UNDERSTANDING THE PPP I RECEIVED MY PPP LOAN: NOW WHAT? MAXIMIZING - - PowerPoint PPT Presentation

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UNDERSTANDING THE PPP

I RECEIVED MY PPP LOAN: NOW WHAT?

MAXIMIZING FORGIVENESS AND COMPLIANCE TO PPP MAY 22, 2020

• Borrow applies for loan
• Lender/SBA approves loan
• Lender funds loan
• Borrower uses of funds to pay expenses
• Borrower applies for loan forgiveness
• Borrower repays amount not forgiven

STAGES IN THE PPP LOAN PROCESS

Today’s focus

PPP LOAN FORGIVENESS APPLICATION

https://www.sba.gov/sites/default/files/2020-05/3245- 0407%20SBA%20Form%203508%20PPP%20Forgiveness%20App lication.pdf

• Understand important definitions in the Act and guidance

− “Covered Period” − “Alternative Covered Payroll Period” − “Full Time Equivalent” employees − “Full Time Equivalent” measurement periods − “Allowable Uses” − “Payroll Costs”

• Understand additional terms lenders may have
• Plan ahead to project the 8 weeks after funding
• Consider using a separate bank account to track uses and

proceeds

• Maintain supporting documentation for all uses of funds
• Prepare a comprehensive package with 3rd party back-up

when applying for loan forgiveness

LOAN FORGIVENESS READINESS

• The Covered Period related to the forgiveness of the loan is

the 8 week period starting immediately after the loan has been disbursed by lender (FAQ 20)

• Alternative Payroll Covered Period: For administrative

convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).

DEFINITIONS

• Full Time Equivalent (FTE) employee For each employee, enter the

average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.

• Full Time Equivalent Measurement Periods:

− February 15, 2019 to June 30, 2019 − January 1, 2020 to February 29, 2020

DEFINITIONS

Payroll Costs:

• Gross cash compensation earned/payable to employees
• Vacation, sick or other leave
• Dismissal or separation pay
• Health insurance costs (less employee reimbursement)
• Retirement plan contributions
• State and local employment taxes
• Self employed individuals: Monthly average of line 31 of 2019

Schedule C net profit. Capped at $15,385 for the covered period.

DEFINITIONS CONTINUED: ALLOWABLE USES

EXCLUDED FROM PAYROLL COSTS

• Compensation paid to employees whose principal residence is
• utside of the US
• Qualified sick leave pay for which a credit is allowed under
• Sec. 7001 of the FFCRA
• Qualified family leave pay for which a credit is allowed under
• Sec. 7003 of the FFCRA
• The employer portion of Federal employment taxes imposed
• r withheld under IRC chapters 21, 22, or 24 (FAQ #16 – US

Treasury)

• Costs paid to independent contractors (FAQ 15)
• Cash compensation in excess of $100,000 per employee

excluded from forgiveness

PAYROLL COSTS (CONT.)

Non Payroll Costs:

• Interest on mortgages

− Includes real property and personal property − Excludes principal

• Rent Payments

− Includes rents for real or personal property under lease agreements − Appears related party rents will be allowed

• Utility payments

− Electricity, gas, water, telephone, internet access, and transportation (gray area).

• Interest on any other indebtedness

− Will not be included in amount forgiven

No more than 25% of the amount forgiven can be attributable to non-payroll costs

DEFINITIONS CONTINUED: ALLOWABLE USES

DEFINITIONS CONTINUED: ALLOWABLE USES

Incurred v. Costs Paid: Eligible payroll costs. Borrowers are generally eligible for forgiveness for

the payroll costs paid and payroll costs incurred during the eight-week (56- day) Covered Period (or Alternative Payroll Covered Period) (“payroll costs”). Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period (or Alternative Payroll Covered Period) are eligible for forgiveness if paid on or before the next regular payroll date.

Eligible nonpayroll cost. Cost must be paid during the Covered Period or

incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.

