Paycheck Protection Program (PPP) Loan Tips from Robert Hoberman
On Friday, May 29, 2020, Robert Hoberman, CPA, Managing Partner of Hoberman & Lesser, presented the webinar, “Update on the SBA’s PPP: Legislative Initiatives and Real World Examples of SBA Forms.” During the presentation, which was hosted by the New York State Academy of Trial Lawyers, Robert provided an in-depth analysis of the Small Business Administration (SBA) Paycheck Protection Program (PPP) Loan Forgiveness Application released on May 15. The event was very well-received and generated a lot of questions and Robert would like to share his top Loan Tips and take-aways.
PPP Loan Tip #1: (6/3/2020)
“The CARES ACT provides for an eight-week Covered Period, the time frame that businesses need to spend the PPP money on expenses that qualify for loan forgiveness. On Thursday, May 28, 2020, the House overwhelmingly passed (by a vote of 417-1) the Paycheck Protection Program Flexibility Act, extending the Covered Period from eight weeks to 24 weeks. The Senate has a similar proposal that would extend the Covered Period to 16 weeks. In either event, the length of time to use the funds on expenses has increased significantly. While this is excellent news, businesses should be careful and consider not signing a new lease, but rather sign a lease extension. For lease payments to count toward the PPP loan’s forgiveness, the lease had to have been in effect before 2/15/20. The payments toward a new lease will not count for loan forgiveness purposes.”
PPP Loan Tip #2: (6/4/2020)
On Wednesday evening, June 3, 2020, the Senate passed the House bill titled the Paycheck Protection Program Flexibility Act. The bill now goes to the President, where he is expected to sign it in the next day or two. It extends the Covered Period from 8 weeks to 24 weeks and replaces the 75%/25% rule with a 60%/40% rule. One caveat is that the new 60%/40% rule has already been interpreted by the SBA as an all-or-nothing rule, and it will need a legislative, technical fix which we expect to happen. Additionally, it lengthens the loan repayment period from 2 years to 5 years. These changes are Borrower friendly and will have a positive effect for all of the people we have counseled over the past few weeks and should make it significantly easier for you to spend the money during the Covered Period in a way that will generate complete forgiveness.
PPP Loan Tip #3: (6/18/2020)
On Tuesday, June 16, 2020, the U.S. Small Business Administration (SBA) issued a new Interim Final Rule concerning the Paycheck Protection Program (PPP) and loan forgiveness, to bring its guidance in-line with the Paycheck Protection Program Flexibility Act, which was signed into law by President Trump on June 5, 2020. The Act is retroactive to March 27, 2020 – the date the CARES Act, which created the PPP, was signed into law.
The Interim Final Rule revises the previous Rules and specifically addresses the amount of employee and owner compensation which may be forgiven under the extended 24-week covered period. Forgivable employee and owner compensation was previously capped at $15,385 per individual, based on the annual salary cap of $100,000 and an 8-week Covered Period, the cap under the new 24-week Covered Period is $46,154 per individual employee. The annual covered salary cap remains at $100,000 per year.
However, owner compensation is specifically excluded from the $46,154 cap, although the new forgivable figure does rise from the previous $15,385 cap under an 8-week covered period to $20,833 (a multiplier of 2.5 months is used for 24-week covered periods).
The Interim Final Rule justifies this limit by noting that maximum PPP loan was based upon a 2.5 multiplier of a business’ average monthly payroll during the one-year period preceding the loan and the SBA wants to eliminate a potential windfall for borrowers that could use the owner’s increase to eliminate employee positions.
For loans disbursed prior to June 5, 2020, the 2-year maturity date remains in effect, unless the borrower and lender agree to an extension, which can be up to a 5-year maturity date. For loans made after June 5, 2020, maturity is set at 5 years.
Additionally, we expect guidance on the definition of owner-employee compensation in the coming days – we will keep you posted. The SBA issued two updates to the forms and instructions for loan forgiveness and we will issue a further update as soon as we digest all of the new information.
To read the new Interim Final Rule, click here.
It is worth noting that some $120 billion in PPP loan funds have not yet been distributed – it is not too late to apply, if you qualify. The deadline to apply for a PPP loan is June 30, 2020.
PPP Loan Tip #4: (6/19/2020)
The most common question I get is “Can we apply for more PPP money at this time?” and while the answer currently is no, there was a bill introduced in Congress yesterday that may allow certain small-business owners to apply for a second Paycheck Protection Program loan if the new bill becomes law.
The legislation, called the Prioritized Paycheck Protection Program (P4) Act, would allow businesses with fewer than 100 employees to apply for a second loan if they have used up (or are on pace to exhaust) their first PPP loan can show a 50% loss in revenue due to the COVID-19 pandemic. Business owners also must show they need the money for payroll and eligible non-payroll costs.
Small Business Committee Ranking Member Cardin, Sen. Chris Coons (D-DE) and Sen. Jeanne Shaheen introduced the Senate version of the bill. Rep Angie Craig (D-MN) and Rep. Antonio Delgado (D-NY) introduced the companion bill in the House.
The senators argue some small businesses are still struggling because the shutdown has lasted longer.
The senators announced their plan to introduce the bill last week – and questioned Treasury Secretary Steven Mnuchin about it during a Small Business Committee hearing focused on the CARES Act implementation. Mnuchin did not say whether he supported the bill, but said he was “open-minded.”
Publicly traded companies are not eligible and hospitality and lodging businesses with multiple locations are limited to an aggregate loan amount of $2 million. The bill would set aside the lesser of $25 billion or 20% of PPP funds for employers with fewer than 10 employees and businesses in underserved and rural communities. The bill also directs SBA to issue guidance to give priority to the smallest businesses and request demographic information of P4 and PPP loan recipients.
We will continue to update this page with additional PPP Tips from Robert Hoberman. If you have any questions or would like more information and assistance with PPP loan forgiveness, please contact Robert at email@example.com or 212-463-0900.
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