Guide to Getting Your PPP Loan Forgiveness Application Accepted

Feel overwhelmed by the lack of guidance on the multiple pages of the PPP loan application? Want to make sure your application is accepted and approved? Get an understanding of what the application involves and how to completely it correctly with our step-by-step webinar including:

  • Details of the SBA loan forgiveness application (Form 3508)
  • Calculating the forgiveness amount
  • Required documentation
  • Areas of uncertainty

See transcript below:

Amanda: We’d like to welcome everyone to today’s webinar, The Guide to Getting your PPP Loan Forgiveness Application Accepted. Just a couple of housekeeping items. So we know that there’s going to be a lot of questions related to this, so feel free, go ahead. There’s going to be a section here that you can go ahead and type in your questions. We’ll answer as many as we can at the end. If we don’t get to answer your question, someone from the Poland team will get back to you with an answer. So feel free though. I know there’s a lot to cover in today’s presentation.

Today we have three analysts from Smolin with us who have helped assist hundreds of companies either get an application, provide guidance in terms of forgiveness qualifications, and they’re here today to share some of that experience with you and what you should expect. So with us today we have Nick. Nick is a licensed certified public accountant in Florida and he’s also a licensed certified valuation analysis or analyst. We also have Henry. Henry is going to be our moderator on today’s panel. Henry is a licensed certified public accountant in New Jersey and New York with more than 30 years of public accounting experience. And we also have Dan Kruesi. Dan is a licensed certified public accountant and he’s been practicing public accounting for over 20 years. And with that, I will pass things along to Henry to get things started.

Henry: Thank you, Amanda. Good morning everyone. We have a pretty exciting topic of great interest to many people. Obviously to everyone who has applied for PPP loans and is hoping to be able to get forgiveness for the repayment of those loans. Our agenda will cover actually the details of the application form itself and how do you calculate the forgiveness amount, what documents I expected to be produced in that process, and what areas are remaining uncertain.

As we all know that this is an ongoing situation and constantly evolving between the treasury, IRS and the SBA. So why don’t we go to the next slide and have Nick T off the topic.

Nick: Thanks Henry and good morning everyone. So before we get into this and just take a brief second to discuss where we are now. Banks are starting to finally accept forgiveness applications, maybe some smaller banks as the bigger banks are working on developing their portals and allowing for those digital applications.

As of October 1st, there was no decisions on forgiveness provided by the SBA. So still waiting for them to get going there. But for those businesses that received funding early in the application period, so those are late April, early May, they’re quickly approaching their 24 weeks or may have already passed that 24 week covered period. So with that being said, on some of the forgiveness basics, you can still elect the eight week covered period if you received your loan prior to June 5th, 2020. For all those after that, they’re going to be utilizing the 24 weeks. With the 24 weeks your maximum compensation for not owner employees is going to be 46,154 and the eight weeks would be 15,385.

So really what our goal is, and when you work through these initial decisions is, are you going to go eight weeks or 24? We have something that’s called the alternative covered period that will allow you to start your payroll costs at your first full payroll cycle. So if you got your loan in the middle, let’s say you pay on Fridays and you got your loan on a Wednesday, you could actually wait until that next payroll cycle starts up to get going on that.

There’s other decisions that you might want to discuss is what are your measurement period you’re going to be for your full-time equivalent? You actually have two different options when coming down to that. You can either elect to measure against February 15th, 2019 to June 30th, 2019 or utilize January 1st, 2020 to February 29th, 2020. And these FTE’s will play a big role in our forgiveness. So choosing the right measurement period to get you the greatest benefit will be a key decision.

And is it the right time for you to decide on applying for forgiveness? As we’ve seen, there are many decisions that have to be made and many changes that have come up along the way. So we’ll touch on that more a little later and go into some of those details as to why or maybe it is the right time for you to apply for forgiveness.

Henry: So thank you, Nick. Dan, I know that in the areas where clients have choices, they usually call us and they ask us for assistance. What are your thoughts about these choices right now?