EXAMPLE

Client name: Loan Disbursement Date: Payroll Period Selected Budget Budget Budget Budget Budget Budget Budget Budget Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Ending Ending Ending Ending Ending Ending Ending Ending Categories 5/15/2020 5/22/2020 5/29/2020 6/5/2020 6/12/2020 6/19/2020 6/26/2020 7/3/2020 Total % Payroll Costs Gross Wages 19,600 19,600 19,600 19,600 19,600 19,600 19,600 19,600 156,800 $ Health Insurance

• 5,000
• 5,000
• 10,000

State Unemployment Taxes

• 6,000
• 6,000

Employer retirement benefits (401k match / pension plan) 588 588 588 588 588 588 588 588 4,704 Less (enter as negative): Qualified sick leave / qualified family leave

• Employees with principal residence outside of U.S
• 100k Proration Cap on wages

(4,008) (4,008) (4,008) (4,008) (4,008) (4,008) (4,008) (4,008) (32,062) Subtotal Payroll Costs 16,180 21,180 16,180 16,180 16,180 27,180 16,180 16,180 145,442 66.13% Budget Budget Budget Budget Budget Budget Budget Budget Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Ending Ending Ending Ending Ending Ending Ending Ending 4/22/2020 4/29/2020 5/6/2020 5/13/2020 5/20/2020 5/27/2020 6/3/2020 6/10/2020 Total % Interest on mortgage obligation

• 2,000
• 2,000

Payments on covered rent obligation (real and personal)

• 2,500
• 2,500

Utilities Electricity

• 70,000
• 70,000

Gas

• Water
• Transportation
• Telephone
• Internet Access
• Subtotal non-payroll costs
• 74,500
• 74,500

33.87% Total Eligible Expenses 16,180 $ 21,180 $ 16,180 $ 90,680 $ 16,180 $ 27,180 $ 16,180 $ 16,180 $ 219,942 $ 100.00% Famous People, Inc. 4/15/2020 Alternative Payroll Covered Period

$100,000 PRORATED COMPENSATION

Client name: Loan Disbursement Date: CAVEAT: The following considers the proration for $100,000 to be based on the full 8 week period rather on the actual number of periods the employee was employed during such

• period. Additional guidance is required to understand whether the cap will need to be prorated down to account for the number of weeks that an employee was actually

employed during the covered period. Week 1 Week 2 Week 3 Week 4 Week 5 Week 6 Week 7 Week 8 Allowed Employee Name 5/15/2020 5/22/2020 5/29/2020 6/5/2020 6/12/2020 6/19/2020 6/26/2020 7/3/2020 Total Allowed Compensation Excess Johnny Carson 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 16,000.00 15,384.62 15,384.62 (615.38) Lucille Ball 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 12,000.00 15,384.62 12,000.00

• Pharrell Williams

1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 1,000.00 8,000.00 15,384.62 8,000.00

• Drake

1,900.00 1,900.00 1,900.00 1,900.00 1,900.00 1,900.00 1,900.00 1,900.00 15,200.00 15,384.62 15,200.00

• Dolly Pardon

5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00 40,000.00 15,384.62 15,384.62 (24,615.38) Taylor Swift 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 20,000.00 15,384.62 15,384.62 (4,615.38) Dwayne Johnson 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 1,500.00 12,000.00 15,384.62 12,000.00

• Mark Wahlberg

750.00 750.00 750.00 750.00 750.00 750.00 750.00 750.00 6,000.00 15,384.62 6,000.00

• Jennifer Lawrence

1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 1,250.00 10,000.00 15,384.62 10,000.00

• Denzel Washington

2,200.00 2,200.00 2,200.00 2,200.00 2,200.00 2,200.00 2,200.00 2,200.00 17,600.00 15,384.62 15,384.62 (2,215.38)

• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 15,384.62
• 19,600.00

19,600.00 19,600.00 19,600.00 19,600.00 19,600.00 19,600.00 19,600.00 156,800.00 124,738.46 (32,061.54) Famous People, Inc. 4/15/2020

• The amount qualified for forgiveness is reduced if the average

number of FTEs per pay period during the covered period is lower compared to one of the FTE measurement periods:

− February 15, 2019 through June 30, 2019; or − January 1, 2020 through February 29, 2020 Note: Seasonal employers only use February 15, 2019 to June 30, 2019

• FTE measurement period selected is based on the lower of the

two periods

• If a laid off employee that is offered employment and declines

that employee is not counted against the headcount reduction provided criteria is met(FAQ 40)

