you’ve applied for – and hopefully received – your ...€¦ · ppp loan forgiveness reduction...
TRANSCRIPT
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You’ve Applied for – and Hopefully Received – Your Paycheck Protection Loan, Now What’s Next
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Presenters
Buddy DearmanManaging PartnerDHG [email protected]
Robert DavisPartnerDHG [email protected]
John SeymourPartnerDHG [email protected]
Hollis HulettSenior ManagerDHG [email protected]
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PPP Loan – What’s Next - Agenda
Lessons learned and recap
Comparisons
Example calculations
Best practices
FAQs
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What Did We Learn?
• We anticipate rules will continue change over time• Clarifications since the law passed:
+ $100k cap applied to gross wages only and not other employer benefits
+ Independent contractors – Not part of loan or forgiveness calculations because 1099 personnel can file their own PPP loans
+ Salary computation – Federal taxes are excluded from loan calculation and forgiveness calculations
+ 75%/25% Rule - no more than 25% for non-payroll expenses• Paper trail for forgiveness appears to be substantial compared to loan
application
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Comparison: Eligibility vs Forgiveness
Eligibility Forgiveness
Number of Employees
• Full-time• Part-Time• Other basis
• Full Time Equivalent (“FTE”)
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What is a Full-Time Equivalent (FTE)?
• FTEs are not defined within the CARES Act
• FTEs per historical SBA guidance:+ Person working at least 30 hours
a week+ Employees working <30 hours
per week can be combined to achieve a full FTE
+ Compute average monthly FTE for dates required
Example: 30 full-time employees6 part-time employees144 part-time hours worked
Calculation: Full-time personnel 30
Part-time hours worked in a week 144.00 Divide by weekly hourly equivalent 30.00 4.80
FTEs per the week 34.80
FTE Calculation (1 week)
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Polling Question
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Comparison: Loan vs Forgiveness
Loan Amount Forgiveness Amount
Compensation Calculations
• Gross payroll• Less: > $100k by employee
• Certain other adjustments
• Gross payroll• Less: > $100k by employee• Less: Qualified sick and family leave wages for which credit allowed under sections 7001 & 7003 of Families First Coronavirus Response Act (“FFCRA”)
• Certain other adjustments
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Comparison of Allowable and Forgivable Uses
Allowable Forgivable
Payroll Included Included
Mortgage Interest Included Included
Rent Included Included
Utilities Included Included
Other Debt Interest Included N/A
• Rent/Utilities/Loan Documents:+ In Writing+ Already in effect as of February 15, 2020
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How Much of the Loan is Forgiven?
• Loan forgiveness calculation:+ Cash expended (not accrued) during 8-week covered period for the following:
• Payroll (same as above)• Interest portion of mortgage• Rent (see below for related party rent considerations)• Utilities (electricity, gas, water, transportation, telephone, internet)
– Mortgage, rent and utilities must be in writing and in force by Feb. 15, 2020
(Reductions may apply – see subsequent slides)
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The Loan has been received, now what?• Cash is king, not accrued expenses• 8 week coverage period –
+ Begins on date lender makes first disbursement of PPP loan to borrower+ Lender must make first disbursement within ten calendar days of loan approval
• Track expenses – record keeping will be essential• 75% / 25% test consideration
+ Per Interim Final Ruling: 75% of the loan proceeds are reserved for payroll costs+ Most borrowers are taking this as 75% of the forgiveness must be payroll related
• Begin forgiveness calculations+ Forgiveness may not exceed principal+ Reductions:
• FTE Reduction• Compensation Expense Reduction
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Loan Calculation – A quick recap
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Forgiveness Calculation – Starting Point
Sum of payments made on allowable costs during the 8-week covered period beginning on loan origination date
Payroll costs:Salary, wage, comm., vacation, sick leave, parental (capped at $100,000/EE) 625,000 Payments for provision of group health benefits, including premiums 24,000 Retirement benefits 15,000 State and local taxes on compensation of employees 8,000
Total Payroll 672,000
Interest on covered mortgage - Covered rent 140,000 Covered utilities 100,000
Total Non-payroll 240,000
Potential loan forgiven 912,000
Potential loan amount 1,250,000
Remaining loan to be repaid 338,000
PPP Loan Forgiveness Calculation
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Polling Question
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Forgiveness Reduction – Scenario 1: 75/25 split
• 75/25 requirement not in original CARES Act• Interim Final Rule – “not more than 25 percent of the loan forgiveness amount
may be attributable to non-payroll costs”+ Non-payroll portion of the forgivable loan amount should be limited to
effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll
+ We are hearing all kinds of questions/thoughts around how to make sure EE’s are at 75% of prior-virus compensation – would just make sure you consult with your labor attorney to make sure that what you are planning to do is not at conflict with any state/local labor and compensation laws.
