no longer approving those applications. So I know there are a couple of banks and some big ones. Who are no longer approving these. Last I heard, would Forest and Amegy are two Texas local banks who are still putting these through. And so so those are the two primary ones that I’ve been recommending my clients contact. So if you’re still looking to apply for a loan, that’s where I would start. Well, it start at your your current commercial lender. But then transition to either Amegy or Wood Forest. If if you’re not successful with your lender.
Now, this is processing a new application because the window of time, eight weeks or 24 weeks is not a automatic change as we read it. So you still need to contact your lender, whoever you went to, even if it was Wells Fargo who is no longer processing applications because it needs to be you and them to agree to. Hey, I don’t want to do this over eight weeks. I want this over 24 weeks. And they have to say, yeah, we want you to do it over 24 weeks, not eight weeks. And so as long as that gets amended properly, then you get that period of time. So there’s differences in the application giving with funding in the first place. You have potentially limited sources of where to go. But then you have the window of who you’re already working with. You’ll need to do some of that to maximize this if it’s needed. We anticipate a lot of folks would need it which is why they passed it, but if it’s needed. But then you have the third thing we’re talking about is debt forgiveness window, which again, whether everything is written is that we’ve got a while for the need before we need to do this.
And so bear in mind, this PPPFA, whatever acronym we’re usually happy, they right is not very long. And so we can extrapolate a lot of information from that. But just like the CARES Act, with everything in there, they need time to write some more fine print. Congress had to write a little letter of intent to say, oh, hey, just in case. This is what we’re really meant, guys. There’s more of that going on. I was doing some reading here just before we started. And what I’ve read is that the SBA, the Treasury, are putting out another if you’ve been giving up with those those interim final rules, more fine print and then expect to publish something tomorrow is what I was able to read. So they’re more just fine print as well. The term I used to come help define some of the things that are there. But we’re talking about everything that was written in the bill. And here’s what was passed.
And just to clarify one of the points. Thank you, Charlie. To clarify, one of the points that Charles was talking about is the any PPP funding or applications that were done prior to June the 5th. So if any of you have PPP money and now you’re what you’re really looking at is the forgiveness side of things. And if that application was done prior to June the 5th, this is really important for you. You have to. And the bill, I think, says specifically “mutually agree” is the words that the bill uses with your lender in order to bring to date. Or original application. So you’ve got to contact your original lender and say, I want us to mutually agree to go off of the new rules that the old rules and they should be able to facilitate that change. I don’t see any reason why they should give you any any guff on trying to get that updated or modified. But I mean, it’s based on the individual lender. So they don’t have to mutually agree. So you don’t have the law on your side to strong arm them for the new rules. You’ve got to you’ve got to ask them or mutually agree for those new rules. So other than that, one last thing that I will mention is all you have a couple of things. But but the the payroll costs have been updated to include. If you’re paying furloughed employees and the other piece is for hazard pay or bonus pay. So it’s not just having to maintain the current existing pay schedule prior to February the 15th of your employees, you can pay them more. If you’re giving them hazard pay or if you’re paying furloughed employees a portion of their salary or things like that. So you do have the opportunity to extend what these payroll costs mean. Again, that’s another part that’s stipulated in the bill itself.
So on the forgiveness side of things, of the bill, there were some other changes in let’s call it requirements. So one of the requirements that it used to be was that of what was forgiven. You had to utilize at least 75 percent of the funding that you received for employees. You can use some things like rent or mortgage interest for your business properties, utilities, as forgivable expenses, but they put some kind of capital. Is that guys? This is to keep people on payroll. You can’t just pay off this and then call it good. And so that’s what it was originally. It has not been changed to 60 40. And so it’s a little more flexible in the second term of the webinar. But in that, you’ve got to do at least 60 percent of your share of the funding you’ve received for payroll. And the rest of it can be for the not payroll things. It was originally written and it looks like 60 percent was kind of like a hard line. It has to be at least this in that interim final rule. I mentioned that we expect to be published tomorrow. It’s rumored that there will be a what’s the word I’m looking for?
Well, OK, so let me let me hold that, because it was really interesting after or when this was being discussed in the House. Senator Marco Rubio was was saying, no, the way this verbiage is shown, it’s hard and fast. So either you meet 60 percent of this PPP loan for payroll or none of it is forgivable. And the way the SBA had interpreted the original PPP was that basically any portion of the money that you used for payroll up to seventy five percent or at at least seventy five percent anyways, could be could be forgiven. So even if you only use 20 percent of the of the loan for payroll and you use the rest for utilities and interest and that kind stuff, it just means that only a portion of that would be forgivable. But the wait. But Senator Rubio is coming and saying the way this is written is it must be at least 60 percent or none of it is forgivable. So it’s hard and fast. But then now they’re expected to come through with some regulations tomorrow. And that will make it more like the older rules, which is even even if you only use 20 percent, have a pro rated type of account because there’s exceptions and stuff in there.
