PPP forgiveness is a hot topic for small businesses these days. While the Small Business Administration started accepting PPP forgiveness applications in August, it just began approving them in October.
“As of now, over 90,000 applications for forgiveness have been submitted to the SBA, but none have been processed,” explained CPA Tracy Fickett.
A big reason is that banks are struggling to process the paperwork.
Town Hall on PPP Forgiveness
She provided an overview of the process, current legislative changes that are in the works but not yet law, and how loan forgiveness status could affect future draws of PPP if they become law.
Her accounting business, Bus Books, specializes in the bus industry. Fickett has become well-versed in how the PPP impacts motorcoach operators. She shared her expertise and answered UMA questions during the Town Hall session.
Current PPP forgiveness rules require 60% of funds be spent on payroll costs. That’s down from the original 75% requirement. Eligible non-payroll costs can include business rent or lease payments, mortgage interest payments, bus payments and utility payments. But not credit card interest. Fuel costs are not forgivable. Transportation, as referred to in the PPP process, refers to the transportation of utilities.
Payroll costs include gross wages and salaries, sick pay, paid time off, and state and local taxes on payroll. This includes employer contributions to employee health insurance and retirement plans, but not federal unemployment tax or matches to Medicare and FICA.
She noted there has been clarification on related party rentals. This applies to operators who own the building that houses their business and leases part of the space to another entity, or a borrower who rents space from a related party.
“If you’re the borrower, the rent you’re paying to your other entity — your real estate entity — isn’t necessarily fully forgivable. Also, if you own a space and rent part of it to somebody else, you can’t take the full amount. You have to take the net,” she said.
How long do you have to spend the money?
If you got your PPP loan before June 5, you can choose eight or 24 weeks. Some people who were unwilling to bring personnel back to pay them for doing nothing will have had the option to flow over into this 24-week period. The last day for applying for PPP was Aug. 8.
What is the deadline for applying for PPP forgiveness?
It’s dependent on the bank taking the applications. You can apply before the end of your covered period if you’ve chosen 24 weeks. But the latest you can apply under current rules right now is 10 months after the end of the covered period. Some banks are controlling how many companies can apply for PPP forgiveness at a given time in order to manage their own workload.
How to calculate FTEs?
For the long form, you are required to calculate full-time equivalents, or FTEs. It’s a long and arduous task of calculating FTEs. If you have to, here’s how it works: You would list your employees, and each full-time employee that, on average, worked more than 40 hours a week during the calculation period counts as one FTE — overtime does not apply. Any part-time employees will have their average weekly hours added together for the calculation period. Divide by 40 and round to the nearest tenth to get your FTE calculation. Add your full-time FTE and your part-time FTE to get your total FTE figure.
If you qualify for “safe harbor,” you are allowed to do something different than make calculations. Safe harbors for the EZ applications means that you don’t have to go through all the FTE calculations that would be required on the long form.
Should I use the long or short loan PPP forgiveness application form?
The short is preferable. For this industry, generally, if you have cut employees’ rate of pay — that’s their hourly wage or their salary — by more than 25%, then you have to use that long form, period.
To use the 3508-EZ, you must meet one of the two qualifications:
- The first qualification is that there was no reduction in the number of employees or their hours during the covered period as compared to the reference period.
- The second qualification is that borrower was unable to operate between Feb. 15 and the end of the covered period due to compliance with CDC, SHHS, or OSHA related to customer or worker safety. There is n interim final ruling in which the administrator considers state and local orders and guidance to be directly related to CDC, SHHS, and OSHA compliance. These state and local orders cover most of the motorcoach industry with orders such as “shelter in place”, “safer at home” etc.
She also recommends operators visit SBA’s FAQ for lenders and borrowers, which is updated regularly.