PPP round 2 webinar QA (REF Comments) (04583288).DOCX



Next Round of PPP Funding Q&ACourtesy of our Messner Reeves legal resource center partners: Rachel Farr and Torben WelchHelpful links:Colorado Community Development Financial InstitutionsPrepare for the PPP document1st Draw PPP Loans2nd Draw PPP LoansEligible PPP expenses for forgiveness have been expandedGuidance on Accessing Capital for Minority, Underserved, Veteranand Women-Owned BusinessesChanges to Employee Retention Tax CreditShuttered Venue GrantsIf we used our first PPP loan on things like rent, utilities, insurance, debt service, and the like, but mostly not for staff (since we didn't reopen and had only a skeleton staff), can we still get a second PPP loan? We recognize that we will not get forgiveness on the first loan, but want to apply for a second.The Economic Aid Act provides that a Second Draw PPP Loan may only be made to an eligible borrower that (i) has received a First Draw PPP Loan, and (ii) has used, or will use, the full amount of the First Draw PPP Loan on eligible expenses (i.e., potentially forgivable) on or before the expected date on which the Second Draw PPP Loan is disbursed to the borrower. It is not required that the First Draw PPP Loan be forgiven, in whole or in part; however, we have not yet received guidance on how a borrower will prove (or whether a borrower will need to substantiate that) their First Draw PPP Loan was used on solely eligible expenses if a forgiveness application has not be submitted and reviewed by the SBA.When determining your 25% gross receipt loss for loan eligibility, are taxes included? Sales taxes are included in my quarterly sales numbers.Gross receipts are defined to include all revenue in whatever form received or accrued (in accordance with the borrower’s accounting method) 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, independent contractor, or self-employed individual “gross income”) plus “cost of goods sold,” and excludes net capital gains or losses as these terms are defined and reported on IRS tax return forms. Gross receipts do not include the following: taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the concern or its employees); proceeds from transactions between a concern and its domestic or foreign affiliates; and amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder or customs broker. All other items, such as subcontractor costs, reimbursements for purchases a contractor makes at a customer's request, investment income, and employee-based costs such as payroll taxes, may not be excluded from gross receipts. What will be included in “Perishable Goods” for forgivable loan expenses?There is no additional guidance at this time relating to the definition of “perishable goods.”I read that COGS is factored into the 25% reduction. Is that correct?COGS are included as part of the definition of “gross receipts” calculated to determine whether a borrower has seen a sufficient reduction to qualify for a Second Draw PPP Loan (see above definition of “gross receipts”). If you received a PPP loan in 2020, do you apply in the second round? Or can I just use the application that my lender already has on file?You must separately apply for a Second Draw PPP Loan. The form application is available online at and through your lender.Can I use a non-traditional quarter to fill out my loan application? They shut us down for indoor dining on March 17 and did not allow indoor dining until May. Not a traditional quarter, but I am down 36% comparing last year to 2020 for that period of time.No. The appropriate reference point is calendar quarters. What’s the trailing time period for the average monthly payroll?Relative to First Draw PPP loans, the Economic Aid Act adjusted the methodology for calculating a borrower’s payroll costs. Unlike First Draw PPP Loans, the Economic Aid Act provides that the relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan is either the twelve-month period prior to when the loan is made or calendar year 2019. The Act also provided tailored methodologies for certain categories of borrowers, which can be found in the SBA Interim Final Rule - Business Loan Program Temporary Changes; Paycheck Protection Program Second DrawLoans, available at . And are we eligible if we have multiple locations, are eligible based on all other criteria, but could permanently close one of our locations?This will depend on how your business is structured. If the location that is permanently closed is owned by its own legal entity (LLC, corporation, or similar), it will not be eligible to receive a Second Draw PPP Loan. Are there Full time Equivalent levels that we need to meet to have forgiveness?Yes, the new Economic Aid Act did not modify the existing rules regarding PPP loan forgiveness as they relate to required numbers of full time equivalent employees and safe harbors for failure to achieve required FTE levels. Instructions relating to these calculations and safe harbors are described in the PPP loan forgiveness applications and instructions available at . Can you address the "Corporate Group" loan cap of $4 million in the guidance issued this week?To preserve the limited resources available to the PPP program, and in light of the previous lapse of PPP appropriations and the high demand for PPP loans, businesses that are part of a single corporate group may in no event receive more than $20,000,000 of PPP loans in the aggregate, and no more than $4,000,000 of Second Draw PPP Loans in the aggregate. The SBA determined that limiting the amount of Second Draw PPP Loans that a single corporate group may receive will promote the availability