Dan Kruesi: Well my thought is it seems on the surface that it would be a no brainer to go for the 24 week period because as Nick said, if you did that, you could max out the forgiveness wage for payroll costs for an employee at $46,154 as compared to $15,385 with the eight week being at 15,385 being less than the amount that would have been borrowed at 20,833. So if you do the math, it seems a no brainer to do the 24 week period. But as Nick said, the full-time equivalent calculation, which can play a factor, that it could come into play if a company was going to release employees or planned on downsizing after the eight week period. That would most likely be the only time when you would plan on doing eight weeks instead of 24 weeks. All right. With that, let’s go to the next slide.

Nick: So we touched on a few of the forgiveness basics and calculations, but we’ll go into a little more detail here. The key is going to be getting 60% of your funds spent on payroll. That will help you get the full forgiveness. And that’s a great starting point. You can definitely spend more as Dan has touched on. You were loaned 2833 per employee. So if you wanted to utilize all 100% of payroll, that definitely helps cut down on some of your documentation requirements that we’ll touch on later too. But if you can’t hit that full 100% on payroll, we can spend up to 40% on non-payroll costs, such as rent, utilities, interest obligation, and retirement benefits actually will be included in the payroll so that wouldn’t be there for non-payroll, but it gives you some other options to help fill that gap so that you can get 100% forgiveness.

Once you add up your payroll and non-payroll costs, we have a couple of reductions and issues that we have to navigate. One being, if you reduced your employees salary or hourly rate by more than 25%, you’d be subject to what’s called the salary and range reduction. And what that does is that reduces the amount of forgiveness you can get for that employee proportionally on your reduction of their salary in excess of 25%. The other reduction that employers will want to navigate is the FTE’s.

So on a very simple scale, if you had 50 employees and due to the coronavirus you had to reduce your employee count to 40, that could have a potential of a 10% impact on your forgiveness amount. So a loan of 200,000 would now come down to 180. And there are plenty of exceptions and safe harbors that you can utilize to eliminate this forgiveness reduction. And it will be difficult, not difficult, but there’s ways to navigate and you want to make sure you choose the right one that’ll help you guys get to the best forgiveness outcome.

Henry: Dan, what are your thoughts? I’m thinking like what about high comp employees that some of our clients have on the payroll.

Dan Kruesi: Well they’re capped at 100,000 Henry. They’re capped at 100,000 plus their retirement benefits, health benefits, and basically state and local taxes such as unemployment benefits. That’s what they’re capped at. There is one thing I want to just point out. On the first point that’s point out on the slide. So 60% of payroll is required to obtain full forgiveness. That doesn’t mean that if you didn’t spend 60% on payroll, that this will actually affect your entire application, it won’t be forgiven.

All that will happen is there will be a ratio set up that if you don’t meet the 60% payroll requirement that what happens is your non-payroll costs will also get reduced. So for example, if you winded up covering 54% of your payroll, okay, instead of 60, you do a formula 54 divided by 60 equals 90%. Then you multiply the 90% by the 40% and so you’d only get 36% if you happen with the rest of the eligible costs. So you would basically set up your formula that whatever your percent is for the amount that went under the 60%, that’s the percent that you would be able to use for your other non-payroll costs. Okay. Next slide.

Nick: Yeah. So the basics that the SBA application touched on and the instructions talk about bank statements. That’s going to be key. They want to see that these checks actually cleared the bank. Payroll records are going to be most important, depending upon if you utilize a payroll provider or if you prepare payroll in house, that’s going to dictate the extensiveness of your payroll records. By using a third party provider such as ADP or Paychex, they’re going to place a little bit more reliance on those documents that you submit, just knowing that they’re independent of your application for forgiveness. If you prepare payroll in-house, they’re going to want to see if you use like a QuickBooks software or some other software, your payroll reports, they’re going to want to see canceled checks and maybe some pay stubs to supplement that. And they’ll want to see also your quarterly payroll returns for the period that you’re utilizing.

