Preparing for COVID-19 Recovery

Loan Options &

Forgiveness Strategies

Weekly Update: June 25, 2020

This slide deck contains information on the COVID-19 related Loan

Options & Forgiveness Strategies and is the most up-to-date as of

June 25, 2020.

Changes are constant and additional guidance is on-going. We will

keep you posted on changes through our weekly webinar updates and

COVID-19 resource center. You can also reach out to your Sax

advisor for the most recent information.

Please visit our Resource Center at www.saxllp.com for on-going

updates, or email covid19@saxllp.com with questions.

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Our firm provides the information in this webinar presentation for

general guidance only, and does not constitute the provision of legal

advice, tax advice, accounting services, investment advice, or

professional consulting of any kind.

The information provided herein should not be used as a substitute

for consultation with professional tax, accounting, legal, or other

competent advisers.

Before making any decision or taking any action, you should consult

a professional adviser who has been provided with all pertinent facts

relevant to your particular situation.

Managing Cash FlowCPE Considerations

Managing Cash FlowPoll #1CPE

Meet Our Recovery Task Force

Todd W. Polyniak, CPA

Partner

Stephen J. Ehrenberg,

CPA, MBT

Partner

Josh Chananie, CPA

Partner

Today’s Agenda

• Introduction

• Updates

• New SBA Interim Final Rule

• PPP Loan Forgiveness

– Application Forms

– FTE Exceptions

• YES you can; NO you can’t

Updates

UpdatesPaycheck Protection Program - Borrower Information Disclosure

• SBA, Treasury to publish certain data for PPP loans >$150K

– Business name & type, address and zip code;

– NAICS Code;

– Demographic Data;

– Not-For-Profit Information;

– Jobs supported; and

– Loan amount ranges (categories below account for ~75% of loan dollars approved):

• $150K - $350K

• $350K - $1M

• $1M - $2M

• $2M - $5M

• $5M - $10M

• PPP Loans <$150K

– SBA will release totals aggregated by zip code, by industry, by business type and by various

demographic categories

UpdatesPaycheck Protection Program – Lender Match

• Deadline to receive funding is June 30, 2020

• SBA has revived the Lender Match online tool

– Assists underserved and disadvantaged small businesses connect with PPP lenders

• Borrowers should receive an e-mail from lenders matched with them in <2

business days

– www.sba.gov/funding-programs/loans/lender-match

Managing Cash FlowPoll #2CPE

New SBA Interim

Final Rule

UpdatesNew SBA Interim Final Rule – New Information

• New Information & Updates:

– SBA Interim Final Rule (June 22, 2020)

• Revisions to Loan Forgiveness Interim Rule and SBA Loan Review Procedures Interim

Final Rule

• Contains both new information and clarifications of existing rules

• New Information

– Borrowers can apply for forgiveness at any time on or before the maturity of the loan date

• Borrowers are not required to wait for the close of the Covered Period to apply

• Borrowers can apply for loan forgiveness after beginning loan payments

• If application is submitted prior to the close of the Covered Period, borrowers must

account for any 25% salary/wage reduction for the full Covered Period

– See the Example on the following slide

UpdatesNew SBA Interim Final Rule – New Information cont’d

• Borrower selects 24-week Covered Period

• Borrower reduced a full-time employee’s weekly salary from $1,000/week to $700/week

– (i.e., 30% reduction)

• Employee continued to work on a full-time basis (FTE score of 1.0)

• The first $250/week (i.e., 25% of $1,000) is exempted from loan forgiveness reduction

• Remaining $50/week (i.e., $300 - $250 = $50) is subject to loan forgiveness reduction

• Borrower multiples $50 times 24 weeks to arrive at loan forgiveness reduction of $1,200

• Had the borrower in this example been eligible for and selected the 8-week Covered Period,

the loan forgiveness reduction would be $50 times 8 weeks or $400.

UpdatesNew SBA Interim Final Rule – New Information Cont’d

• New Information

– Owner/Self-Employed Individual Compensation

• C-Corporation Owner-Employees: Employer retirement and health insurance contributions made

on their behalf are forgiveness eligible.

• S-Corporation Owner-Employees: Employer retirement contributions made on their behalf are

forgiveness eligible, but health insurance contributions are excluded from forgiveness.

• Schedule C or Schedule F Filers: Cash compensation eligible for forgiveness is limited to the

lesser of 2019 compensation or (i) either $15,385 or (ii) $20,833 (depending upon the selection of

the 8-Week or 24-Week Covered Period).

• General Partners: Cash compensation is capped by the amount of 2019 net earnings from self-

employment (reduced by claimed section 179 expense deduction, unreimbursed partnership

expenses, and depletion from oil and gas properties) multiplied by 0.9235.

