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PPP Second Draw 2021 and First Round Forgiveness Review

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Tiffany A. Donaldson, Esq.
Donaldson Legal Counseling PLLC
Graduated from the University of Miami Sc...

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PPP Second Draw 2021 and First Round Forgiveness Review

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PPP Round 2 and PPP Round 1 Forgiveness Review
An analysis of the newly passed laws revitalizing the Paycheck Protection Program and approving a Second Draw.

(c) Donaldson Legal Counseling PLLC 2021 All Rights Reserved
Current information as of 1/7/2021
This is not legal advice. For legal advising consult an attorney.

PPP Round 2 and PPP Round 1 Forgiveness Review
An analysis of the newly passed laws revitalizing the Paycheck Protection Program and approving a Second Draw.

(c) Donaldson Legal Counseling PLLC 2021 All Rights Reserved
Current information as of 1/7/2021
This is not legal advice. For legal advising consult an attorney.

More Related Content

PPP Second Draw 2021 and First Round Forgiveness Review

  1. 1. © 2021 Donaldson Legal Counseling PLLC All Rights Reserved
  2. 2. https://www.villagechelsea.com/ Presented by
  3. 3. www.attorneylawny.com Tiffany A. Donaldson, Esq. Donaldson Legal Counseling PLLC Graduated from the University of Miami School of Law Practiced Small Business Law for over 10 Years Assists small business owners with: - PPP Applications & Forgiveness - Employee Handbooks & Offer Letters - New Business Formation - Contracts - Trademarks - Website Terms & Conditions
  4. 4. www.attorneylawny.com Special Offer for Webinar Attendees: One Hour Reduced Rate Legal Advising Session https://calendly.com/donaldsonlegal/ppp-1hr-discounted-consult Too much to do alone? Let me help you maximize your PPP loan request amount and forgiveness amount. After first hour regular rate applies.
  5. 5. Agenda • Who Is Eligible? • How Much Can I Get? • What Can I Spend It On? • Penalties • EIDL Interaction PPP Round 2 • When Do You Apply For Forgiveness? • How Do You Apply for Forgiveness? • How Much Will Be Foregiven? Forgiveness Applications - PPP Round 1
  6. 6. History of Paycheck Protection Program  CARES Act Created the Program in March 2020  First Round Ended August 8, 2020  Paycheck Protection Program Flexibility Act (PPPFA) (June 5, 2020) Changed Requirements  H.R. 133, Consolidated Appropriations Act, 2021 (Dec. 29, 2020) authorized Round 2, Reopened Round 1, Changed requirements for PPP, Extensions & More Funding for EIDL  $284.45 billion is appropriated to PPP, 20 Billion EIDL PPP end 3/31/2021, EIDL 12/31/2021
  7. 7. What are the Loan Terms?  Large portion, up to all, can be forgiven if spent as required  Otherwise, remaining amounts must be paid back  Interest Rate: 1%  Maturity & Repayment Period: 5 years  Deferral period: last day of covered period if no application for forgiveness, 10 months from end of covered period  EIDL Advance NO Longer reduces Forgiveness amount – Big News  May be able to amend prior forgiveness application
  8. 8. Loan Forgiveness Round 1 and 2  Simplified Application.– Loans up to $150,000 - One Page  Describe number of employees you were able to retain because of the covered loan;  the estimated amount of the covered loan amount spent by the eligible recipient on payroll costs; and  the total loan value;  attests that the eligible recipient has-- ``  (I) accurately provided the required certification; and ``  (II) complied with the requirements under section 7(a)(36); and ``  (iii) retains records relevant to the form that prove compliance with such requirements-- ``(I) with respect to employment records, for the 4-year period following submission of the form; and ``(II) with respect to other records, for the 3- year period following submission of the form.
  9. 9. Who is Eligible for Round 2? Generally:  For either of Q1, Q2, Q3 or Q4 of 2020 Must Have Gross receipts down 25% from same quarter in 2019  In operation on February 15, 2020  No more than 300 employees  Spent or Will Spend All of Round 1 PPP Money On Approved Expenses ONLY (See slide 33 – 35) New rule by SBA Interim Final Rule from 1/7/2020)]  Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.  “Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business.” -SBA