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Forgiveness Reduction – Scenario 1: 75/25 split
Sum of payments made on allowable costs during the 8-week covered period beginning on loan origination date
Payroll costs:Salary, wage, comm., vacation, sick leave, parental (capped at $100,000/EE) 625,000 Payments for provision of group health benefits, including premiums 24,000 Retirement benefits 15,000 State and local taxes on compensation of employees 8,000
Total Payroll 672,000 73.7%
Interest on covered mortgage - Covered rent 140,000 Covered utilities 100,000
Total Non-payroll 240,000 26.3%
Potential loan forgiven 912,000
Reduction for 75% threshold for payroll costs:Loan forgiveness cap 75/25 split ($672k / 75%) 896,000 Reduction amount ($912k - $896K) (16,000)
Potential loan forgiven 896,000
Potential loan amount 1,250,000
Remaining loan to be repaid 354,000
PPP Loan Forgiveness Calculation
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Forgiveness Reduction – Scenario 2: FTEs
• Loan forgiveness reduced by a reduction in number of employees
+ Calculation of average number of employees – average number of FTEs is determined by calculating the average number of FTEs for each pay period falling within a month
Source: US Chamber of Commerce PPP Guide
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Forgiveness Reduction – Scenario 2: FTEs
Loan amount 1,250,000
Potential loan forgiveness amount 896,000
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Lesser of the following options (at the borrower's choice):Monthly average FTEs for the period February 15 to June 30, 2019 100Monthly average FTEs for the period January 1 to February 29, 2020 95
Borrowers choice 95Reduction % -37%
FTE reduction amount (330,105)
Potential loan forgiven 565,895
Remaining loan to be repaid 684,105
PPP Loan Forgiveness Reduction Scenario 2 - Reduction in FTEs
Monthly average full-time equivalent (FTE) employees during covered period (8-week period beginning on the date of origination of covered loan)
Loan forgiveness total reduced by a reduction in FTEs during the covered period (and not restored by June 30, 2020)
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Forgiveness Reduction – Scenario 3: Compensation
• Loan forgiveness reduced by a decrease of more than 25% in compensation to employees making less than $100,000 on annualized basis
• EXCLUDE: any employee who received, during ANY SINGLE PAY PERIOD during 2019, wages or salary at an annualized rate of pay > $100,000.
+ i.e. Bi-weekly payroll (26 pay cycles) – any employee that made in excess of $3,846.16 in wages/salary during a pay period in 2019 would be excluded altogether
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Forgiveness Reduction – Scenario 3: Compensation
Loan amount 1,250,000
Potential loan forgiveness amount 896,000
EmployeeAnnualized
compensation
Compensation during most recent
period prior to covered period
Actual compensation during covered
period ReductionReduction
amountRicky Bobby 65,000 10,000 6,000 -40% (1,500) Cal Naughton Jr. 325,000 50,000 20,000 -60% - *no reduction as employee made over $100kJean Girard 97,500 15,000 14,000 -7% - *no reduction as the decrease was < 25%
(1,500)
Compensation reduction amount (1,500) FTE reduction amount (from above) (330,105)
Potential loan forgiven 564,395
Remaining loan to be repaid 685,605
Loan forgiveness total reduced by decreases of more than 25% in compensation to employees making less than $100,000 on annualized basis - during the 8-week covered period
PPP Loan Forgiveness Reduction Scenario 3 - Reduction in Compensation
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Restore by June 30, 2020!
• Reductions in employment or wages that occur between February 15, 2020 and April 26, 2020 (as compared to February 15, 2020) shall not reduce the amount of loan forgiveness IF by June 30, 2020 the borrower eliminates the reduction in employees and/or reduction in wages.
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Items to Gather Now• Compensation for the following time
periods:
+ By pay period by employee for 2019
+ By employee for the following:
• January 1, 2020 – March 31, 2020
• October 1, 2019 – December 31, 2019
• The 8-week time period starting with the loan funding date
• February 15, 2020 – April 26, 2020
• April 27, 2020 – June 30, 2020
• FTEs by pay period for the following dates:
+ The 8-week time period starting with the loan funding date
+ February 15, 2019 – June 30, 2019
+ January 1, 2020 – February 29, 2020
+ February 15, 2020
+ April 26, 2020
+ June 30, 2020
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Polling Question
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Process for Loan Forgiveness
• Borrower completes an “application” which likely will include:+ Documentation verifying the number of FTEs on payroll and pay rates for the
periods described above, including—• payroll tax filings reported to the Internal Revenue Service; and• state income, payroll, and unemployment insurance filings;
+ Documentation, including cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments on mortgage, leases, and utilities;
+ A certification from the borrower
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PPP – Remaining Loan Terms
• Loan Terms+Deferred payment
• Payments deferred 6 months; however, interest accrues+2-year term+1.00 percent interest rate
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What about GAAP and financial reporting?
• How to record the loan and loan forgiveness for GAAP purposes?+ Loan = long-term debt (s/t portion determined after forgiveness)+ Loan forgiveness = recognize as income once loan forgiveness
application is accepted by the lender (gain contingency)• Classification = other income
• Factory financial statements
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Best Practices
• Deposit loan proceeds into a separate bank account (and GL account)+ Especially important if your regular operating account sweeps
overnight into a common account used by multiple entities• Use a spreadsheet to track everything and update it weekly, at a
minimum• Model different scenarios• Retain and document the paper trail – separate shared folder on server• Consider timing of payments – i.e. forgiveness amount includes only
expenses paid during covered period (not accrued)
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Polling Question
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Has anybody received any cash yet?
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Frequently Asked Questions
• Floor plan interest – is it included in allowable use of funds and/or forgiveness amount? What about units floored after 2/15/20?
• Is it possible to delay when the proceeds are received?• Do bonuses count towards compensation in the forgiveness
calculation?• I have over 500 employees, is there any chance I’m eligible for a PPP
loan?
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Frequently Asked Questions
• Any adjustment for related party rent?• How are triple net leases factored into the forgivable amount?• What do I do if my employees can make more on unemployment than
from payroll?• Do my employees have to work to receive a salary?• What costs for self-insured plans can be included?
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Frequently Asked Questions
• Do I have to pay my employees in accordance with their pay plan?• What about employees on a variable/commission based compensation
pay plan?• What if an employee quits or is laid-off just prior to, or during, the 8-
week covered period…are they included in the compensation reduction calculation?
• How do I best maximize my loan forgiveness amount?• What happens if I get approved, receive the loan proceeds, and a
portion is forgiven, but it is later determined that I was ineligible?
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Dealership Industry Hot Buttons
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Thank You!