FORGIVENESS REDUCTION – NUMBER OF EMPLOYEES

FORGIVENESS REDUCTION – NUMBER OF EMPLOYEES - EXAMPLE

Client name: Loan Disbursement Date: Covered Period: The eight-week (56-day) Covered Period of the PPP loan. The first day of the Covered Period must be the same as the PPP Loan Disbursement Date. Covered Period Alternative Payroll Covered Period Period Beginning Date 4/15/2020 5/8/2020 <== Manual Input Period End Date 6/10/2020 7/3/2020 Period Selected (Drop Down) [1] 10 From Payroll Records 15 From Payroll Records 12 From Payroll Records Seasonal N Y - Yes / N - No Use the lesser of [2] or [3], if seasonal use [2] 12 Ratio - Max 100% 83.00% Safe Harbor: Number of FTE at February 15, 2020 12 From Payroll Records Number of FTE at June 30, 2020 10 From Payroll Records Reduction to Apply - Y / N Y [2] [3] Famous People, Inc. 4/15/2020 Avg number of full time equivalent during covered period the average number of full time equivalent employees per month employed by the eligible recipient during the period beginning on February 15, 2019 and ending on June 30, 2019; or the average number of full time equivalent employees per month employed by the eligible recipient during the period beginning on January 1, 2020 and ending on February 29, 2020; Alternative Payroll Covered Period : For administrative convenience, Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”). Alternative Payroll Covered Period

• Gross wages paid to an employee in the covered period must

not be reduced by more than 25% compared to the gross wages paid to that employee in the most recent full quarter prior to the covered period

• Any reduction in excess of the 25% will reduce the forgiveness

amount dollar for dollar Computation above is based on average salary or average hourly wage rate. Only applicable to employees whose annual salary was under $100,000 during 2019.

FORGIVENESS REDUCTION – SALARY AND WAGES

FORGIVENESS REDUCTION – SALARY AND WAGES - EXAMPLE

Client name: Loan Disbursement Date: CAVEAT: The law provides that the reduction in salary and wages of any employee during the covered that is in excess of 25 percent of the total salary or wages in excess of 25 percent of the employee during the most recent full quarter during which the employee was employed before the covered period will reduce the forgiveness dollar for dollar. The above inherently has a limitation as it compares 8 weeks to a full quarter. Our understanding of the intent of the act is to prevent a cut in salaries and wages in excess of 25% therefore the below considers an average approach rather then a total approach as currently written. Additional guidance may be come contrary to our approach Instructions: Only include employees on payroll during the 8 week covered period, whose wages and salaries did not exceed $100,000 in 2019. To obtain hourly wage use the hours paid during the periods listed below. To obtain average salary use the number of pay periods. [C] [D] [E] Employee Name Total Wage During Covered Period # of hours / pay periods Average Wage Per Pay Period Total Wage Per Q1 # of hours / pay periods Average Wage Per Pay Period Difference 25% of [B] - Allowed reduction Excess of [C] over [D] # Pay Period Total Reduction Johnny Carson 16,000 $ 8 2,000 $ 26,000 $ 13 2,000 $

• $

(500) $

• $

8

• $

Lucille Ball 12,000 $ 8 1,500 28,600 13 2,200 (700) (550) (150) 8 (1,200) Pharrell Williams 8,000 $ 8 1,000 19,500 13 1,500 (500) (375) (125) 8 (1,000) Drake 15,200 $ 8 1,900 24,700 13 1,900

• (475)
• 8
• Dolly Pardon

40,000 $ 8 5,000 65,000 13 5,000

• (1,250)
• 8
• Taylor Swift

20,000 $ 8 2,500 32,500 13 2,500

• (625)
• 8
• Dwayne Johnson

12,000 $ 8 1,500 19,500 13 1,500

• (375)
• 8
• Mark Wahlberg

6,000 $ 8 750 9,750 13 750

• (188)
• 8
• Jennifer Lawrence

10,000 $ 8 1,250 16,250 13 1,250

• (313)
• 8
• Denzel Washington

17,600 $ 8 2,200 28,600 13 2,200

• (550)
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• 8
• Totals

156,800 $ 19,600 $ 270,400 $ 20,800 $ (1,200) $ (5,200) $ (275) $ (2,200) $ Famous People, Inc. 4/15/2020 [A] [B]

• The two forgiveness reductions will be exempted if the

following qualifications are met:

− Re-hire employees laid off or fired in the period from February 15, 2020 to April 26, 2020 – this would apply to the “FTE reduction” only − Restore salaries of employees reduced in the period from February 15, 2020 to April 26, 2020 – this would apply to the salary reduction only

• Each requirement must to be met not later to June 30, 2020

for the corresponding reduction not to apply.

