If you’ve succeeded in securing a Payment Protection Program loan, maybe you’ve heard that the rules for getting that loan forgiven, so you do not have to pay it back, have changed. The good news is, the changes are designed to make the program more flexible and accommodating.
In an SAF Reignite Your Business webinar, June 18, floral industry financial expert Paul Goodman, MBA, PFCI, discussed the updates and explained what florists need to do to make sure they qualify to get their loans forgiven.
Signed into law on March 27 as part of the federal Coronavirus Aid, Relief and Economic Security (CARES) Act, the Payment Protection Program (PPP) was created to help businesses affected by the coronavirus pandemic cover payroll and other expenses, as a way to keep the economy going during the crisis.
The PPP Flexibility Act, passed on June 5, is intended to make it easier for borrowers to meet the requirements for full forgiveness of their loans. “There is speculation there will be more revisions coming yet,” noted Goodman. “If they are like revisions in the past, they will probably make it easier to get forgiveness, not harder.”
In the webinar, Goodman covered four major changes effected by the PPP Flexibility Act. Explanations and advice about a few other revisions are available on the SAF website, as part of the June 10 member update.
More Flexibility in Spending
Important change number one: Under the original conditions of the loan program, borrowers were required to spend a full 75 percent of the money borrowed on payroll costs. Now, that requirement has been lowered to 60 percent.
Also, in the first set of rules and regulations, the payroll costs that count toward the spending threshold were defined, basically, as net payroll. They did not include, for example, employee-paid FICA taxes. Nor did they include income taxes that were withheld from the employee. Most borrowers, Goodman surmises, probably were not even aware of how narrowly allowable payroll costs were defined.
As revised, however — and as most borrowers probably had already assumed—the rules now clarify that “payroll costs” means gross payroll costs for the employer. Allowable costs include not only employee-paid FICA taxes, but also the company cost for employee health insurance and for employee retirement plans, if any such exist. They exclude only the company-paid portion of payroll (FICA) taxes.
The change from 75 to 60 percent for payroll costs as a portion of total expenditures means that now a full 40 percent of the loan money can be spent on certain other allowable expenses, including rents, utilities, and interest payments on mortgages — as long as all of these obligations were in place before February 15, 2020.
More Time to Meet Spending Requirements
Important change number two: Originally, in order to qualify for loan forgiveness, borrowers were required to spend all of the money received within eight weeks of the date when it was received. It became clear, however, that for some employers, eight weeks was too short a time to spend that money, especially given the limitations on how the money could be spent.
Now, borrowers can take 24 weeks, or up to December 31, 2020 — whichever comes first. “Since people are still applying for loans within the program, some might get their money as late as November,” Goodman noted. “But for those who have received money already, it’s the 24 weeks you have to worry about.”
Borrowers who received money under the program before June 5 can opt for either an eight-week or a 24-week scenario. For a few, the shorter period might be advantageous (as explained below). The bottom line, however, is that the change allows more time for most borrowers to spend their loan money and still get forgiveness.
More Time and Flexibility to Rectify Staff Reductions
A third important change applies to employers who have let employees go or cut employee hours between February 15 and April 26. “From my perspective, pretty much every florist in the country reduced their head count between those two dates,” said Goodman.
The loan program provisions require that you bring your head count back up to what it was on February 15. This is defined in terms of restoring what are called Full Time Equivalents or FTEs. One FTE equals 40 hours per week. So, if you have two employees who work 20 hours each, that’s one FTE. It’s also possible to start with, say, 3.5 FTEs if you have three full-time and one half-time employee. If on February 15 you were staffed for the holiday over and above what is normal for your business, Goodman suggests checking with your lender on how to handle that.
Here’s the good news that comes with important change number three: If you reduced your FTE head count between February 15 and April 26, all you have to do to qualify for full loan forgiveness is to bring your FTE head count back up by December 31, 2020, or by the date when you apply for loan forgiveness, whichever comes earlier. (Before, the deadline was June 30, 2020, or whenever you applied for loan forgiveness, whichever was earlier.)
You do not need to have had the same level of employment during the whole period extending from the day you received money to the day you apply for forgiveness (known as the “covered period”). You only need to restore the reduction by the last day of that period. This is called the “safe harbor” on FTE head count reduction.
If you did not lay off any employees before April 26 (and this situation would apply to very few florists, in Goodman’s opinion), then the rule changes: you have to average the FTE count during the time of your covered period. “If this hits you,” Goodman said, “consider carefully if you want the eight weeks or the 24 weeks for your covered period, since the latter is a much larger employee-count commitment.”
The new rules include one more “safe harbor”: If you reduced your payrates (meaning, payrates per hour, not total pay due to fewer hours), all you have to do to qualify for loan forgiveness is to bring the payrates back up to where they were, even just by one day. “I think most florists would not have changed payrates,” Goodman observed. “They would rather have reduced hours — in which case the rule does not apply.”
As with the other “safe harbor,” if you didn’t reduce payrates at all by April 26, you lose the safe harbor. In that case, you must show that average payrates after the time you received your PPP loan were at least 75 percent of the original payrates on February 15.
Getting Help with the Form
Goodman also addressed some of the complications on the form used to apply for PPP loan forgiveness — which is 10 pages long and reasonably complicated. Goodman suggests enlisting your CPA and your lending institution for assistance and oversight in filling it out.
Calculations on the form require verification for certain items. “If you are a large florist, a payroll service may provide the forms you need,” said Goodman. “You will want receipts for insurance payments and other things that might be part of a legitimate payroll expense.”
An EZ form is available for florists who have no employees (florists who obtained the loan as a self-employed entrepreneur). The form is also available for florists who have employees but who did not reduce their FTE count and did not reduce payrates by more than 25 percent.
Some florists may have taken advantage of two other federal loan programs. The Economic Injury Disaster Loan (EIDL) can include an advance of up to $10,000, which doesn’t have to be repaid. (Beyond that $10,000, the balance of any EIDL loan is truly a loan — not forgivable.) If, however, you got an EIDL advance and also received a PPL loan, the advance amount will be subtracted from your PPP forgiveness.
The Main Street Loan Program is a new program, designed to support small- and medium-sized businesses that were unable to access the PPP or that require additional financial support after receiving a PPP loan. Main Street Loans, Goodman clarified, are not forgivable.
“The PPP will be a gift for almost everybody that’s applied for it,” noted Goodman. “The money will not count as revenue for tax purposes at the end of the year. It’s a tremendous gift to the small business community, and that’s the way it was designed.”
Bruce Wright is a contributing writer for the Society of American Florists.