  10. 10. Which Business Types?  eligible self-employed individual  sole proprietor  independent contractor  business concern (LLC, S Corp, C Corp)  Nonprofit organizations,  housing cooperative  veterans organizations  Tribal business concern  small agricultural cooperative
  11. 11. Newly Eligible: 501 C 6 Org  Business leagues, Chambers of commerce, Real-estate boards, Boards of trade  Not organized for profit  No part of the net earnings of which inures to the benefit of any private shareholder or individual  Excludes professional sports leagues and  Excludes org with the purpose of promoting or participating in a political campaign or other activities  Does not receive more than 15 percent of its receipts from lobbying activities;  Lobbying activities do not comprise more than 15 % of the total activities ;  Cost of the lobbying activities of the organization did not exceed $1,000,000 during the most recent tax year of the org. that ended prior to February 15, 2020  Does Not Employ over 300 people
  12. 12. Newly Eligible: Borrowers in Bankruptcy  Borrowers in bankruptcy may be able to apply for a PPP Loan if the Court authorizes it after a hearing  Loan shall be treated as a debt to the extent the loan is not forgiven  Businesses utilizing a pyramid sale dist. Plan and not more than $1 M on lobbying, lobbying not more than 15% of receipts/activity  Some broadcasting companies
  13. 13. Technicality  What kind of accounting can be used to show the 25% decline?  Cash accounting gross receipts - Yes  Accrual basis accounting? Open question  § 121.104 How does SBA calculate annual receipts?  (a) Receipts means all revenue in whatever form received or accrued from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Generally, receipts are considered “total income” (or in the case of a sole proprietorship “gross income”) plus “cost of goods sold” as these terms are defined and reported on Internal Revenue Service (IRS) tax return forms (such as Form 1120 for corporations; Form 1120S for S corporations; Form 1120, Form 1065 or Form 1040 for LLCs; Form 1065 for partnerships; Form 1040, Schedule F for farms; Form 1040, Schedule C for other sole proprietorships)
  14. 14. Proof Needed of Eligibility  At time of Application, Borrower needs to Attest that they meet the Eligibility Requirements  Upon application for forgiveness Borrower must produce adequate documentation that the eligible entity met such revenue loss standard.
  15. 15. Who Is NOT Eligible for PPP Round 2? Not eligible in Round 1 • defaulted on federal loans • passive businesses, (such as a business that is subject to a management agreement, is primarily engaged in owning and leasing real estate, or is under additional guidance, and private equity firms and hedge funds). • businesses engaged in lending: • banks, • life insurance companies, • finance companies, • factoring companies, • investment companies, • bail bond companies, and • other businesses whose stock-in-trade is money; however, there are limited exceptions; • Think Tank • Political Advocacy Group • Business created China or Hong Kong, • Business having significant operations in China or Hong Kong • Businesses More than 20% owned by businesses in China or Hong Kong, or businesses with a Board member who is a resident of China • located in a foreign country • private clubs that limit the number of memberships for reasons other than capacity or businesses that restrict patronage; • government-owned entities, excluding Native American Tribes;
  16. 16. When Must You Apply?  ASAP  SBA had 10 days from Dec. 27 to formulate rules  Banks will get requirements from SBA and create the applications  Some Banks are Already Allowing People to Pre-Apply  What Bank Can I Apply To?  Bank your business has an account at IF it participates in PPP program  https://crossriversba.com/
  17. 17. HOW MUCH CAN I BORROW? www.attorneylawny.com https://crossriversba.com/
  18. 18. Most Businesses Generally:  2.5 x The average total monthly payment for payroll costs incurred or paid by the eligible entity during either  A) the 1-year period before the date on which the loan is made or  (b) calendar year 2019 Capped at $2,000,000.
  19. 19. Seasonal Employers  Who is a Seasonal Employer?  Do not operate for more than 7 months in any calendar year; or  During the preceding calendar year, had gross receipts for any 6 months of that year that were not more than 33.33 percent of the gross receipts of the employer for the other 6 months of that year  Calculation:  2.5 x the average total monthly payments for payroll costs incurred or paid by the eligible entity for any 12-week period between February 15, 2019 and February 15, 2020  Capped at $2,000,000.00