And so we can’t say that with absolute clarity until they have actually published it. And so personally, I think it would logically make sense that PPP intended for your employees. They give you twenty four weeks to spend it on the payroll. At least 60 percent of it should be no problem. And so it shouldn’t be an issue. There may be a couple of individual cases that may be a separate piece, but knowing that was there, the SBA has updated the PPP forgiveness application to reflect the 60 percent payroll versus 75 percent, which is nice. And so the payroll, they have updated that piece when looking through that, the application paperwork. Again, we’ve got time on this, especially if we get that extra, you’re going to have your loan amended. I’m losing words here, but you a to give that 10 month period is the six month period we’ve got time on, this is not an immediate thing you’ve got to go and do right now. But the paperwork, they seem to have streamlined it. It’s pretty recent. So they may add more later. But what I printed today was five pages of the new. Loan application for their forgiveness. The old one, which had the seventy five percent number, was 10 pages. There wasn’t more to fill out. The 10 pages have more instructions. When we say this, this is what this means. This interprets into this thing. So if you’re going through and wanted to kind of get ahead of the game and at least go through and do a dry run of your forgiveness application and you’re confused on, well, what are they trying to say here? It is mostly straightforward.
Hopefully it doesn’t cause too much confusion, but it may be worth at least considering looking at the old paperwork for definitions on what did they mean, almost pieces. It could be a benefit, one not tossed out. So the other piece piece that was changed in the paperwork and also. And the. Acronym oh, PPPFA that was changed and that was. There is a limitation on your employees. Right. So initially it was a hey, you apply for this. You have 10 employees. Things go bad. You have to let your employees go. You apply for your forgiveness. You now only have four employees that had a negative math effect to how much you could do on forgiveness. And so which also, to a degree, made sense with the PPPFA. I got it right? Yes, sir. I’m beautiful. All right. So what has added in? Is there called Safe Harbor? Call it an exception. They now have an allowance for, hey, there are extenuating circumstances under which you can have a reduction in employees and not have a negative math reduction in your forgiveness amount that is included in the application paperwork. I don’t want to go over those in excruciating detail. It’s not a get out of jail free card. It’s not a let’s manipulate the situation so that we can keep more of this for ourselves, because that’s not, again, with the intent is and that’s not who we are in trying to do those kinds of things. But it is there for the circumstances under which that they need to be there.
So, like, for example. Right. For example, if you fire one of your employees for cause this the changes here are to keep you from being penalized and having to keep employees during the window in which you would have fired for cause. Right. And so that’s just an example, because under the old rules, it would have penalized you for that. This allows and provides an exception under certain circumstances. Like one of those is one of the exceptions as an offering. Yep. Your operating income is just still significantly reduced.
And so so only got eight weeks of payroll and you have 24 weeks to forgive it. But, you know, you’re looking at the same guy as I still haven’t done anything for six months. What do you mean? I need to have some employees. There’s some change there.
And by the way, as that covered experience, sorry, the covered period is extended to December the thirty first of twenty twenty. So is the period of time in which you must maintain your employees until December the thirty first of twenty twenty. And that’s why this matters a lot, because you get, you know, two and a half times your average monthly payroll and keeping employees until December. And if your business isn’t generating revenue for the rest of the month of the year, that the PPP loan is not enough to cover you. And so if you’re not generating that income, you can’t maintain the employees with two and a half times your monthly payroll.
And some of that I’d be interested to see in this new rule they publish tomorrow, because the application, the way it’s written is at the time of application. How many employees do you have if you’re not filling up the application until July of next year? You’re like, hey, I’m good. I don’t know how that exactly goes. Ah, you know, Kevin’s initial feeling was, no, it’s the loan period that you had. What are your employees then? Which would make logical sense. My follow that it’s just read what’s on paper and go, here’s what we’re stuck with. So that extra information, all that extra fine print will be helpful. We don’t want to be helpful in a negative way. Wouldn’t be helpful in a good way, but just the extra time we’ll give them.
Once you’ve got time to put all that stuff together, but they’ve got time to write those rules to benefit us the most on that in the PPP program was launched on April the 3rd for for entities and April the 10th for independent contractors. And it was late April, I think was three weeks later, two and 1/2 weeks later, that the SBA came out with 31 pages of regulations. And so, you know, it’s a living, breathing, ever evolving thing. And this is probably one of the more final steps of evolution. But even still, they’re having to come up with these letters of intent and additional regulations from the SBA on how they’re going to how they’re going to operate based on the PPPFA updates.
