Q: How can this loan be used?
A: The PPP loan can be used on any of the following:
- Payroll support (up to 100k annual salary) - This includes paid sick, medical or family leave and costs related to the continuation of group health care benefits during those periods of leave
- Debt obligations incurred before 2/15/20
- Employee salaries
- Mortgage payments/interest
- Any other debt obligations incurred before the covered period
Q: How much can I apply for?
A: Loans can be up to 2x your average monthly payroll costs plus an additional 25%, with a cap of $10 million.
Q: What is the interest rate?
A: Fixed 1% regardless of business type. Final rates, underwriting standards and other terms and conditions are to be determined.
Q: What are the terms of this loan?
A: This loan has a maturity of two years and an interest rate of .5%. These loans will be issued by SBA 7(a) lenders.
Q: Is there any loan forgiveness?
A: An eligible recipient shall be eligible for forgiveness of indebtedness in an amount equal to the cost of maintaining payroll continuity and other allowable costs during the covered period (8 weeks from loan origination). The borrower shall submit to the lender an application, which shall include documentation verifying the number of full-time equivalent employees on payroll and the other costs included in "Allowable Use:"
- Payroll tax filings reported to the IRS
- State income, payroll, and unemployment insurance filings
- Financial statements verifying payment on debt obligations incurred before the covered period
- Any other necessary documentation to be determined
The amount of any loan forgiveness will be reduced by any reductions in employee wages (in excess of 25% for any employee) or a reduction in the number of employees during the covered period.
For more information, visit https://www.sba.gov/page/coronavirus-covid-19-small-business-guidance-loan-resources
*Sources: Congress.gov, US Treasury Department and Internal Revenue Service
**Content is deemed reliable, but not vetted or endorsed for accuracy by GMS.
*Details are changing daily, last updated 4/2/20.
*GMS is providing this information; however, you should consult with your tax or legal advisor regarding your personal circumstances.
Q: Can you recap the PPP loan forgiveness information?
A: Loan forgiveness will be determined by your lender, please plan to partner with your lender as they begin to outline what information is needed to apply for forgiveness. Loan forgiveness for PPP is based on how the loan proceeds are used. The loan must be used to cover payroll expenses, mortgage interest, rent, and utility costs over an eight-week period after the funds have been dispersed to you. A maximum of 25% of the forgiven loan amount can be used to cover non-payroll expenses.
Here are a few examples that may help you understand how wages and full-time equivalents may impact your forgiveness:
- Reduction in FTE Count – Not re-establishing FTE count by June 30, 2020 will result in a percentage reduction in loan forgiveness. e.g. If a company employed 100 FTEs during the average FTE period but employed only 90 during the eight-week period after the PPP loan was funded and did not restore to the 100 FTEs by June 30, 2020, there would be a 10% loss in forgiveness.
- Reduction in Wages - An employer who cuts wages by more than 25% would receive a dollar-for-dollar reduction in loan forgiveness. e.g., If a company was paying salaries of $1,000,000 during 2019, and salaries were only $700,000 on an annualized basis during the eight-week period after the PPP loan was funded, the company would lose $50,000 in forgiveness ($1,000,000 * 75% = $750,000 less $700,000). This calculation is performed employee-by-employee. Employees earning more than $100,000 are excluded from this calculation.
Q: What is considered a full-time equivalent (FTE) under the Paycheck Protection Program?
A: The U.S. Small Business Administration or the IRS have yet to publish official guidance on hours worked per week that constitutes FTE. In other publications, (i.e. FTE definition under the Affordable Care Act) the IRS has deemed full-time to be 30 hours per week. Another approach may be to reference the Internal Revenue Code; CARES Act Section 2301(c)(3), which pertains to the employee retention credits, defines full-time by referencing IRC Section 4980H: A full-time employee is an individual who works an average of at least 30 hours per week.
Q: How can we document payroll expenses for the PPP?
A: GMS has a report that we can run for you that pulls some information together in a clean format, it is called GMS CARES – PPP Forgiveness. We can run this report weekly or at the end of the eight-week period. The following information is included in the report – gross wages, PSL/EFMLA (in case you need to back them out), benefits, 401k contributions, and SUTA. We are hoping you can take this report and add/remove any additional information you need to it.
Q: Can you recap the recommendations the AICPA has recently laid out for loan forgiveness?
- Recommendation #1: Align the beginning of the eight-week covered period with the beginning of a pay period NOT the date loan proceeds are received.