In terms of non-payroll costs. Property leases are going to be important because if you’re claiming a rent covered costs, they want to see that that loan or that lease was in existence before February 15th. If your renewal period happened to fall within your covered period, just make sure you have both leases, the old and new one. Utility invoices, they’re going to want to see your light bill, gas, things like that, water bill. You can use internet as well.

Be careful when you use things like Zoom and things that might’ve come up due to the coronavirus. They want to see that the utilities that you’re claiming were in existence as of February 15th. Another thing that is going to, as we’ve touched on a lot, is those FTE’s. They’re going to want to see payroll records that indicate either if you’re using an hourly employee, how many hours they worked, salary employees, you can then utilize different methods of calculating them, but they’re going to fall into a one, usually for your FTE.

And you’re going to want to have that documentation to show. This is where you were at your measurement period. This is where you are either at the end of your 24 weeks or December 31st or when you submit your application. As I touched on, there’s some different end dates for your FTE measurements, but you’re going to want to have all those documents there to properly substantiate that. And then if you were utilizing one of the FTE exceptions that we’ll touch on such as if you offered an employee re-employment after the coronavirus started and that employee turned down your offer of employment, you want to have written documentation that shows you offered the employment and they’ve writtenly turned it down so that you could provide that to the SBA. Another exception that you can utilize addresses, not being able to be up to a full 100% capacity due to the Coronavirus limitations that were either implemented on a federal, state, or local level.

So you’re going to want to make sure you have copies of those ordinances and rules that were in place. And then also make sure you have the green light as to when you were able to start back up again. And all those documents are going to play a key component to getting the forgiveness. The more documented you are and the better quality of your documents, the easier the forgiveness will be.

Henry: So then as we turn to you, couple thoughts I have on the subject in this area. Early, when the PPP program was rolled out, I’ve heard from payroll companies that there would play a bigger role in terms of providing calculations of the limits or maybe giving you a certifications as the FTE’s. Have we seen that happening? That’s one question. And the other question then has to do with these written offers to hire and rejections.

I hear from clients that some of employees who are laid off and collecting unemployment were refusing to come back to work, even though the work was offered. What happens if they do not give you a written rejection? Dan?

Dan Kruesi: Okay. Well, you bring up a couple of good points there Henry. We have seen where some of the payroll companies have been accommodating and have helped out at least streamline things a little bit, make things a little more user-friendly. There are a lot of questions that come up because probably the number one way that you’re not going to get your loan fully forgiven is if your full-time equivalent drops below 100% and then you’re going to have a percentage decrease. And a lot of things come up where people say, “Oh. I see that I could fire my employees if there was just cause.”

And a lot of owners, I believe, think, “Oh, my business isn’t doing well. So I terminated these employees. And so that gives me a cause to basically let people go.” Just cause, in our opinion, is if somebody does something wrong, the poor work performance, coming in late, situations like that where there’s a reason. I don’t know, they stole from the company. There’s a reason for just cause for letting someone go. Not just that your business went down. If your business went down and it was due to a government order that told you that you had to shut down such as a restaurant or a bar where they were told that they couldn’t operate, that’s something that you could qualify under the safe harbor one. But that doesn’t mean that you’re going to qualify that just because your business is not doing well. If that’s the case, you’re most likely going to have to go to safe harbor too, which I think we’ll be talking about that a little bit later. Okay. Next slide.

Nick: So we’ve touched on a lot of these along the way of our presentation. So we’ll dive into a little bit deeper discussion on these. The key thing I think everyone is wondering about at this time is the deductibility of the expenses that were incurred with PPP funds. Currently the IRS has come out and said and I noticed that they were considering this to be a tax exempt income, like since you’re not paying tax on the forgiveness part of it. So with that, they’ve chosen that they’re going to disallow those deductions.