So last thing I want to mention on the paperwork itself, for those that are watching and those who have corporation entities, businesses, lots of employees, there is a few steps we need to go through and loan paperwork. Those who are self-employed, monos, we have a lot of folks who are self-employed, independent contractors, et cetera. As you’re looking through the math, looking at the number of employees, payroll, et cetera, you can ignore a lot of that page that is involved. There’s a section that has compensation to owners, and that is for the amount paid to honor self-employed individuals, et cetera. All you have to do is put your payroll on that line. So, again, we have a lot of those to make sure we give it in for those. If they’re listening or tuning in for that piece, that should be all you need to fill out for that almost whole wall of information. Those who have employees. If you have a lot more information, sure to go through. But with payroll and filings and 940s, you are more used to lots of extra paperwork anyway. So it should be no different, but also self-employed looking at this and say, I don’t understand this. It doesn’t apply to you. Which is great.
That’s right. And of course, if you’re looking for assistance in actually filling out the paperwork, give us a call or shoot us an email. We’re happy to work with you. OK. So now what we’re going to transition into. And this will be the first time we’re doing it this way. We’re going to transition into a question and answer portion. But but doing this the way that we are, we’re going to try and give you an opportunity to actually speak your question out loud. So all of you are forcibly muted right now. But we’ve got our lovely assistant, Clark here, who is going to who is going to be our Vanna White. He’s going to have basically what we want you to do is we want you to type in the chat that you have a question. Just say I have a question, and then Clark will go through kind of top to bottom if you want to voice your question in that way. Then he will unmute you and you’ll be able to ask your question to us. We can have a little bit of back and forth. Please be respectful of everyone’s time. Try not to provide us too long of a story. If you do, I’m going to cut you off and try to get you down to your question. But providing context, of course, is important and really effectively answering your question. So we got to give a little bit of time for that. If you don’t want to voice your question, no problem. Just type that in the chat and Clark will read that question to us. OK. So let’s go ahead and transition into the Q&A portion. Now, if you have a question, please, just type. I have a question.
Clark, do we have anything yet? Yes, we do. So I’m going to read a few questions that came in during the presentation. All right. For a few more to come. Real quick. Can you guys hear Clark when he’s reading that question? Can you guys type in chat that you can hear Clark when he’s talking? Yes. OK. Perfect. Thank you. Go ahead, Clark. OK. So the first question, our list is, if my company never processes payroll, we will only use to 1099 contractors.
Do we still qualify for the payroll protection program?
Yes. The quick answer question is yes. So the way that that was asked. Right.
It may be difficult. So so the paying independent contractors. There was weird there was back and forth on that. And they didn’t qualify as payroll costs because they could go get their own, essentially. And so there was weird back and forth. But I know there are some some before, some of against. So I’d have to look at it again and just make sure because there was all the rules and stuff that would be my.
So my understanding is if you were issuing them 1099 as 1099s as independent contractors, that that would qualify for payroll expenses. What Charlie’s saying is correct in the sense that if they’re independent contractors, they can file for their own payroll protection program. So you run the risk of you are a business and you get the payroll protection program and then you have these independent contractors and they get the payroll protection program and they’re approving their own payroll and you’re proving their payroll. You see where the issue is, right? Because you’re double dipping. But it was my understanding there that there were if you were issuing a 1099, that you could include that in your expense. That may be a little bit of a higher level question that you need to work with us individually on. And so if you if you want to send us an email at firstname.lastname@example.org And Clark, if you’ll type that in the chat, please, email@example.com. Then then certainly we’re willing to to get with you on that. And then you can either ask Charles or ask myself or include both of our names on that. And we can look into that because what Charlie’s saying is right, that that’s what their concern was. But the last I read it, which had a it had been a little bit since I looked into that particular issue, is that if you were issuing ten ninety nine, that they might still qualify.
Great question. Great question. OK, next question from Marcia. Do we have.
I’m sorry, do we just send the bank or business banker? An email asking for the mutual agreement on new rules.
Yeah, I would. You could definitely start by email. You just need to contact them. So the bill doesn’t tell you again, the law is not on your side. Like I mentioned earlier, you can’t strong arm them into doing this. So however, you had successfully contacted your lender before. That’s how I would recommend you contact them again. I will tell you that these lenders are fed up with the PPP loans. They really are. There wasn’t that the federal government is paying them one percent of these loans to do this. And a wise man once told me never to complain about too much work. So I rarely do. But I will tell you, after dealing with some of these lenders, they have not been happy trying to deal with all of these EIDL loans and PPP loans. So give them a little bit of of of a break, because they’re probably not gonna be super happy now that this is ramping up again with the forgiveness and people try to get these mutual agreements. But, yes, I would contact them probably through e-mail first. Give them 48 hours. If they don’t get back to you, then I call them. That would be what I would do personally.
