Here is the language dated from the Treasury. If you have a line of credit in place allowing you to borrow $100,000 but you opt instead to use the Paycheck Protection Program, are you in violation? We say probably not, but see for yourself. So, let’s break this down to Mom and Pop down the street. In fact, those with loans of $2 million or more will have increased scrutiny. A company that has access to the capital markets (ie, sell shares and raise cash) received a forgivable loan?! Hey, hate the game not the player! Shake Shack and others are returning their funds in lieu of this unintended result at the bequest of the Treasury Department. By now most people have heard about the Shake Shack debacle where a publicly traded company received a $10 million PPP loan from the SBA. Anyway, we digress… Did You Need the Money? They were already smart and got into a school full of other smart people. Sure, a Harvard lawyer is probably smart but not because he or she went to law school. Shocker, right?! Lawyers routinely think they are the smartest ones in the room, and lawmakers are no different. There are some controversies and other issues involving the SBA’s Paycheck Protection Program. We cannot emphasize enough that a) more guidance is coming and b) lenders are the gatekeepers. Please refer to our PPP loan forgiveness frequently asked questions, and revisit often since these Q&As will change as we receive more guidance. We’ll go step by step on all this in a bit. Update:June 3, the 75-25 rule is now 60-40 and 8 weeks is optional to extend to 24 weeks. Also, it might be reduced based on staffing levels before the loan and during the 8-week period, and the wage or salary amounts paid. Next, the PPP forgiveness amount might be reduced depending on the amounts spent on payroll versus rent, utilities and business loan interest (the 75-25 rule that we’ll explore in a bit). The second component is PPP loan forgiveness calculation, and this is based on the amounts spent during an 8-week period on payroll costs (see definition above), rent, utilities and business loan interest. Note how rent, utilities and business loan interest are not included! Wait for it… Yes, there are some other granular details, but that covers most situations. The calculation of the PPP loan amount was based purely on payroll costs which in most cases included gross wages, employer paid health insurance, employer contribution to retirement plans or accounts, and the state and local taxes paid (primarily state unemployment… SUTA or SUI). Lenders want to unbridle forgiveness amounts so they can boost their capital reserves so they can re-lend it back out at a rate much higher than 1% (such as loans to home buyers, automobile financings, normal business debt, etc.). Yes, the wolf is in charge of the hen house. However, the lender is going to be fairly forgiving since they are wanting a return of their capital vis a vis the loan forgiveness calculation. That is why we have a justice system it’s the American way to view the same set of facts differently and make your argument. This simply means that two people looking at the same law can come to different conclusions. This does not mean they are right and we are wrong. The lender that provided PPP funds is the arbiter on all of this, and they might have different calculations or different positions.Update:June 3, we believe the PPP Flex Act is getting us closer to be done with guidance. There are rumblings of certain changes here and there, and there are some assumptions. The Treasury and the SBA have not release final guidance on all this.This blog post attempts to synthesize the complicated PPP loan forgiveness calculation, but we also must warn readers and small business owners of two huge things. Updated J(SBA released the EZ PPP Loan Forgiveness Application which streamlines the forgiveness application… detailed in our EZ PPP Loan Forgiveness Application blog post.)Īs part of the CARES Act due to this COVID-19 nonsense, the SBA handed out about $600 billion in Paycheck Protection Program (PPP) loans which also contained an amazing forgiveness component. Updated J(House and Senate pass the PPP Flex Act which changes 8 weeks to 24, 75% payroll to 60%, and 2 years for payback to 5 years… we’ll adjust our verbiage below accordingly.) Updated (Treasury releases PPP Loan Forgiveness Application recently and solved a bunch on unknowns, but also required us to change our template and this blog post a ton… frankly we and others were over-complicating it) Updated (SBA says loans under $2M are safe harbor on need for funds)
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