Well, many professional organizations like ours, [inaudible 00:00:16:28], and other hospitality industry groups, and so forth. And then Congress themselves are fighting for this to be changed. They’re saying that this is not our intention. This kind of delivers another blow to struggling businesses as you could get hit with a sizeable tax bill just due to these deductions being disallowed.

Another part that we’re quite uncertain on is owner employee compensation. There are many different ways that are utilized to calculate owner compensation that vary on your business type. So for an S corporation, your owner’s compensation will include cash compensation and retirement benefits that you can have eligible for forgiveness. Health insurance would not be included separately because that’s thought to be included in cash compensation based on other internal revenue guidance. Whereas a C corp owner could have that cash compensation plus health insurance plus retirement benefits.

And then there’s different rules for schedule C, sole proprietors, and partnerships. So calculating owner compensation is not as clear and as easy as it is for your employees. So you don’t want to rely on an inappropriate calculation, think you have enough costs already put aside for forgiveness, and then you get to your application and find out that that cost doesn’t qualify.

Dan has touched on these FTE’s and with these many exceptions in safe harbor, such as you’re just cause, we talked about government shut down, offers of employment. So there are many outs that if you are unable to maintain your FTE’s, but there are also many considerations as to which one will be best for your business, making sure you have the proper documentation, and making sure that there won’t be any questions. And then if you can’t utilize one of these exceptions or if you don’t think it’s strong enough, we can turn to some of those safe harbors such as having all your FTE’s restored by the end of the year.

They’ve given you that out to say, “If you bring back and restore your full-time equivalence by December 31st, we’re not going to penalize you for any reductions that you had during your covered period.” So navigating the FTE’s in itself becomes a whole different ball game there. And then lastly, is this the right time for you to apply? We’ve touched on that. There are uncertainties that we’re navigating and that’s going to allow you to decide on, “Well, are the rules done changing?” We just had new guidance that was put out reflecting whether or not what happens in a change in ownership. Was your business bought out by someone else? Did you decide to sell?

There’s been changes in the deferral periods on the loans from when you actually obtained them, if it was earlier or later. So that guidance was issued just this week. Do you want to wait for changes in the deduction certainty? Are they going to come out with additional guidance here, maybe in cares act 2.0 or all this legislation that’s getting thrown around? And if so, are their tax planning opportunities? Does it make sense to apply before the end of the year if you’re a calendar year taxpayer or after?

And borrowers have 10 months to apply after their covered period. So there’s a lot of wiggle room as to either do you apply now or to apply later? And maybe if you need to restore reductions, you wait to apply until later. So a lot of areas that are uncertain and that can change on the fly.

Henry: Dan, what are your thoughts?

Dan Kruesi: Well, my thoughts are, you would think if you have 10 months from after you covered periods over, why rush? Just take your time. The only exceptions to that, that I would see why you would file is just like Nick pointed out right now. The IRS is saying there is a backdoor way where the IRS is going to say, “Hey, you’re not going to be able to deduct those expenses.”

So even though it was supposed to be tax free forgiveness on these loans from Congress, the IRS is going back door saying, “Well, we’re going to take away your expenses.” So in essence, this is taxable. When do you want this to be taxable if it’s forgiven? Would you want that to be taxable in 2020 where maybe rates are lower or do you want it to be in 2021? Do you think Joe Biden will be president? Will he raise tax rates? Will your cost benefit of having those expenses be higher next year when you have a higher tax rate than it is now? And also, do you want to terminate employees? This full-time equivalent calculation goes to when you submit your application. So do you want to wait on submitting your application and in the meantime maybe you lose employees when you have to let employees go?

So there’s a lot of factors that have to be weighed of when you want to send in that application sooner or later.

Nick: And another uncertainty- To even build on that is we’re not sure, the rules state when your application is submitted, but what if you submit your application to your bank that may not be processing them yet? So if I submitted my application today, but let’s say Bank of America isn’t ready yet. Well, when is that application date? Is it the day I finalize my application and provide it to them or is it once they process it a couple weeks down the road? So there’s definitely a lot of uncertainty around all of this.