Right. Right. OK. The next few questions are going to come from Karina. OK, great. The first one is, is the loan taxable?
No. The loan is not taxable. Whether you are an independent contractor or any type of business who qualifies for this loan. This loan is not taxable income. But let let me let me dive in. Yeah, let me dive into the but here, because and I’m going to try to make this real short because I’m gonna get into my technical brain as a tax advisor and. And so this gets kind of complicated. Originally, originally, the payroll protection program came in saying that it’s not taxable, but you cannot use the expenses that you incurred as a write off. Which essentially means it’s taxable. Right.
But I will tell you that several of nationwide CPA organizations are fighting this. And so I think that we’re going to see something in this regard. What they already saw a little bit of progress, but nothing of a final nature. And so so just follow my math here for a moment. Right. Because if you received twenty thousand dollars from the payroll protection program and you go and you pay your employees this 20 thousand dollars, so you meet the loan forgiveness, everything’s square. But now you don’t get to write off this 20 thousand dollars, which you would have in the previous year.
It looks like you’re twenty thousand dollars more profitable. You pay taxes based on profit. So now essentially you’re taxed on it. So there now, Charlie, I will both tell you and what we do, any expenses that you’re reimbursed should never be deducted. Correct. So logically, it makes sense. A small thing, but effectively it’s acting as if it’s taxable. And so that’s where they’re trying to come in and fight it. I really do think they’re going to end up getting some some um uh I think they will be successful in fighting this because the intent is not to increase your tax liability. That’s why they set it in the bill that the loan was not taxable. And while it’s not taxable in this way, it is effectively taxable because if it was taxable, then you would write off the expense, which then you end up with the same profit. So it’s effectively from somewhere else.
So there is a counter argument of the, hey, if you wouldn’t hire these employees back anyway, you wouldn’t have had that cost. And so it’s just trying to keep it out of your pockets and keep the employees paid. And so but one to note on this as well as, yes, the employees matter. But my looking at this, it’s taxable in the clause. When you have employees, those who are independent contractors shouldn’t face them. That’s right. And so if you are an independent contractor, you is getting this and usually less than that with your forgiveness. It won’t affect your taxes in the way that Kevin was referencing for those who have corporations.
Yeah, I know personally a couple of folks who are joining us today. Thank you for being here, are independent contractors. And so what Charlie is saying is a helpful answer to your question in which you’re not taxed on it.
Ok. The next question, did I understand that it is the loan forgiveness application submitted before June 5th or the original loan application before June 5th that requires mutual agreement by the bank or new terms?
Yes. If I didn’t stipulate this, I apologize. Any loan applications post June 5th? You already got them on you already? Yeah. The application submitted post June 5th. But yeah. So the application submitted post June 5th. Your square. Your. Under the new rules. And so it’s just these that were done prior to June 5th, which again, your understanding is correct. If your application was, was, was processed prior to June 5th, you are under the old rules and you need the mutually agreement. You need a mutual agreement between you and your lender for the new rules to get the 10 month government or reconsider.
Is there more money available?
Can we get more money? Last, Oh, if you’re asking if there’s a second round of PPP approvals. That is not the case. So you cannot apply a second time. So if you’ve already applied, then you’ve received what you’re going to receive. But if you have not yet applied the last I checked. Right. Which was a week and a half ago. A while ago. But yeah, it was five hundred and seventeen billion of the six hundred and eleven billion I think that was approved has been used. And the amount of applications that were still being processed was sharply declining. Right. Which means you do have time between now and June 30th to to get an application through. And I would be floored. I would be shocked if they didn’t have any money still available. Right. So I.
I don’t have an active number as of today, but I’m sure that the challenge of finding a lender to do that for you. But exactly. Not yet received the funding then. Yes. In that sense, more. But if it’s a hey, you’ve already received your eight and a half weeks of payroll, is there more than that you can get? No.
Yeah, that’s that’s that’s right. So I hope that answers your question. Okay, the next question comes from Michael. Somebody go ahead unmute you.
Maybe, can you hear me, gentlemen? Yes, yeah, we can hear you, Michael.
And I think you’ve already covered what I’m going to ask and your previous question. I applied at the Bank of America. I applied the first week of May, and for whatever reason paperwork wasn’t right or whatever, it took them a long time to approve it. I just got an e-mail last night. It’s funny saying that I have been approved. I haven’t taken any money yet, but I just got approved. So basically what I’m hearing from you is I need to go back there and say, hey, now I want the new rules and not the old rules. Is that what I need to do?
I would. I would try. You’ve kind of hopped the gap there between the have applied for it here. But I got approved for it here. And so me personally, I play a lot of things conservative. I would go ahead and contact them and at least verify. Hey, thank you for letting me know I was approved. Do we need to change anything to utilize the new rules or have you already applied the 10 month, 24 week, etc..
