Paycheck Protection Program (PPP)...Earned payrolls paid in first payroll after loan funding...
Transcript of Paycheck Protection Program (PPP)...Earned payrolls paid in first payroll after loan funding...
Paycheck Protection Program (PPP)How To Optimize Loan Forgiveness
July 16, 2020
SPEAKERSChris Nichols, Director of Capital Markets CenterState Bank [email protected]
Josh Harris, SVP Credit Administration CenterState Bank [email protected]
John Carpenter, Principal Cherry Bekaert LLP [email protected]
Disclaimer
PPP Forgiveness is an evolving process, subject to change as further guidance comes out from the SBA and US Treasury.
This presentation is for general information purposes only and should not be relied upon as a substitute for obtaining independent advice or undertaking independent research before starting the process to apply for PPP forgiveness. This presentation does not take into account any particular borrower’s situation or needs.
All PPP Borrowers should obtain professional advice based on their unique situation before making proceeding with the forgiving process. In addition, any implied projections or views of the hosts are their own personal opinions and are not the official position of CenterState Bank, N.A., Cherry Bekaert LLP or their respective directors or successors or assigns, and may not prove to be accurate. While the information contained herein is believe2d to be accurate as of the date of production, the information is subject to change and revision.
Speakers
Host
Chris NicholsCenterState Bank
Subject Matter Experts
Josh Harris, CPASenior Credit Administrator
CenterState Bank
John CarpenterPrincipal
Cherry Bekaert LLP
PPP Flexibility Act
SBA releases 3508 EZ form8 or 24 week covered periods
(elected by borrowers) Payroll minimum reduced to
60% of forgiveness costsRestrictions for owner‐
employees
SBA approval process not yet released to banks
CenterState forgiveness portal expected to launch on August 10
PPP – Application vs. Forgiveness
Application Phase2.5 times average monthly payroll costs including:
Salary, wage, commission, or similarcompensation up to $100,000 annualized per person;
Payment of cash tip or equivalent;
Payment of vacation, parental, family, medical or sick leave;
Allowance for dismissal or separation;
Payment required for the provision of group health care benefits, including insurancepremiums and any retirement benefits;
Payment of state or local tax assessed on the compensation of employees;
Forgiveness PhaseAccumulation of forgivable expenses including:
Up to 24 weeks of Salary, wages, commission, tips, or similar compensation up to $100,000 annualized per person;
Employer portion of health insurance and retirement contributions;
Mortgage interest and rent on company facilities
Utilities
Subject to reductions based on wage/salary reductions or FTE reductions
Payroll Costs Incurred or Paid
Must be at least 60% of loan forgiveness amount
Option of 56 days OR 168 days of wages paid and incurred for employees whose primary residence is in the US, beginning either:
On the PPP loan funding date, or for borrowers with bi‐weekly or more
frequent payroll, day of first pay period after loan funding
Wages incurred in forgiveness period and paid after
forgiveness period ends are included
Payrolls are effective as of date of distribution of
paychecks or effective date that ACH deposits are originated
For employees other than owner‐
employees, no more than $15,385 per
person (8 weeks) OR $46,154 (24 week
option)
Payroll Costs Incurred or Paid
8 weeks OR 24 weeks of wages beginning when the loan is funded for employees whose principal residence is in the US Severance pay for terminated employees included
Earned payrolls paid in first payroll after loan funding included
• By starting period on day of loan funding, may include morethan 56 days (or 168 days) of wages
Payrolls paid on first payroll date following covered period may bealso be included where applicable to payroll periods occurringduring covered period
Payroll Costs Incurred or Paid
Reasonable bonus payments can be paid provided that nosingle employee receives more than $15,385 during the 8week period OR $46,154 during the 24 week period
For owner-employees no more than $15,385 duringthe 8 week period OR $20,833 during the 24 weekperiod, capped at the 2.5 month equivalent of their2019 compensation (including health benefits andretirement plan contributions)
Mandated paid leave wages cannot be included
Other Payroll Costs Incurred or Paid
Qualified health care costs for employees only Employer share of costs paid during the 8 (or 24) week period
• Pre‐tax amounts included in gross wages
Includes health care premiums and costs of a self‐insured plan
Includes dental, vision, HDHPs, HRAs, FSAs and other usual healthcoverages (but not HSAs or QSEHRAs)
Self‐insured health benefits paid from the employer’s general assetsor a special health plan bank account will be included