– Self-employed individuals, including Schedule C filers, Schedule F filers and general

partners are excluded from including retirement and health insurance benefits in forgiveness

requests.

UpdatesNew SBA Interim Final Rule – Clarified/Recapped Information

• Clarified/Recapped Information

– Timeline for Application for Loan Forgiveness

• The lender has 60 days from the receipt of the Form 3508EZ or the Form 3508 to render its loan

forgiveness decision to the SBA.

• Provided the lender has determined that full or partial loan forgiveness is in order, the SBA has 90

days from the date the loan forgiveness decision is rendered to remit appropriate forgiveness

amount to the lender.

• If applicable, the SBA will deduct Economic Injury Disaster Loan (EIDL) Advances from the

forgiveness amount remitted to the lender.

• The lenders will inform the borrowers of the SBA’s loan forgiveness decision, with the unforgiven

portion requiring payment on or before the maturity date of the loan.

• This timeline applies only to loan forgiveness applications that are not reviewed by the SBA prior

to the lender’s decision on the forgiveness application.

– Refer to the Interim Final Rule issued on May 22, 2020 entitled “SBA Loan Review Procedures and

Related Borrower and Lender Responsibilities” for additional guidance surrounding the loan review

process.

UpdatesNew SBA Interim Final Rule – Clarified/Recapped Information (cont’d)

• Clarified/Recapped Information

– Rehire Exceptions

• The amendments to the CARES Act have provided borrowers with a number of options to the

avoid negative forgiveness implications in situations where:

– Employees were terminated for cause; or

– Employees voluntarily resigned; or

– Employees voluntarily requested and received a reduction in hours;

• PPP Flexibility Act of 2020 added two new rehire exemptions:

1) Borrowers who attempt, but are unable, to rehire employees who were employed as of

February 15, 2020 and rehire similarly qualified employees for unfilled positions by December

31, 2020; and

2) Borrowers who are unable to return to pre-February 15, 2020 levels of business activity due

to governmentally-established direct and indirect requirements implemented between March

1, 2020 – December 31, 2020 related to maintenance of standards for sanitation, social

distancing or any other COVID-19 related worker or customer service requirements

» Borrowers should note that while similar, the rehire exemption surrounding rejected rehire

opportunities has been replaced with exemption #1 above

UpdatesNew SBA Interim Final Rule – Clarified/Recapped Information (cont’d)

• Clarified/Recapped Information

– Rehire Exceptions (cont’d)

• Proper written documentation is required, including (but not limited) to:

– Written offer to rehire the employee;

– Written record of the rejection;

– Written record of the efforts to hire a similarly qualified employee;

– Copies of applicable COVID requirements or guidance for each business location; and/or

– Relevant financial records

• The SBA will publish guidance on its website for situations in which borrowers are

required to inform the applicable state unemployment agency of an individual’s

rejection of an offer of re-employment.

UpdatesNew SBA Interim Final Rule – Clarified/Recapped Information (cont’d)

• Clarified/Recapped Information

– Owner/Self-Employed Cash Compensation

• 8-Week Covered Period: Lesser of 8/52 of (i) 2019 compensation or (ii) $15,385 per individual

• 24-Week Covered Period: Lesser of 24/52 of (i) 2019 compensation or (ii) $20,833 per individual

– Paid & Incurred Standard

• Payroll Costs Paid: Date the paychecks are distributed and/or when ACH credit transactions are

originated

• Payroll Costs Incurred: Date earned

• Non-Payroll Costs Paid: Date paid

• Non-Payroll Costs Incurred: Accrued during the Covered Period and paid on or before the next

billing date

– Lender Process for Loan Forgiveness

PPP Loan Forgiveness

PPP Loan ForgivenessLoan Forgiveness Application Forms – Form 3508EZ

• SBA released Form 3508 and Form 3508EZ

• Borrowers meeting one of the following three criteria are eligible to use Form 3508EZ:

1. Self-employed individuals, independent contractors, or sole proprietors who had no employees at the

time of PPP loan application; or

2. Did not reduce salaries of any employee earnings less than $100,000 annualized by more than 25%

when comparing the Covered Period to Q1 2020 and the borrower did not reduce the number of

employees or the average paid hours of employees between January 1, 2020 and the end of the

Covered Period.

• Note that reductions attributable to the borrower’s inability to rehire personnel employed on February 15, 2020

and refill those positions with similarly qualified employees on or before December 31, 2020, as well as

situations where job offers to restore hours were rejected, may be ignored.; or

3. Did not reduce salaries of any employee earnings less than $100,000 annualized by more than 25%

when comparing the Covered Period to Q1 2020 and the Borrower was unable to operate during the

Covered Period at the same level of business activity as before February 15, 2020, due to compliance

with certain governmental standards related to the COVID-19 pandemic (i.e., sanitation, social

distancing, customer safety, etc.)