Yeah, and I would do the exact same thing because you’re in an interesting spot. I would call them or email them to just to just confirm that you have the new rules. Remember, the date is June the 5th. And so and it’s how the payroll protection program flexibility act. So I would just ask them, do I operate under the PPPFA rules? Is this loan under the PPPFA rules or the PPP rules since I applied prior to June the 5th? So you come in there with knowledge like that, you should be able to get transferred very easily.
Ok. And the money they approved, let’s say it’s twenty thousand dollars instead of the eight weeks I would have 24 weeks to use that for payroll, assuming the PPPFA rules.
Ok. Thank you very much.
Thanks, Michael, for your question. Appreciate you joining us.
We have one more question typed up from Kristen. We received PPP. We have already spent at one hundred percent on payroll. Do we need to ask them to agree to the new rules?
Do you need to know so you can process the loan application? The thing is, is the new rules give you more time to do that. And so if it’s something that, you know, you’re a Johnny on the spot, want to get it taken care of? Sure. And so it will harm you by asking for rules that would just give you more time to continue operating things up and going in the process loan forgiveness later.
So I think what Charlie’s saying is that it’s not going to hurt. Right. However, it would be my opinion if you have already met your obligations for forgiveness, that you not request that they update the loan to the new rules because there’s if, again, you have met all the other requirements simply because why have… What am I trying to say here? Why have them modify your loan if you’ve already met your reason? Originally agreed upon terms.
If it doesn’t benefit you, then I wouldn’t if if you’re a person who’s adheres to the you know. Oh, do today what you don’t. If it’s or there’s.
What’s the phrase on Teddy Roosevelt. Yeah. Don’t do tomorrow. What can be done today after tomorrow. Sorry I butchered it. I know but.
But if you have that kind of person then yes. You don’t need to change anything. If you’re not that kind of person, you leave three days of dishes in the sink and it’s going to take you some time to do that. Application you by asking for new rules, you would have more procrastination time. It’s up to you.
I feel like I feel like you’re personally attacking me. Maybe. OK. Any other questions? Does anybody else have anything that they want to ask?
So Tim has a question. Great. What happens if I receive both EIDL and PPP Funds? Is the forgiveness reduced?
Well, OK, so that’s kind of complicated. And we’ll go out and cover it. The EIDL grant of ten thousand dollars. So if you received the initial EIDL grant of ten thousand dollars to 10000. Sorry. Thank you, Clark. Up to ten thousand dollars, whatever portion you received will reduce your forgivable amount. That was part of what you put on the paperwork. However, outside of the grant, none of the of the EIDL loan goes against that forgivable portion of the payroll protection program loan. So that’s the that’s the quick answer to your question. Obviously, a detailed answer may be necessary based on your circumstances, which is going to be on the scope of what we can do today.
Would you agree? Yes, Charles.
Sorry. Charlie and I have been friends for a long time. So we and I grew up together and I call him Charlie, but he is Charles professionally. So I hope you’ll all forgive me.
Yeah. Thank you. I’m not asking for your forgiveness. OK. Any other questions that we have for today? Karina’s got a question. Great minute. Go ahead and go ahead. And you OK?
Hi, good morning. We’re having this so if we’re under I got my loan May. OK.
Well, that means I’m under the first PPP. Not PPPFA, right. So does the timeframe change? So I think you said it was six months to apply for the loan forgiveness. And two years to pay it back? Is that what I’m under unless I ask for the mutual agreement so that I can then get the 10 months and 5 year payback? That, yes, you understand it correctly. OK. So I hope I can do that again. And then how we just contact the day and ask for help.
Forgivable loan application or…? There is not specific direction on how to do this. All this bill talks about and I haven’t had any clients personally who have done this yet because this is so new. Right. And so what? So I don’t have any any actionable feedback to give you of what has worked in the past. I can only tell you that the bill says that the that the applicant and the lender must mutually agree. So that’s all the information I’m relying on. So that’s all I can tell you.
Which is what you asked. So, yes, to confirm what you’re asking. Yes, you’re correct.
So that’s what I was asking also is, I have to now make an application to have the loan forgiven. Right?
There is a process. Yes. For the loan to actually be forgiven once the covered period is over.
And every lender will have their own rules for how things are done. You can find the PPP loan application paperwork on the SBA Web site, which will get you started. But every lender is going to have their own idiosyncrasies of what they require to meet everything. And so from the high level view or I, we don’t work for Wells Fargo Bank, Americans like that. And so we can’t tell you exactly what they do.
Wells Fargo is already contacted saying that they were able to answer questions about the forgive the loans and a lot of other things So it sounds like they’re going to be helpful even though they’re not getting paid much.