of PPP loans to the largest possible number of borrowers, consistent with the CARES and Economic Aid Acts. For purposes of this limit, businesses are part of a single corporate group if they are majority owned, directly or indirectly, by a common parent. It is the responsibility of an applicant for a PPP loan to notify the lender if the applicant has applied for or received PPP loans in excess of the amount permitted by this interim final rule and withdraw or request cancellation of any pending PPP loan application or approved PPP loan not in compliance with the limitation set forth in this rule. Is monthly payroll amount based on 2020 scheduling or pre-COVID payroll amounts?Relative to First Draw PPP loans, the Economic Aid Act adjusted the methodology for calculating a borrower’s payroll costs. Unlike First Draw PPP Loans, the Economic Aid Act provides that the relevant time period for calculating a borrower’s payroll costs for a Second Draw PPP Loan is either the twelve-month period prior to when the loan is made or calendar year 2019. The Act also provided tailored methodologies for certain categories of borrowers, which can be found in the SBA Interim Final Rule - Business Loan Program Temporary Changes; Paycheck Protection Program Second DrawLoans, available at . Is it correct that a company (who had a PPP that has not been forgiven yet) is eligible to take the ETC on salaries not covered by the PPP retro-actively or is that just for the new PPP?Yes, businesses may now take advantage of both the PPP and ERC programs for 2020, but not on the same dollars of payroll costs. Exactly how these two programs will relate, and how the changes to the ERC will apply retroactively, are extremely fact-specific, need further guidance, and are beyond the scope of this FAQ. We encourage everyone interested in retroactively applying the ERC to work closely with their CPA and accounting teams.I took the PPP loan last year. Can I go back and claim the Employee Retention Tax Credit for last year, retroactively? If so, how? Amend 941s?Please see prior question.For the previous SBA loans 6 month payment offer, if you already took advantage of this with the first CARES Act, are you eligible for it as part of the second CARES Act?The new law resumes the government payment of monthly principal and interest on small business loans guaranteed by the SBA under the 7(a), 504, and Microloan programs. Borrowers with loans approved by the SBA prior to the CARES Act will receive an additional three months of payments beginning in February of 2021. Those payments will be capped at $9,000 per borrower per month. After that, certain borrower will receive an additional five months of payments, including: borrowers with SBA microloans or 7(a) Community Advantage loans or borrowers with any 7(a) or 504 loan in hard hit sectors: educational services; arts, entertainment and recreation; food service and accommodation; support activities for mining, and oil and gas extraction; apparel manufacturing; clothing and clothing accessories stores; sporting goods, hobby, book and music stores; air transportation; transit and ground passenger transportation; scenic and sightseeing transportation; publishing industries; motion picture and sound recording; broadcasting; rental and leasing services; and personal and laundry services. New SBA loans made or approved between December 22, 2020 and September 30, 2021 will receive six months of government payment of principal and interest, also capped at $9,000 per month.We paid Rent for Jan 1. Can we use funds from this next PPP loan to cover that rent payment retroactively?Covered rent obligations (i.e., potentially forgivable rent payments) are defined as business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020. An eligible nonpayroll cost such as covered rent obligations must be paid during the forgiveness period or incurred during the forgiveness period and paid on or before the next regular billing date, even if the billing date is after forgiveness period. Eligible nonpayroll costs cannot exceed 40% of the total forgiveness amount.What are the possibilities with a sole proprietor/LLC that doesn't have a technical payroll but receives all profits?If you receive and report (via Form 1040 Schedule C) self-employment income you are eligible for a PPP loan. You must submit documentation sufficient to establish eligibility and to demonstrate the qualifying payroll amount, which may include, as applicable, payroll records, payroll tax filings, Form 1099-MISC, Schedule C or F, income and expenses from a sole proprietorship, or bank records. The maximum loan amount for a sole proprietor is calculated using net profits. Sole proprietorships are also eligible to receive EIDL loans, non-emergency SBA business loans, and other aid programs created by the CARES and Economic Aid Acts.Is the second PPP forgiveness reduced by a second draw on EIDL?No; however, you cannot receive a second EIDL grant unless you received less than the maximum $10,000 in your first advance. To the extent you received less, you may apply to receive the difference of what you received and $10,000. Note, however, that priority is given to businesses located in low-income areas and those seeing at least a 30% reduction in gross receipts.How do we know if our revenue for the current quarter will be 20% less than the quarter of the prior year in order to qualify for the ERTC? For example, if we take the credit for Q1 2021 assuming that the revenue for that quarter will be 20% less than Q1 2020, but it turns out not to be true, what happens?The IRS is expected to draft guidance to allow an advance payment of