As many businesses have received their PPP funds, the focus has shifted to forgiveness. Though the initial 8-week period is coming to a close for many early recipients, many questions still remain about documentation and qualifications for those seeking forgiveness. Today, Managing Partner John Geraci, CPA, MST speaks with Matt Touma, CPA about some of these questions and what’s known at this time.
[John]: Hi, John Geraci here, managing partner of LGA. And I’m here today with Matt Touma to talk to you about SBAs PPP program and specifically some of the forgiveness criteria and guidance that they’ve issued over the past couple of weeks. And Matt, it started a couple of weeks ago when they put out the application and the related instructions to the application. Can you tell me something that we learned about the payroll factor when they issued that?
[Matt]: Yeah, I think one great thing that we learned, uh, that they’re going to be offering an alternative coverage period. So we’ve always heard that the eight week forgiveness period would start when the loans were dispersed and now allowing you to choose an alternative and defer that until your next payroll period begins, which, um, should be easier as far as lining it up with your payroll costs and providing that backup when you’re applying for forgiveness.
[John]: Makes a lot of sense too because it was going to be difficult to try to figure out how to split your weeks and provide that information to the bank when you’re applying for forgiveness. Um, something that we learned on the non-payroll costs.
[Matt]: Well there again, a lot of new information, you know, some good things where they’re going to allow some, uh, as far as leases and mortgage, they’re going to allow personal property as well as real property. A lot of those we thought were limited to office space rental and things like that. It seems to be expanding that definition. We’ve also seen that it looks like you’ll be able to apply for or including your forgiveness calculation more than eight weeks, which is completely, we’ve always heard eight weeks, eight weeks, eight weeks. Um, now it looks like depending on when things are incurred and paid, you could actually get more than that. They actually provide a very explicit example where in one case utilities could be almost three months instead of two months. So, uh, things as far as including more costs in this window.
[John]: Well, that’s interesting. So is there a reason that you can’t expand that logic to payroll as well?
[Matt]: No. And that’s the thought is that it would expand to payroll as well that, you know, depending on when your pay periods hit, um, that you would get to take what’s incurred during the eight weeks, which is automatically eight weeks as well as anything else that’s paid in that eight weeks. So it could expand, you know, to nine or 10 weeks.
[John]: Wow. That’s, that’s interesting cause it seemed like they were focused on keeping it to 56 days, but I saw some, some similar language in the guidance that suggests that as well. So I guess we’ll see if they, if they clarify that in the coming weeks. Uh, something that you learned about forgiveness in this process as it relates to the FTE reductions and the, uh, salary and wage reductions that would normally reduce forgiveness.
[Matt]: Yeah, and in a lot of places, you know, a lot of companies were going to have a tough time with that if they had to lay people off even temporarily to meet those FTE or salary reduction thresholds. They’ve actually instituted a new safe Harbor exemption where if you bring your employees back or replace their wages back to their original levels by a certain date, you’ll actually be able to avoid those penalties.
[John]: Okay. And currently that’s I think June 30th. Right? I think as long as you get your FTE count up by June 30th and you get those salaries and wages restored by June 30th, you’re okay. Even if during the eight week covered period you didn’t do it. So I think that’s something that was extremely helpful for that. It was going to take some time. Now this is all great, but as we know what the PPP application process information was changing daily and even though we’re sort of approaching the first forgiveness window for anyone who received their PPP funds roughly eight weeks ago, um, there’s still a lot of businesses that didn’t get their funds for several weeks. So there’s still some time here for them to change things. Uh, a lot of businesses have been closed and have been struggling and wrestling with how are they supposed to expend the PPP funds when they weren’t open. And the eight weeks just weren’t enough. There’s some new legislation. I thought I saw that that was in the house that was going to provide some relief. Can you talk to me about some of the things that you’re seeing in that?
[Matt]: Yeah, and the things we just talked about definitely helped, but this would be a game changer. Some of the things that I’m proposing now, the eight weeks would actually be extended to 24 weeks, which would be huge. Um, extend that safe Harbor day to bring people back from June 30th to December 31st also talking about altering the ratio. Right now you can only have 25% non-payroll costs as part of the forgiveness. They would increase that to 40%. So allowing some more leniency. It’s a little frustrating in the sense that they keep changing things, but the, the thing, the important thing to remember is they keep changing it for the better. It seems like to benefit the borrowers and increase forgiveness. All right, so…
[John]: It sounds like our work’s not done here in that we’re going to be probably speaking a lot more and sharing a lot more over the next coming weeks as this continues to evolve. So just wanted to give everyone an update. I will continue to update you as things progress. Obviously if this bill does get passed and there is some formal change with respect to the forgiveness criteria, we’ll get that out to you as soon as possible. So thanks Matt. And as always, if you have any questions, please reach out to the team. Thank you.