And I will tell you that you should reach out to your tax advisor to to look for look for that assistance when you start getting specific questions, because we are certainly happy to help you.
I happen to know that tax advisor very well.
Well, really, do you? Imagine that? OK. Thanks, Karina.
Ok. So Christine has a follow up question. Great. Very similar nature.
She’s wondering if the five page application already filled out, if she should just and that’s to Woodforest Bank, for her forgiveness.
Ok. So great question. Woodforest will have their own requirements? Right. It’s kind of like when you’re trying to buy a house, right? I bought a house through Chase once. I bought a house through Mercantil Bank, my second house I bought from Mercantil bank, they had very different requirements. While the SBA may have the loan paperwork that you have to fill out, Woodforest also was going to require things like a copy of your driver’s license and a copy of your tax documents and that kind of stuff. So you’re going to have to put some information together in in regards to the application itself. Having the application filled out is good. Helpful? Absolutely.
Good prep document. I’ve already got the stuff ready when they ask me those questions. I already have the answers like a cheat sheet.
Yeah. But there’s gonna be more they’re gonna they’re going to require more. Now, to be honest, the payroll protection program, loan applications are not extensive, depending on what type of business you have. If you’re an independent contractor like like Charles was saying earlier, it’s relatively straightforward. There are a couple of trips that you need to look for. It’s going to ask you some questions like have you defaulted on an SBA loan or a government loan in the last seven years? For example, it asks you if you committed felonies and all this other stuff like there’s there are you got to you have to make certain certifications and that kind of stuff. And so you want to read that legalese very carefully. And if you have questions about that, you can reach out to us. And we’re happy to advise you on that. And, you know, I have a handful of people who I helped with the actual application process itself. We cannot act as “agents” on your behalf directly with the lender or the federal government in regards to these loans. But we can prepare all the paperwork, get everything ready. Confirm with you may. Make sure everything’s right. Explain it all clearly and then provide you with kind of the final paperwork, if you will, which is what I did was certainly handful of clients. So I hope that answers your question if it doesn’t make sure and ask at one.
What else do we have, Clara? Anything else?
Hey, Tim, I’m going to go ahead and unmute you. Your next question.
Ok, can you hear me? Yes, sir. OK, great. I’m the one that asked about that. Yeah. The EIDL and PPP. I appreciate your answering the question. What I want to clarify was so when I initially applied for the EIDL grant and had not applied for PPP, when I did apply for PPP, I had not received the EIDL, so that actually I received the EIDL and PPP funds, both. And so my original understanding was that the PPP would have been reduced by the amount that the EIDL funds the grant that I received anyway. Now that I have both will the forgiveness on the PPP side be. I received eight thousand for me EIDL. Well, that forgiveness be reduced by a thousand on the PPP side?
Yes, that’s exactly right. You understand that perfectly. So you’re how much of your PPP loan can be forgiven is directly reduced by the amount of the EIDL loan grant that that the the kind of the forgivable grants that you received because you can’t double dip between the two. And so however much the PPP loan was, again, let’s just use the 20 thousand dollars as an example, up to 12000. In your case would be forgivable. Now, the eight thousand that does have to be paid back. Remember, under the new PPPFA rules, if you can mutually agree with your lender. Have instead of a two year window to pay back, have a five year window in that five year window, just not begin until 10 months after the covered period. The covered period ends on December 31st of 2020. So you wouldn’t have to start paying back any of the loan. And again, at a one percent interest rate, you wouldn’t have to start paying it back until October basically Halloween of twenty twenty one. In which case you have five years to do it. So you’ve got quite the window to get a payback at a really low interest rate. So if you like leverage as a business owner, which I love leverage for business owners, because what you’re saying is I can turn this amount of money into this amount of money. Right. And so that leverage is at a great rate. So even in that scenario, which some of it’s not forgivable, you know, you should still view it as a as a huge positive.
And bear in mind, they’re still right on that fine print. So there is always a possibility that the 24 week period allows you the payroll to cover both of those things. And you don’t have to worry about that. But that’s not an ironclad, that is a complete conjecture. Just fingers crossed. Does that answer your question?
It did. And I appreciate your time very much. This is great. Great. Thanks.
Ok, the next question comes from Anne Marie. If one branch of the bank isn’t doing PPP, should I try another branch?