the credit for companies with 500 or fewer employees, based on 70% of average quarterly payroll for the same quarter in 2019. If the amount of the actual credit determined at the end of the quarter is less than the amount of the advance payment, the company will need to repay the excess.Can we include employee benefits and taxes in the 60 % ratio?Payroll costs (of which 60% of PPP funds must be used in order to qualify for full forgiveness) consist of compensation to employees (whose principal place of residence is the United States, capped at $100,000 on an annualized basis for each employee) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation (capped at $100,000 on an annualized basis)..What options are available for new businesses that opened in 2020? I that can show 2020 quarter over quarter decline; but don’t have revenue to show prior to Jan 2020.You may be eligible for a First Draw or Second Draw PPP Loan if you were in business as of February 15, 2020. If you have not received a First Draw PPP loan, you may apply so now; average monthly payroll may be calculated using the time period from January 1, 2020 to February 29, 2020. If you are applying for Second Draw PPP Loan, for companies that didn’t operate in 2019 but were operating prior February 15, 2020 and already received an exhausted a First Round Draw PPP Loan, the 25% revenue reduction requirement will be used comparing the Q1 2020 receipts to gross receipts in Q2, Q3 or Q4 2020. New companies can also explore EIDL loans and grants, Employee Retention Credit and standard SBA business loans.Will this next round of PPP will service women and minority owned businesses first?In the Economic Aid to Hard-Hit Small Businesses, Non-Profits, and Venues Act (Economic Aid Act), Congress set aside funds for new and smaller borrowers, for borrowers in low- and moderate-income communities, and for community and smaller lenders. These set asides include: $15 billion across first and second draw PPP loans for lending by community financial institutions; $15 billion across first and second draw PPP loans for lending by Insured Depository Institutions, Credit Unions, and Farm Credit System Institutions with consolidated assets of less than $10 billion; $35 billion for new first draw PPP borrowers; and $15 billion and $25 billion for first draw and second draw PPP loans, respectively, for borrowers with a maximum of 10 employees or for loans less than $250,000 to borrowers in low-or moderate-income neighborhoods. SBA has determined that at least 25 percent of each of those set-asides will go to each one of the groups: loans to borrowers with a maximum of 10 employees and loans less than $250,000 to borrowers in low-or moderate-income neighborhoods.When applications for the program opened, community financial institutions that serve minority- and women-owned businesses had a two day window of time reserved for their applications. How long will it take to get funds after completing PPP portal with your Bank?This will depend on many variables including when you submit your application, the time it is pending before receiving review, how your lender is processing and distributing funds, and more. Can we apply for funding under the new PPP program if we haven’t received forgiveness for our original PPP loan?There is nothing in the existing guidelines that would specifically prohibit someone from applying for their second PPP draw if they have not had their first loan forgiven. But, the funds from the first loan must be exhausted on eligible (i.e., forgivable) expenses before you are permitted to apply for a second PPP loan.Can we use any quarter between 2019 & 2020 to demonstrate our 25% losses?You can use any calendar quarter from 2020 compared to the same quarter in 2019 to demonstrate your losses, or you can compare the entire year of 2020 to 2019 to demonstrate your losses.What documentation might one need to show to prove 25%+ loss in gross revenue? Thanks!The documentation used will vary by business, but you will want to ensure that you have adequate documentation to prove your losses to your lender to successfully complete your application. Such documentation may include relevant tax forms, including annual tax forms, or, if relevant tax forms are not available, quarterly financial statements or bank statements. For loans with a principal amount of $150,000 or less, such documentation is not required at the time the borrower submits its application for a loan, but must be submitted on or before the date the borrower applies for loan forgiveness, as required under the Economic Aid Act. If a borrower does not submit an application for loan forgiveness, such documentation must be provided upon SBA’s request$2 million is the max 2nd PPP loan amount?Yes.Are businesses that opened after the initial PPP loan cutoff date (2/15/2020) eligible for this second round of PPP?No, the same eligibility timelines remain in place for the second round of PPP funds. But, you could qualify for the Employee Retention Tax Credit or an EIDL loan – these are options you may want to discuss with the SBA and your CPA.Do you anticipate that PPP funds will run out this cycle?They could. It is best to be proactive and begin gathering your application materials and speaking with your lender if you plan to apply for this next round.To exhaust the loan, can you use expenses after the 24 week period, but before the end of 2020?To exhaust your First Draw PPP Loan in order to qualify for a Second Draw PPP Loan, you must exhaust your first loan by the end of your chosen 8-24 week loan period. ................
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