Prepaid premiums and contributions to health plans may be allowed
• Can create funded trust to receive prepayments of self‐insured benefits ifnecessary
Other Payroll Costs Incurred or Paid
Retirement plan contributions for employees only Employer share of costs paid during the 8‐week (or 24‐week) period
• Pre‐tax amounts included in gross wages
2019 contributions not previously paid if funded in the 8‐week (or 24week) period
2020 contributions for employer match, discretionary profit sharingcontributions and maximum allowable defined benefit plancontributions if funded in the 8‐week (or 24‐week) period
• Contributions may perhaps be prepaid and allocated to employeeaccounts as required later in 2020
• Need to be sure you comply with plan provisions regardingmaximum contribution
Restrictions for Owner‐Employee Forgiveness Amounts
Owner-employees includes any shareholder of a C corporation or S corporation, any member of an LLC, any partner of a partnership and all sole proprietors
Amount forgiven is limited to lesser of $15,385 during the 8 week period or $20,833 during the 24 week period, capped at the 2.5 month equivalent of their 2019 compensation (including health benefits and retirement plan contributions) Amounts included in gross wages, SE income or Schedule C or
F amounts Group health plan benefits and retirement contribution not
included in gross wages added to compensation before limitation(with the effect of reducing the maximum salary amountattributable to Owner-employees).
Rent and Mortgage Interest
Rents under leases and interest on mortgages for real or personal property used in the business
Only covers rents and mortgage interest for obligations that were in place as of 2/15/20
Evidence of leases or promissory notes must be provided
Past due amounts can be included
Prepaid mortgage interest cannot be included; prepaid rent may be permitted
Utilities In Place As of 2/15/20
Payment for a service to include:
Prepayments of next month and past due amounts can be included
Evidence of utility obligations must be provided
Payments for trash pickup, recycling pickup, outdoor maintenance, VPN service, email service, and other IT support cannot be included
Electricity
Gas (natural gas service)
Water
Telephone (including cell phones),
Internet access
Transportation (gas for business vehicles)
Documentation requirements
Bank will approve forgiveness and forward to SBA for further approval Payroll reports, tax forms (e.g. Form 941) which
overlap the forgiveness period, cancelled checks, payment receipts, transcripts of accounts, or other documents verifying payments of wages, covered mortgage obligations, payments on covered lease obligations, and covered utility payments.
FTE support for reference period prior to forgiveness period
Documentation supporting calculations for the mandatory forgiveness reductions will not be provided to the PPP lender but must be retained in borrower’s files;
Documentation requirements
Other required loan documentation to be maintained in borrower’s files Support for borrower’s certification of necessity for the
loan on loan application date
Support for borrower’s eligibility for the loan
Entities included in affiliated group, as required
Employee count including foreign and domesticemployees
Alternative tangible net worth on 3/27/20 and averagenet income for prior two years
Maintained for 6 years after forgiveness or repayment
Documentation requirements
Other required loan documentation Remember that all borrowers must maintain
required documents for 6 years and that SBA may review them, regardless of loan size
There is no “safe harbor” from audits for borrowers with loans of less than $2 million
How can Borrowers Prepare?
Start tracking eligible forgiveness payments at the time of PPP loan disbursement
Gather copies of lease agreements, mortgage documents, and evidence of utility services in place as of 2/15/20
Save evidence of payments, payroll reports, and bank statements
Careful planning around levels of qualifying expenditures
Plan to avoid mandatory forgiveness reductions for FTE and salary/wage levels,
FTE percentage reduction especially detrimental
Loan Forgiveness
Timing of Forgiveness Decision Loan forgiveness applications must be filed with the lender within 10
months of loan funding. Payment deferral ends at earlier of forgiveness determination and expiration of 10 month period
No later than 60 days after the date on which a lender receives an application for loan forgiveness from an eligible recipient, the lender will issue a decision on the forgiveness application
Final approval still comes from SBA, with a determination made within 90 days from the lender’s decision on the application
Amounts not forgiven are due at scheduled maturity, not immediately
What Questions Do You Have?
Chris Nichols, Director of Capital Markets CenterState [email protected]
Josh Harris, SVP Credit Administration CenterState [email protected]
John Carpenter, Principal Cherry BekaertLLP [email protected]