I don’t know the answer to that question. I would guess no. But the branch that you’re currently asking, who said no, you may just ask them. Are any of your other branches processing these loans? My guess. And again, we don’t have super secret, you know, backroom information. But my guess is, is they won’t be if one branch isn’t. My guess is the rest aren’t. There were some there were some really specific rules. Once the thirty one pages of SBA regulations came out a couple of weeks after I hit first kind of started, because what was happening is these really large banks: Chase, Bank of America, Wells Fargo, they pushed through thousands. I mean, Chase was the was the big culprit here. I say culprit-they don’t do anything wrong. It’s just the way that it was set up. They pushed through thousands and thousands of applications and met. They were a large contributor. Sure. The large the large group that secured almost all of the first round of funding. If you’ll recall, they had a first round of three hundred and forty nine billion dollars of funding that they that they pushed through. And they ended up having to come up with, I think it was 250, 250 billion of a second round of of funding.
And so Chase just just took out a bunch of them. And I have a point here, I promise. Because then what happens is through that second loan or I’m sorry, that second round of funding, that 250 billion dollars, they set restrictions on how many applications a bank could put through each day.
And so that put some of these larger banks who have a lot more resources on even footing with some of these smaller lenders. And so at that point, a lot of these other lenders jumped in and some of that money is still available. So I hope that answers your question. If it doesn’t, please let us know.
What else we got Cark? Give me one second. Let me him again. OK. The next question will be from Marcia. Let me unmute you.
Ok. Hey, Marcia, thanks for joining us. What’s your question for us today?
Thank you all for having the information, providing the information. I want to piggyback on Tim’s question regarding the EIDL and the PPP. We are my company. Also receive both. The PPP was less than the EIDL,though I’m not sure if that was. Then correct me if that’s. I’m sorry.
That’s probably not well, they have less of that may have given the EIDL because you could have gotten a lot more out of the EIDL if you so chose to be a business decision to do. Well, leverage, how much more can I get out of this type of deal? But it wouldn’t surprise me that your PPP was less than the EIDL that you received.
So how do we do with what part of it will be forgiven, in other words, if we if I go back to them, then it would be a good idea also if you go back to the lender. And they agree on the new rules?
Sure. So let’s let’s operate under some assumptions for a moment. OK. So let’s assume that the payroll protection loan was twenty thousand dollars and that the EIDL loan was thirty thousand dollars, OK. And you can you can insert your own numbers into here. Right. But then let’s assume that the EIDL loan that you initially got included a grant of let’s call it five thousand dollars. OK, so let’s just operate under these hypothetical numbers for a moment.
Give a loan of twenty five thousand five thousand hours of free money to make it a total of 30. Correct.
Is that what you’re talking about? Twenty thousand dollars off of PPP and thirty thousand dollars of EIDL loan, which of which five thousand was the grants. Right. So. So what that means is fifty thousand dollars total in government subsidized loans here. Right. Twenty thousand of it is payroll protection. Thirty thousand is idle. But you’ve got five thousand of the EIDL upfront. The thirty thousand dollar EIDL loan. Five thousand upfront is you don’t have to pay back. OK. The other twenty five thousand dollars of the EIDL loan is money that has to be paid back. None of it is forgiven for any reason. Just the upfront grant paid the grant portion, which in our hypothetical scenarios is five thousand. You with me so far, Marsha? Yes. OK, perfect. So now what we’ve got is twenty thousand dollars of payroll protection. Well, one hundred percent of the payroll protection loan is generally forgivable, except any portion that you get from the EIDL grant, which is entirely forgivable. No questions asked. Your payroll protection portion that can be forgiven is reduced to the same sum. So in this case, of the 20 thousand dollars, 5000 of your PPP loan gets reduced on the forgiven portion, not how much you receive. You’ve got the full 20 thousand. Five thousand of it is not forgivable, which means fifteen thousand of the PPP is forgiven and 5000 of the EIDL is forgiven. And it’s not a coincidence that the two equal twenty thousand, which is your PPP loan amount. Does that answer your question, Marcia? When I have a drink or two, I get it. I get it. It’s complicated. I totally understand. So I was trying to walk through that kind of slowly. Do you need me to repeat it? Maybe a little differently.
Possibly the left with regards to equaling whatever you say. Twenty thousand of three thousand. Fifty thousand of the PPP is forgivable, right?
So. So let me explain it this way. Right. Whatever amount you get on the PPP is potentially all forgivable. There is one exception to that. And that’s if you also receive the EIDL loan. In your business’s case, it received both. So now suddenly you have to worry that a portion of your PPP loan isn’t forgivable. You with me so far?
The reason for that is when you applied for the EIDL, you stated we need this funding. One of the reasons we did the funding is for payroll purposes. And so because it was for payroll purposes, you not have received funding for payroll purposes and received funding for payroll purposes. And so the portion of the EIDL loan that you have to pay back, no matter what, isn’t a factor. Right. It’s it’s own twenty five thousand number. The five thousand of the 30 that you got. That was a grant, that was free. You have to pay back. It was attributed to payroll. And now has to affect the payroll protection plan that you receive. And that’s why there’s a play there.