  20. 20. Restaurants & Hotels – Specialty Treatment  Any Entity with NAICS Code 72 - Accommodation and food service businesses  Can borrow more than the others, and have it forgiven  3.5% x the average total monthly payment for payroll costs incurred or paid by the eligible entity during— a) the 1-year period before the date on which the loan is made; or b) calendar year 2019  Capped at $2,000,000.
  21. 21. Not in Business for Part of 2019?  Are you Down 25% For businesses that were not in business for all of 2019, so they have no way to compare 2020 to 2019 quarters:  If You were in business 2019 Q3 and Q4, & Had gross receipts during the first, second, third, or fourth quarter of 2020 – You must demonstrate not less than a 25 percent reduction from the gross receipts of the entity during the third or fourth quarter of 2019;  If you were NOT in business first, second, or third Q of 2019, but were in business during the fourth Q of 2019, you must show you had gross receipts during the first, second, third, or, fourth Q of 2020, that were more than 25% below gross receipts of Q4 2019
  22. 22. For Businesses Not In Business for all of 2019  Max Borrow Calculation - The maximum amount of a covered loan made to an eligible entity that did not exist during the 1-year period preceding February 15, 2020 is the lesser of—  2.5 x Sum of total monthly payments for payroll costs paid or incurred as of the date of loan application_______________(divided by) Number of months in which payroll costs were paid or incurred;  Max of $2,000,000.
  23. 23. What Counts As Payroll Costs?
  24. 24. Payroll Costs under PPP include:  Employee Salary, wage, commission, or similar compensation paid ($100,000.00/person annual cap)  Payment of cash tip or equivalent  Payment for employee vacation, parental, family, medical, or sick leave (Not Families First Corona Virus Response Act Leave) www.attorneylawny.com
  25. 25. Payroll Costs under PPP include:  Allowance for dismissal or separation;  Payment required for the provisions of group health care benefits, including insurance premiums;  Payment of any retirement benefit;  Disability Benefits; Life Insurance  Payment of State or local tax assessed on the compensation of employees www.attorneylawny.com
  26. 26. No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan calculation. Do independent contractors count as employees for purposes of PPP loan calculations?
  27. 27. How Does A Sole Proprietor Determine his/her “Payroll?”  The sum of payments of any compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, annualized, as prorated for the covered period.
  28. 28. How Do You Calculate and “Average Month” of Payroll?
  29. 29. How Do You Calculate an “Average Month” of Payroll?  Payment for payroll costs incurred or paid by the eligible entity during— a) the 1-year period before the date on which the loan is made; or b) calendar year 2019  Divided By 12
  30. 30.  For the Loan to be Forgiven STEP 1: Use funds for approved reasons during the ‘Covered period’ Covered Period means the period—  ‘‘(A) beginning on the date of the origination of a covered  loan; and End date is Your Option,  Minimum – 8 Weeks, Maximum of 24 weeks from Loan Origination Date  At least 60% has to be used on Payroll, 40% other covered items to get full forgiveness (subject to penalty provisions) Covered Period
  31. 31. Uses of Loan Funds: Originals & Still Allowed  Payroll Expenses,  Employee salaries, commissions, or similar compensations,  Continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;  Payments of interest on any mortgage obligation;  Rent (including rent under a lease agreement);  Utilities;  Interest on any other debt obligations that were incurred before the covered period. www.attorneylawny.com
  32. 32. How Can I Use It? New Ways:  Covered operations expenditure: A payment for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses; Ex: Quickbooks, Salesforce, Etc.  Covered property damage costs: a cost related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation
  33. 33. How Can I Use It?  Covered worker protection expenditures:  Things purchased regarding Preventing Coronavirus Spread  Ventilation; barriers; space expansion indoor or outdoor;  Generally, anything related to Coronavirus prevention for the business  PPE  Health screening tools