Henry: And from our perspective, when clients come to you, Dan and Nick, with real cases, because that’s what we have. Can you kind of walk us through what a real case would look like Nick?


Nick: Yeah. One of the more recent ones that I’ve addressed is it was a gym that was shut down for extended period of time. And while they were shut down, they were trying to hold on to as much of their PPP funds as they could knowing that at some point they would open up again. And when you start running up against the clock of your 24 weeks, in New Jersey, I know gyms just opened up early September. They’ve been opened up a little bit more here in Florida, but we still manage similar issues and it becomes difficult to spend all those funds right away.

And they may need to utilize that last bit of time and decide on how much do we pay these employees? Do we want to compensate them for additional pass time, which you’re able to do if you want to give some kind of hazard pay or so forth. And then you’re navigating those kinds of issues and making sure you have enough full time equivalents. And especially, let’s say you’re covered periods ending now. Well, you may not have enough now, but who knows what’s going to come up down the road. Is December 31st going to be a much brighter picture? It’s still yet to be determined.

Henry: So then Dan, you already mentioned that the 60% is not all or nothing kind of limit. It actually reduces your pro rata. So surely our clients and listeners to this webinar should be able get some, to some extent, a forgiveness of the loan. Now the issue that I see is that when clients come to us, what advice can we give them now? This is pretty like pencil to paper. You’ve got to figure out what’s going on and you’ve got to also decide on where the business is going, to Nick’s point when he brought up the gyms. So then from your perspective, how do you address it with clients?

Dan Kruesi: Well, as you can see, it’s a case by case basis. Like Nick pointed out, here was a situation where he had a client where they were worried about actually spending the money and paying off their employees close to the amount that they borrowed. Whereas, many other clients, they’ve already spent all their money and now they’re just really worried about their full-time equivalents and whether they should still hold onto people or not. That’s a big question for owners. Should I file my application even before the 24 week? Because I might want to terminate some employees that I have afterwards. So it’s not something you can just generalize on Henry. It’s something that’s really case by case basis with everybody and we’re finding across the board that everybody’s situation is virtually different.

Henry: Amanda, let’s go to the next slide. I think it’s questions, but let’s see it. Yeah. Can you tell us if we have questions from the audience?

Amanda: We do. There are a lot of questions. So one of the ones that’s come up a couple times, and I think they’re kind of tied together. So I’ll give you guys the two in one. People are asking one, in terms of just filing the application. So if they took out this loan with their financial institution, do they have to file the application through that institution or is there another way to do it directly? And someone also asked about the easy application. If there’s a better time to use that and when you would recommend to.

Nick: So you’re going to file your application with your financial institution that you received the loan through. There’s no applications that go to the SBA. The bank has the first kind of gatekeeper position where they’ll give you a decision within 60 days. As far as utilizing the easy application, easy application is definitely helpful there for sole proprietors because for the most part, unless they had a payroll issue, they’re going to get a green light and 100% forgiveness. If you can utilize the three checkbox at the top and fall one of those conditions, utilizing the easy application is a great option.

I believe with that you’re not going to have as many of a FTE concern because one of the options may be that you haven’t reduced your FTE. So that time period is not going to be as crucial, but if you want to get it taken care of earlier rather than later you can, but I don’t believe you’re going to have as many of those critical issues and navigate using the easy application.

Henry: As a follow-up to this question, we knew that SBA was going to actually examine applications that originally the threshold was set up at $2 million. And do we know then once the application is filed with the bank, is the bank going to have to wait for these applications to be approved by the SBA before the loan forgiveness is actually granted? Dan.

Dan Kruesi: Well, the banks have 60 days from when they get your application to give you an approval. So they have a 60 day period. If you’re under $2 million, the SBA has come out and said, “If your loan amounts over $2 million, you can count on getting audited. If it’s under $2 million, you still could get audited, but the likelihood is a lot less.” Keep in mind, you can’t rely on it and say, “Oh, well, my bank okayed it. So I went along with what the bank said.”