• Borrowers who do not meet this criteria would use Form 3508

PPP Loan ForgivenessFTE Exceptions

• What kind of FTE information do you need?

– Comparative Headcount

• FTEs from February 15, 2019 – June 30, 2019

• FTEs from January 1, 2020 – February 29, 2020

• FTEs from any consecutive 12 week period from May 1, 2019 – September 15, 2019

– (Seasonal Employers only)

• FTEs during the 8-week or 24-week Covered Period

• FTEs as of February 15, 2020

• FTEs at June 30, 2020

• FTEs as of the application date

• FTEs at December 31, 2020

PPP Loan ForgivenessFTE Exceptions (cont’d)

• How do you count FTEs?

– For each employee, accumulate the average number of hours paid per week

– Divide this total by 40 and round to the nearest 1/10th (capped at 1.0)

– Simplified method

• 1.0 for employees who work at least 40 hours/week

• 0.5 for all other employees

• How do the FTE headcount reduction and the 25% salary reduction interact?

– SBA Interim Final Rule issued on May 22, 2020 clarified that the 25% salary/wage reduction only applies

in situations not attributable to FTE headcount reductions

– Example:

• Hourly wage employee had been working 40 hours per week during the borrower selected reference period (FTE

employee of 1.0).;

• The borrower reduced the employee’s hours to 20 per week during the covered period (FTE employee of 0.5).;

• No change to the employee’s hourly wage during the covered period.

– Because the hourly wage did not change, the reduction in the employee’s total wages is entirely

attributable to the FTE headcount reduction and the borrower is not required to conduct a salary/wage

reduction calculation for that employee.

PPP Loan ForgivenessFTE Exception Questions & Scenarios

1) Company discontinues a business segment, terminating all employees before the end of

February 2020.

2) How do furloughed employees impact FTE headcount and/or salary reduction?

3) Seasonal businesses, such as summer camps, are unable to open. However, certain

employees are still receiving paychecks.

4) On April 1, 2020, low-performing employees were terminated. These positions were not

replaced and there was no attempt to rehire the previously-terminated employees.

5) Three employees were terminated shortly before receipt of PPP funding. Subsequently, their

job responsibilities were assigned to other people within the organization.

6) Medical practice closed on March 15, 2020, but is now opening up. Operations are expected to

resume through September at 25% - 50% of normal operating capacity. Employees work 50%

of the normal hours, but the salaried/hourly amounts are 100% of the normal pay rates.

a) Any difference if at 70% or 80%?

7) Law firm is operating throughout the COVID-19 pandemic, but all professionals are working

remotely. Two professionals resigned once the office was re-opened, citing no desire to return

to the office environment.

Managing Cash FlowPoll #3CPE

PPP Loan ForgivenessOpen Questions

The following questions are still unclear and need further guidance from the SBA:

1. How does the paid and incurred standard impact retirement benefit forgiveness?

2. Are corporate shareholders who also are employees allowed to include non-cash benefits in

forgiveness requests where partners and other self-employed individuals are expressly forbidden?

3. Will the expenses be deductible for tax purposes?

4. How will the state taxing jurisdictions treat the forgiven funds?

5. Will the costs eligible for forgiveness be expanded?

6. What is the definition of a transportation utility?

7. Will there be a separate application for seasonal employers?

8. When can borrowers apply for forgiveness?

9. How does the December 31, 2020 rehire date impact borrowers who want to apply for forgiveness

prior to this date?

10.When will new guidance be released by the SBA and/or Treasury?

11.Are owners of multiple entities allowed to claim compensation for each entity?

12.How many more times will this application change prior to being submitted?

FAQs – Quickly Answered

YES, you can:

• Spend 100% of the loan on payroll

• Apply for forgiveness before the 24 weeks is up

• Real and personal property leases

• Receive both EIDL and/or Main Street loans in addition to your PPP loan

• Still apply for EIDL

• Be audited by the SBA even if you have a loan below $2 million

• Expect additional changes to the rules

FAQs – Quickly Answered

NO, you can’t:

• Use a line of credit interest as a forgivable expense

• Use liability insurance/workers’ comp costs as payroll costs

• Apply for additional funding if you already received a PPP loan

• Receive funding after June 30, 2020

• Spend more than 40% of the loan on non-payroll costs

• Exceed $100k annualized for compensation

• Submit your loan forgiveness application because banks aren’t ready to process them

Managing Cash FlowPoll #4CPE

Upcoming Webinar

Thursday, July 2 @ 10 AM

Weekly Recovery Update: COVID-19 Loan Options and Forgiveness Strategies

• For additional questions: Email Covid19@saxllp.com

• Visit Sax’s COVID-19 Resource Center found on Saxllp.com to register for

webinars and for on-going information and resources.

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