- Recommendation #2: Begin the eight-week covered period when operating restrictions are lifted, rather than the date loan proceeds are received.
- Recommendation # 3: Defining Full Time Equivalents - The CARES Act does not define how to calculate a full-time equivalent (FTE). We recommend following the definition under the Affordable Care Act (ACA) of 30 hours. Because hours are not always collected for certain types of employees (e.g. salaried workers or those paid by piecework), we recommend using a wage-based proxy for determining FTEs.
- Recommendation # 4: Payroll reduction calculation should be done based on the average payroll per employee per week rather than the total compensation per employee in an eight-week period versus the prior quarter.
Q: We are ready to apply for Loan Forgiveness. When will the GMS COVID-19 reports be available?
A: We’re working tirelessly alongside our payroll technology partner on this, however, still do not have a timeline on when these reports will be fully functional and available to you. In the meantime, please continue working with your Payroll Specialist or HR Account Manager for assistance in running payroll cost report(s) on the backend of the system.
If you have an immediate need to calculate FTE for the given reference period options or throughout the covered period of your loan, you may use Data Retriever in GMS Connect to pull Hours Paid.
Q: Is there an official process to opt-in to a 24-week covered period if I have a pre-June 5th loan with an eight-week covered period?
A: The Paycheck Protection Program Flexibility Act (PPPFA) nor the SBA or treasury have issued any formal process to make this happen. Simply speak with your lender. Keep in mind, with an extended covered period, borrowers will need to maintain their FTE throughout entire 24-weeks, which may add some complexity or impact forgiveness.
Q: What are the FTE requirements over the 24-week (168 day) covered period for loans after June 5? How do we calculate FTE through this longer period?
A: The requirements and calculation of full-time equivalents is the same over a 24-week covered period as they are for the 8-week covered period. Employers must look at each qualifying employee per pay period; any employees working at least 40 hours per week are counted as 1.0 FTE.
For any employee working less than 40 hours per week, you are given two options to calculate their full-time equivalency:
- Determine the number of hours the employee worked per week and divide by 40, rounding to the nearest tenth; or
- For each employee who worked less than 40 hours per week, they are automatically assigned a full-time equivalency of 0.5. This is the simplified approach which allows you to skip the math, but it could result in a lower FTE amount than if you choose the manual calculation provided in the previous option.
Q: Can you clarify the relevant FTE time periods and what is required for maximum loan forgiveness? What is the FTE Safe Harbor and how do you qualify?
A: The Loan Forgiveness Application states that borrowers must maintain their average FTE count over the “covered period” of the loan (either the eight-week or 24-week period following loan disbursement) compared to their chosen “reference period” below, which represents a pre-COVID-19 employee count:
- Average number of FTEs per week/pay period from Feb. 15, 2019 to June 30, 2019
- Average number of FTEs per week/pay period from Jan. 1, 2020 to Feb. 29, 2020
- For Seasonal Employers: Average number of FTEs per week/pay period for any consecutive 12-week period between May 1 and Sept. 15, 2019
The actual amount of loan forgiveness may be less if your FTE count during the covered period is less than during your chosen reference period.
You may be exempt from this forgiveness reduction if the FTE Reduction Safe Harbor applies to you. In order to be eligible for the Safe Harbor, BOTH of the following must be met:
- You had to reduce FTE levels from Feb. 15, 2020 to April 26, 2020; and
- You then restored FTE levels by no later than June 30, 2020 (or Dec. 31, 2020) to the same FTE level in your pay period that included Feb. 15, 2020
Q: Are there specific rules regarding a company owner’s pay? Are wages paid to owners eligible for forgiveness? Lastly, do we include or exclude owner-employees in any and all FTE calculations?
A: The SBA’s guidance allows for the forgiveness of wage amounts paid to owners (e.g., owner-employees, a self-employed individual, or general partner). The amount eligible for forgiveness remains capped at the lower of (1) $15,385 (the eight-week equivalent of $100,000 per year) for each individual or (2) the eight-week equivalent of the owner’s applicable compensation in 2019.
Owner-employees, self-employed individuals, and general partners are not included in the FTE calculations or wages reduction calculations based on the SBA's Loan Forgiveness Application. PPP Schedule A on this application, Line 9 regarding Compensation to Owners, specifically states: “This amount may not be included in PPP Schedule A Worksheet, Table 1 or 2.” The exclusion of these amounts from Table 1 or Table 2 means they will not enter into the FTE calculation, or reduction in pay calculations for the borrower.