You’re still responsible for your application. Your bank is just really a checking process. They’re not on the hook at all, if there’s anything wrong in your application. That’s entirely up to you. That’s why you need to make sure that you do a thorough job on your application so they could stand up the audit.

Nick: To expand on that, the SBA has 90 days after the bank gives them a decision to remit the funds. So if they want to look into your application for forgiveness even further, as Henry mentioned it, the likelihood is lower if you’re under $2 million, but they still have that ability before remitting the funds back to the bank.

Amanda: So someone had a question about the FTE exception. So one of them whereas wondering, what if an employee voluntarily or just of their own accord decides to lessen their hours. And also what if there is an H1B visa expiration. Are those considered allowable exceptions?

Dan Kruesi: Well, the visa exception I haven’t specifically seen that mentioned, but I think it would follow the pattern of how the law was made. For example, we touched on with people, if they were on unemployment and you brought them back and they said, “No, I don’t want to go back.” You have an obligation to tell the unemployment agency that this person was offered their job. There’s your proof right there in writing that you’re actually alerted the unemployment agency. If there’s somebody for just cause that’s fired, if you offered someone the job, but they refused to come back. So if you have a situation, I would think if the same thing with a visa where it was pulled on someone that’s obviously following the same pattern, I think that would be exempted.

Nick: And then in terms of the voluntary reduction, best case scenario would be to have something in writing. “John Smith. I am looking to reduce my hours due to the Coronavirus,” or just in general or I’ve retired. Having that documentation would be necessary to submit and prove that that employee voluntarily did it. And that would not hurt your FTE calculation if they did.

Henry: So we are closing in on our time limit and probably have time for another question. I know we are scheduling another webinar after October 15. So that’s going to be posted and distributed to everyone. But Amanda, let’s take one more question.

Amanda: Sure. So one more question was regarding if projects are canceled. So we had talked about if there’s a government ordered shut down for capacity or something like that, but due to COVID a couple of comments that we saw come through were that people were having large projects get canceled and as a result, they had to let some of their employees go on unemployment. Would that be considered an allowable exception?

Dan Kruesi: I don’t think it does. If you read through the law, if you read through the regulations, you read through the question and answers, there’s so many people that might be able to make a case otherwise, but from what I’ve interpreted and read, I don’t think that’s a valid exception.

Nick: I think a way to navigate that, I would agree with you Dan, but I think you can navigate that by your measurement period. If you had a project that just started up, maybe you can go back to that February 15th to June 30th, 2019 measurement period and that employee wouldn’t have been on the staff at that point in time. So maybe you can mitigate your issues there of temporary projects that way by choosing a more appropriate reference period. And then you can always fall back on that December 31st safe harbor, if you expect that project to pick back up.

Henry: Definitely we are seeing this in construction in particular where some projects got postponed. But it doesn’t mean they got postponed and reactivated in 2020. And I can see that major construction companies could have issues in coming up with adequate number of FTE’s as a result. So from my perspective, these are special cases and I think you might be able to make an argument, although the law specifically doesn’t articulate that.

Nick: And that’s where, if your bank may not be willing to be as flexible in terms of handling these questions because I think from a banking perspective, it’s going to be a lot of check boxes. And if you get a decision that you don’t find is appropriate, you can always go ahead and appeal that decision, I believe within 30 days and have a one-on-one direction with the SBA. Just if a bank may not be as flexible and maybe quick to say no, it’s not the end of the road.


Henry: So I’m thinking this is about the amount of time we can allot to today’s webinar. I wanted to thank everyone for attending. We had practically a record number of attendees. Thank you for joining us today. As I mentioned, we will have this topic again and because it’s so fluid and new regulations and new rules are coming out practically daily, it’s probably worthwhile to join us again when we put this particular topic on the calendar. Thank you everyone for attending. And I wanted to thank Nick obviously and Dan, our superstars. They did a great job. Thank you for being our panelists and Amanda, thank you for being a gracious host.