  34. 34. How Can I Use It?  Covered Supplier Costs: For Supply of goods that-  A) are essential to the operations of the entity at the time at which the expenditure is made; and  (B) is made pursuant to a contract in effect at any time before the covered period; or  (ii) with respect to perishable goods, in effect before or at any time during the covered period
  35. 35. Uses of Funds to Get Forgiveness Changes www.attorneylawny.com New Rules Round 1 and 2 Min of 60% on Payroll Expenses 40% on on Payments of interest on any mortgage obligation; Rent; Utilities; Interest on any other debt obligations that were incurred before the covered period; Operations, property damage, Worker protection, Supplier costs
  36. 36. Paycheck Protection Program Reductions Two type of reductions are explained in the CARES Act. #1: Total Forgiveness Average number of full-time Eligibility Amount X equiv. employees during the Covered Period Avg. No. full-time equivalent employees from J. From Jan. 1, 2020 – Feb. 29, 2020 or Avg. No. full-time equivalent employees from Feb. 15, 2019 – June 30, 2019). www.attorneylawny.com
  37. 37. Full Time Equivalent Employee The average number of full- time equivalent employees is determined by calculating the average number of full- time equivalent employees for each pay period falling within a month. To calculate the full-time equivalent of part-time employees, with a 40 hour work week, add the number of hours worked by part-time employees in a given month and divide the total by 120.
  38. 38. FTE Reduction  Example  Loan Date: June 1, 2020 Forgiveness Eligibility: $100,000.00  8 – Week Period: June 1, 2020 – July 31, 2020  Avg. Employees During 8-week Period: 5  Jan. 1, 2020 – Feb. 29, 2020: Avg. employees: 13  Feb. 15, 2019 – June 30, 2019: Avg. Employees: 10   $100,000.00 * (5/10) = $50,000.00  Here, the total average employees during the 8-week period is 5. This is divided by the lowest number of average employees during the available periods, which was 10. This total (5/10) was then multiplied by the Total Forgiveness Eligibility Amount of $100,000.00. Therefore, the total reduction of the Total Forgiveness Eligibility Amount is $50,000.00.
  39. 39. Paycheck Protection Program Reductions #2: Amount of loan forgiveness be reduced by the same amount as the total amount in reduction in total salary incurred by employees over the covered period after the loan date.  only applies as to employees who were making $100,000.00 or less in 2019, and  where such decrease is over 25% of the employee’s total annual salary, as based on the last full-quarter before the loan date. www.attorneylawny.com
  40. 40. Employee Pay Reduction Ex.  Example  Loan Date: June 1, 2020 Forgiveness Eligibility: $100,000.00  8 – Week Period: June 1, 2020 – July 31, 2020  Avg. Employees During 8-week Period: 5  Three Employees Salaries Stayed the Same  Two employees went from making $90,000.00 to $60,000.00 = a 33.33% decrease in salary for each.  25% decrease from $90,000 is $67,500.00  $67,500 - $60,000 (actual salary) = $7,500  $7,500/employee * 2 = $15,000.00 total reduction  $100,000 - $15,000 = $85,000 Forgiveness Eligibility www.attorneylawny.com
  41. 41. New: Additional Relief – Safe Harbor 1  No Penalty for reduction in the number of full- time equivalent employees if, in good faith can document— (i) an inability to rehire individuals who were employees of the eligible recipient on February 15, 2020; and (ii) an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
  42. 42. New: Additional Relief – Safe Harbor 2  No Penalty for proportional reduction in the number of full- time equivalent employees if an eligible recipient, in good faith can document:  an inability to return to the same level of business activity from February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the CDC, or the OSHA during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.
  43. 43. Paycheck Protection Program Rehiring  Can I Re-Hire to Avoid Reductions?  If you reduced number of employees or the salaries of employees before April 26, 2020, you shall not be subject to the reduction provisions if the number of employees and amount of salaries are returned to the levels on February 15, 2020, by end of covered period.  Otherwise, reduction will affect forgiveness www.attorneylawny.com
