PracticeCFO Global Update: PPP and EIDL
Some of our clients are beginning to receive the PPP loan. Please notify us immediately if you do. We need to know the day you received the funds, as well as the amount.
Congress should be passing additional funding to add $310 billion to the PPP program and $60 billion to EIDL. So far, it has only passed the Senate, and details are still up in the air. We’d like to give you a step-by-process in getting the loan, as well as reiterate key points to obtaining loan forgiveness.
Getting the loan
- If you haven’t file, do so ASAP! If you haven’t, and want PracticeCFO to apply on your behalf, please complete this form.
- If you have applied, contact your lender. Attempt to speak with a breathing human being. Ask them the status and if they need any more information. We here at PracticeCFO are doing our best to follow the status, but banks will not talk with us directly. We highly recommend you keep in daily contact with your banker until approved. If you’re just waiting in the digital queue there is no guarantee you’ll be approved before the new funds are exhausted.
- If you can’t get a hold of your banker, and feel there is a risk of not getting approved, please complete this form again and we can apply with a different bank for you. There are some online fintech companies that are doing this, including the following (though some may be temporarily closed until the new funding is approved):
- Live Oak
- PayPal’s Loanbuilder.com
- Lendeavor/Bank of Internet
- Do NOT open a new account for this loan (or the EID loan). Our tools, along with our detailed accounting records, will be sufficient to track the use of the PPP funds.
- PracticeCFO has created a tool that will help us plan for max forgiveness. Our CFOs will be contacting you to outline our recommendation. PPP has presented a catch 22 for most of you. You’re supposed to put your staff back on payroll, but you can’t resume operations yet. We don’t recommend you place your at-home staff on payroll unless they are able to perform their duties from home, such as scheduling and billing. We’d rather you pay back any unused PPP loan than pay your staff who are not working. Your staff will lose unemployment benefits if you do, and it could pose labor law risks to you by having them “work” in an environment outside your office.
- The loan forgiveness is reduced if the follow four factors are not met. Making a detailed plan to maximizing forgiveness is beyond the scope of this email, but we’ll be posting a loan forgiveness calculator to our COVID resources page
- Factor 1: You must re-engage your employees such that your average Full-Time Equivalent (FTE) after you receive the loan is as high as your 2019 average FTE. There is some ambiguity around this. Many have assumed the average is to be determined over the full eight weeks. The CARES Act specifically state, “the average number of full-time equivalent employees shall be determined by calculating the average number of full-time equivalent employees for each pay period falling within a month.” Additionally, the US Treasury guidance states, “You have until June 30th, 2020 to restore your full-time employment and salary levels for changes made between February 15, 2020 and April 26, 2020.” What’s our take? If there are different angles of interpretation, take the one that favors you the borrower. In this case, we recommend using the average FTE during the second month of the eight week period. You’ll likely have your full staff back by that time. Also note that if you hire a brand new staff member, they will count toward your FTE. You are not required to bring back every individual team member. The forgiveness just requires that you restore your FTE as a numerical figure. For any staff that you do bring back, Factor 3 below applies however.
- Factor 2: At least 75% of the loan must be used for payroll costs to obtain full forgiveness. Payroll costs is defined in the CARES Act, but it doesn’t outline time of when you pay those costs. For example you could accelerate your employer-paid 401K and health insurance costs. You could move your Christmas bonus and call it a summer bonus. At a minimum, you should resume payroll for yourself at $16,666 during those eight weeks, as well as resume pay for your spouse and children that were on payroll prior.
- Factor 3: You must not give a reduction in total pay of more than 25% to any specific employee that you bring back. If you do, a portion of the loan won’t be forgiven. The act says to compare the total pay during the eight-week “covered period” with prior full quarter during which the employee was employed before the covered period. This doesn’t make sense to us. Of course there will be reduction in wages when you’re comparing an eight week period against a three month period. Give the language elsewhere (and mentioned in “b” above) we intend to use the second half of the eight week period, multiplied by three, to have an apples-to-apples comparison when planning for you.
- Factor 4: For the portion of the loan not used for payroll, it must be used for interest on pre-existing loans, rent, and utilities. No more than 25% of the loan can used on these items.
- Factor 5: The loan will be reduced by the amount of EID grant that was received. (Note, not the EID loan, only the grant).
- It’s not entirely clear in the act, but we believe the FTE test will be applied first, then a reduction will be made for the remainder factors. Below is an example. For our clients, we will be helping you make plans in the next few weeks to project these calculations and make decisions accordingly to maximize forgiveness.
- Keep in mind that we don’t know what banks will request on their loan forgiveness forms, or how they plan to calculate it. That said, banks are NOT required to validate your numbers. That is not an invitation to be dishonest. But it is an invitation to allow some latitude in your interpretation of the law. Please request from your bank their loan forgiveness application as soon as they have it. Then send that to us in case we don’t have it already.
- If you don’t get the PPP, there’s still a Consolation Prize, the Employee-retention tax credit: starting after Q2 2020, credits of to 50% of eligible employee wages paid by an eligible employer in a 2020 calendar quarter. The credit is subject to an overall wage cap of $10,000 per eligible employee – so basically $5,000 per employee.
- Many of our clients are now getting the EID grant at the rate of $1,000 per staff member. This amount does not need to be repaid, and can be spent on any business expenses. If you do get a PPP loan, the forgivable amount of that loan will be reduced by this grant.
- The grant is to be used for working capital needs (labor, labs, supplies, loan payments, rent, admin costs, etc).
- A few of our clients are now receiving the EID loan as well. This loan will have repayment terms of 3.75% for 30 years. It can’t be used to refinance existing loan, or to expand your practice. Like the EID grant, it’s also intended to be used for working capital needs. Additionally, it can’t be used to make owner draws for personal use.
- We recommend you view this loan as a safety value to get you through this period in the event the 7a loan isn’t sufficient. Once you’re “out of the woods,” we recommend paying any unused amounts back.
- If you receive both the EIDL and the PPP, we’ll assume all payroll, Interest, Rent, and Utilities, are applied first to the PPP. If you have an existing business savings account, you may want to park the EIDL in that account since the EIDL is your back-up plan. But again, don’t create a new bank account for either the PPP or the EIDL.