PPP Second Draw 2021 and First Round Forgiveness Review

https://www.villagechelsea.com/
Presented by

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

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.

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

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

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

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.

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

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

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

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

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)

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.

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;

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/

HOW MUCH CAN I BORROW?
https://crossriversba.com/

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.

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

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.

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

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.

PPP Second Draw 2021 and First Round Forgiveness Review

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)

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

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?

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.

How Do You Calculate and “Average
Month” of Payroll?

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

 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

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.

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

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

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

Uses of Funds to Get Forgiveness
Changes
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

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
from Feb. 15, 2019 – June 30, 2019).

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.

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.

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.

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

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.

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.

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

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.

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.

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.

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.

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
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.

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)

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

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

Forgiveness Application Sch. A Worksheet

Questions?

PPP Second Draw 2021 and First Round Forgiveness Review

PPP Second Draw 2021 and First Round Forgiveness Review

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