  44. 44. Sole Proprietor Forgiveness  Forgiveness: Limited to a proportionate eight-week share of 2019 net profit, or 2.5 months for 24-week covered period, as reflected in the individual's 2019 Form 1040 Schedule C.  Retirement and health insurance contributions are included in their net self-employment income and therefore cannot be separately added to their payroll calculation.
  45. 45. Partnerships (LLCs) Partner in a partnership may not submit a separate PPP loan application for yourself as a self-employed individual. Instead, the self-employment income of general active partners may be reported as a payroll cost, up to $100,000 annualized, on a PPP loan application filed by or on behalf of the partnership. General partners are capped by the amount of their 2019 net earnings from self- employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. Retirement and health insurance contributions are included in their net self- employment income and therefore cannot be separately added to their payroll calculation.
  46. 46. EIDL Interaction with PPP  MAJOR Change  EIDL Advances (Grants) NO LONGER REDUCE PPP forgiveness amounts  EIDL Advance Re-Opened – Now Non-Taxable  Must attest to suffering a substantial economic injury  Advance (Grant) is $1,000 per employee limited to $10,000 total  Borrowers that have already applied for and received loan forgiveness presumably may now amend their application to request that the $10,000 EIDL Advance (or amount actually received) not reduce their forgiveness amount and request repayment.
  47. 47. EIDL Priority  First Priority to Low Income Applicants:  Applied for EIDL loan  is located in a low-income community;  has suffered an economic loss of greater than 30 percent; and  employs not more than 300 employees; and  Generally not Agricultural enterprise  Second Priority- Those that previously applied for EIDL and did not get Grant Money because it had ran out.
  48. 48. Penalty (1) Reductions in FTE (Original Scheme) Two type of reductions are explained in the CARES Act. #1: Total Forgiveness Average number of full-time equiv. Eligibility Amount X employees Per month during 8-week pd Avg. No. full-time equivalent employees from Jan. 1, 2020 – Feb. 29, 2020 or Avg. No. full-time equivalent employees from Feb. 15, 2019 – June 30, 2019. *FTE defined as 40 hours a week – SBA Seasonal Employer could use as denominator any 12-week period between May 1, 2019 and September 15, 2019.
  49. 49. FTE Reduction  Example  Loan Date: June 1, 2020 Forgiveness Eligibility: $100,000.00  8 – Week Period: June 1, 2020 – July 31, 2020  Avg. Employees During 8-week Period: 5  Jan. 1, 2020 – Feb. 29, 2020: Avg. employees: 13  Feb. 15, 2019 – June 30, 2019: Avg. Employees: 10   $100,000.00 * (5/10) = $50,000.00  Here, the total average employees during the 8-week period is 5. This is divided by the lowest number of average employees during the available periods, which was 10. This total (5/10) was then multiplied by the Total Forgiveness Eligibility Amount of $100,000.00. Therefore, the total reduction of the Total Forgiveness Eligibility Amount is $50,000.00.
  50. 50. Considerations  Do You want to Change Your Covered Period to 24 weeks?  Pro: Longer time to Use Monies Toward Payroll  Con: Longer time to maintain employees to avoid Penalty (Unless you are going for a Safe Harbor 1 or 2, or planning to return to full staff by Dec. 31, 2020)
  51. 51. Review of Forgiveness Application  Your Bank should provide to You instructions for YOUR loan  New Form Coming Out for under $150,000 in PPP loans  Example Out by SBA - Form 3508EZ  https://www.sba.gov/funding-programs/loans/coronavirus-relief- options/paycheck-protection-program#section-header-6  Asks:  Covered Period (8 weeks or 24 weeks) Exact Dates  Employees at Time of Loan Application: ___________  Employees at Time of Forgiveness Application: _______  FTE as of Feb. 15, 2020 payperiod  FTE from Feb 15 – April 26, 2020 – Avg by Pay period  In depth information on Each Employee and their salaries during relevant time periods to determine whether Penalties Need to Apply
  52. 52. SBA Application Form 3508  Not qualified for EZ  Generally if you are applying a penalty and have no safe harbors  https://www.sba.gov/document/sba-form-3508-paycheck-protection- program-loan-forgiveness-application
  53. 53. Forgiveness Application Sch. A Worksheet
  54. 54. Schedule A
  55. 55. Application for Forgiveness
  56. 56. Questions? www.attorneylawny.com

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