And so ultimately, it it’s just that your the forgivable portion of your payroll protection program loan is negatively affected by the EIDL grant. So if in this scenario you’ve got 5000 right quick from the EIDL loan because those idle grants came fast. Right. That was the government trying to get money in businesses hands right away so that they could just make the next payroll. Right. If in the scenario that we’re talking about, you have five, right? Well, we’ve got hours after we got the PPP first. Really? Wow, that’s surprising. I know. Marsha, it may be that your business did not receive up. Well, no, I don’t know that that’s possible. I’m not saying anything about a grant. I was gonna ask you too. How did I find out what part of it was grant? It could be that none of the EIDL was a grant. I’ve not seen that scenario. And to my understanding, that probably couldn’t happen. So it looks like Clark’s point out himself. So he’s looking like he’s gonna give us some… Clark is the one who really processed our companies EIDL loan. So he’s got some some real helpful insight.
There are some situations for the EIDL you can improve for the loan and the if you don’t have the correct banking information, you just don’t get the grant. It’s all a loan. They’ll send you a notification email saying we can reprocesses for the grant or included just as a loan. So there are some varying circumstances, but it’s OK.
So then let’s let’s throw let’s use this hypothetical situation and let’s throw a little bit of math out there and let’s assume that what Clark is saying happened. Now, I can’t confirm that. Right, I’ve worked with you specifically, but excuse me. Let’s assume that you did not receive the grant, but you received thirty thousand dollars from the EIDL and twenty thousand dollars for the payroll protection program. None of the EIDL would be forgiven. Not a penny. All right. And potentially, if you meet the requirements, all of the twenty thousand dollars of the payroll protection program could be forgiven. I’m not telling you at all is, I’m saying it all could be. Are you with me? Does that make sense? Yes. That makes sense, yes, perfect. Perfect. That’s great. OK. Fantastic. Thanks for your question, Marsha. Appreciate it.
Thank you for clearing that up. You’re welcome. OK, the next question comes from Anne Marie. I still have not yet received my EIDL made application the first week it came available. Is this normal?
Well, I can tell you what, Clark ours took two months, two and a half months before it came through and ours took a long time. Molen & Associates took a long time. I have not had any clients report back to me your same situation.
But but to be fair, I handle a lot of individuals and sole proprietors, kind of independent contractors. And so most of them did not file for the EIDL loan. And so I haven’t had anybody come back to me and say it’s taken this long. Excuse me. I know ours took quite a long time. So whether it’s normal or not, I really can’t answer that question. Charlie, do you have any idea how I got context on that?
The only thing I offer is when I was first researching everything about the EIDL character was first passed looking at the process for the SBA to do the EIDL there. Step, step, step, step. One of the earliest steps was they assign you an agent, someone that you actually work with. And so if you have at least reached that, what seems to be an early step in that process of the hey, you have someone who is now assigned to you. That would be your point of contact. And I would ask that they would have the context to reference what’s the average? What’s this? What’s the hang up? So it’s out there.
What do you think about that, Clark?
Did we have somebody that was assigned to us, an agent or somebody that was assigned to us to work with the EIDL?
I can read, but I’ve experienced this difficulty, no, it was more just online based. I didn’t any names need associated with it.
Ok. OK, so Anne Marie. Based on what Charlie’s saying, if you do have a contact then. Yeah, absolutely. Talk with that person. I mean, I would say it’s probably getting a little lengthy here for you to have not received it yet. So I personally would start to question and worry. But I know it did take us a long time to receive, again, like two and half months at this point. I’ve been three months for you.
So Marcia’s also commenting. She applied around the same time. I just got the EIDL last week.
Great. Thank you for the context, Marsha. So, Anne Marie, it sounds like it may maybe not be that unusual. It may be just around the just around the corner. A big backlog. Yeah.
That’s all the questions we have in the chat. Are there any more questions that you guys have?
Please, again, just type in the chat. I have a question and we’ll get to unmuted and answer your question. It doesn’t look like we have anything else coming through. I want to say thank you so much for joining us today. Yeah. So Charles and I and Clark certainly put a lot of work into this. If you received value from us doing this together today, I hope that you will share this with your friends. Clark, this should be available as a link on our Web sites within what kind of timeframe? Within 24 hours. Within 24 hours. This should be available on our Web site. If you would like to receive this link in an e-mail. Please just e-mail us at firstname.lastname@example.org. Thats email@example.com. And we’re happy to send you the link if what you’re looking for is some individual answers to your specific situation that we weren’t able to cover today or were a little too private for us to discuss in a public forum like this today. Please give us a call. Our line here is 281-440-6279. And we’re certainly happy to help in any way that we can. Other than that, please look to Molen & Associates for your tax preparation needs, and we’ll see you next time.