EXEMPTIONS

SUMMARY

Client name: Loan Disbursement Date: [4] Loan Amount 180,000 $ From the Actual Amount of the PPP Loan Allowed Qualified Expenses 219,942 Tab - Expenses Incurred 1) Reduction relating to salary and wages (2,200) Tab 3 - Salary Reduction Subtotal Qualified Expenses 217,742 2) Reduction in number of employees . (37,016) [5] Net Allowed Expenses 180,726 $ [6] Payroll Costs divided by .75 293,257 $ 180,000 $ Loan Balance after forgiveness

• $

Famous People, Inc. 4/15/2020 Maximum forgiveness amount - Lesser of [4], [5] and [6]

CERTIFICATIONS

• As part of the loan application, borrowers have to certify that “current

economic uncertainty makes this loan request necessary to support the

• ngoing operation of the Applicant”, and

− Per the SBA’s FAQ: Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access

• ther sources of liquidity sufficient to support their ongoing
• perations in a manner that is not significantly detrimental to the

business.

• This certification applies to public and private companies
• Loans more than $2 Million, on a affiliated basis, will be

reviewed prior to forgiveness

• Loans under $2 Million are deemed to have made the

certification in good faith.

Many unanswered questions: − What qualifies as a utility (transportation costs???) − Definition of owner-employee − Annualization of gross pay related to >$100,000 limitation

§ How does the $15,385 limitation apply

− In light of many “stay-at-home” orders, will the 8-week period be extended? − What happens if the PPP loan funds are not fully used during the 8-week period?

ETERNAL (FEELS LIKE) QUESTIONS

• Establish a separate bank account
• Prepare an 8-week forecast showing uses of proceeds

− Identify in advance recurring expenses which qualify for forgiveness

• Calculate FTE’s during the applicable “measurement” periods
• Calculate payroll for employees during the most recent full

quarter

• Estimate your FTE and payroll reductions
• Document all expenses!

− Complete a spreadsheet that tracks and summarizes all qualified expenditures − Accumulate copies of all qualified invoices, cancelled checks, bank statements, etc.

FINAL THOUGHTS (UNTIL RULES CHANGE) ON FORGIVENESS

Tax Implications

• Amount forgiven is excluded from taxable income
• Expenses paid for by forgiven funds are not deductible

ONE LAST FORGIVENESS CONSIDERATION!

• Employer Retention Credit

− Encourages companies that have been negatively impacted to retain employees by providing credit for wages paid to employees that have been retained

• Delay of Employer Payroll Taxes

− Employer portion of FICA taxes (until December 31, 2020) are not required to be deposited until December 31, 2021 and December 31, 2022 (50% on each date) − Deferral is available only until the loan forgiveness occurs

CARES ACT – INTERACTION WITH OTHER BUSINESS TAX PROVISIONS

UHY’s Crisis Management Services

In addition to providing assistance with reviewing loan forgiveness documentation and compliance with Cares ACT for lender submission, UHY’s team can assist in evaluating strategic alternatives and capital structure issues during this period of economic turmoil.

EXPEDITED M&A PROCESSES

§ Accelerate M&A transaction processes

(1 – 4 months)

− Develop transaction strategy,

prepare marketing materials, negotiate with buyers, and close

§ Marketing to Special Situation Investors

in addition to other financial and strategic buyers

CASH FLOW FORECASTING

§ Detailed financial modeling and

forecasting

− 13-week cash flow forecasting − Covenant analysis and forecasting − Sensitivity & scenario analyses § Managing liquidity § Lender support and transparent dialogue

BALANCE SHEET RESTRUCTURING

§ Existing lender negotiations § Working Capital analysis and

• ptimization

− Vendor negotiation / strategy § Refinance existing lenders or source

additional junior capital or non-bank lenders

Our team of experts have developed key strategies and considerations to assist companies in weathering these uncertain times to emerge stronger and better positioned.

SELL-SIDE ADVISORY • BUY-SIDE ADVISORY • FINANCIAL PLANNING & ANALYSIS • CAPITAL RAISING

HOW UHY CAN HELP

Presenter Contact Information: Jack Reagan jreagan@uhy-us.com 410-423-4800 THANK YOU!

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