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PPP Scenario - can you point me to a resource?


BulldogTom

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I read the fact sheet, but I am still unclear on how this will work.   These are made up numbers but the scenario is real.

Company can apply for loan of 2.5 times prior year PR costs.   2019 Avg Monthly PR is 500K.   Loan request is 1.25 Million.   Avg employee headcount is 150 in 2019.   

Loan is made by bank.   1.25 Million.

Company has 20 employees on PR during the forced shutdown.   Monthly wages are 100K.   Health Insurance (for all 150 employees) is 50K.   PR Taxes and other benefits are 25K per month.   Total Payroll cost is 175K per month during April and May.

June 1, life is back to normal.   Company hires back all workers.   

Money spent from Loan is 350K for PR, and 400K for Rent, Utilities, Insurance etc..   Amount remaining in the bank is 500K.

How much of the loan will be forgiven?    Can they pay back the 500K in the bank?  Since they did not spend 75% on PR costs during the 2 months will they have to repay all of it? 

Would it be better to only borrow $425K so they get the full amount of the loan forgiven?  

I don't understand this part of the fact sheet and this is what is hanging me up.   Is just enough to cover payroll + 25% the right amount to advise a client to request from the bank to ensure they get forgiveness?   Or can they get forgiveness on the part they use for payroll if it is not 75% of the loan?

Thanks for looking at this and sharing your understanding.

Tom
Modesto, CA

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Tom,  forgiveness of PPP is spelled out in sec 1106 of the CARES ACT, but some parts of it are not clear.

Here is my understanding of it:

75% of the PPP must be for "payroll cost".

$350,000 is 75% of $466.667, so you can spend the difference of $116,1667 for other qualified purposes.

$466,667 is the max available for forgiveness. That amount is reduces by reduction of average FTEE's and for total wages from the base period. 

So if the FTEE reduction is 20% and the salary reduction is 25%, then it appears the $466,667 could be reduced to $280,000.  It is unclear if in fact both the FTEE and  AVERAGE WAGE reduction will apply together, but that assumption must be made until we get some guidance on forgiveness as promised by the SBA.

it is also unclear if the exception for "restoring" ave FTEE's and wages by June 30 means the employee's must be made whole for the amount of wages in the base period.

 

 

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I'm still reading and reading and taking webinars and more webinars, but my take is that forgiveness will be based on the payroll costs, including things like health insurance PLUS rent and utilities and those non-payroll things as long as they are no more than 25% (of the total expenses, payroll + non?). Any excess over that amount that is not forgiven has an interest rate of (is it?) 1%. So, at that low rate, using the rest of the loan to keep everyone at work until income resumes is probably a good deal. Or, for employee morale, paying employees/bringing them back sooner, because now you have the funds to make payroll while income is low or nonexistant.

CPAacademy has a FREE webinar at 4 pm EDT today

Tax Practice Pro Inc. has a FREE webinar Friday at 2 pm EDT

AICPA has a $29 webinar Friday and also Tuesday 14 April at 3 pm EDT specifically on the PPP and FORGIVENESS

NATP has a FREE on-demand webinar

VASEA has two FREE on-demand webinars

The most I paid for anything is $29

A free webinar I was in last week had 5,000 attendees! None of us know this yet, but I'm trying to learn from wiser people who are studying and sharing.

 

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Tom,

I believe the interest rate has landed on 1%.  I believe the interest and principal are deferred for 6 months, and the loan term is 2 years.  Anything else, I will believe it when it happens.

I do not have the exact scenario, but I have pondered those same items.  I cannot with a straight face tell anyone to rely on forgiveness, although it may happen.  I have not seen a way to ask for any amount other than the calculated amount.  We may hear more as loans are actually accepted and funded.

For a concern that will likely survive, I would apply for the max, and when approached to fund, hope the forgiveness process is known (although as we have just seen with the EIDL, everything is subject to change). If allowed to take less than the max, and that is what the business is more comfortable with, then do so. Deposit into a new bank account.  Hopefully, before the 8 weeks is up, the forgiveness aspect will be rock solid, so decisions can be made.  Until the forgiveness is known, I would not spend "extra" based on the forgiveness.

Dennis

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My understanding is that the intention is to encourage companies to bring everyone back on full payroll now, even if they aren't working.

I'm curious how that's going to work for health insurance though - since in most cases these companies will have already laid off employees, are the health insurers going to be making an exception and letting them go back on plans without waiting periods?   We'll see....

 

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If she gets a payroll loan, she is expected to spend at least 75% of it on payroll if she wants it forgiven. The interest rate is only 1% if she's not interested in forgiveness. And, there are many other SBA loans, both the new ones and the ones that have been around before COVID-19.

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Sorry, Judy, I'm too tired to interpret anything right now.

I'm glad the SBA and others continue to update the regulations, but it's frustrating for us answering questions and for the small businesses trying to apply or having already applied and then reading an update the next day. Congress tried to be all things to all people/voters and designed too many programs for us to digest, too many to issue rules for quickly. And, pages on sites for the SBA, IRS, Senate, Treasury, Chamber of Commerce, and many more, mean you have to search around to find the information you need and then compare dates to make sure it's the most recent. I agree with those who would love to know more about Forgiveness before receiving a loan, so we can plan out our spending the most beneficial way. I have a webinar Friday afternoon that's covering everything through Friday morning. 

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Yes, it's a way to get employees off unemployment and let them keep their insurance benefits.  But yeah, all of these programs are poorly explained.  Much like tax bills, Congree passes some of this without a lot of input from experts, so the agencies are scrambling to figure it out so they can explain it to us.

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