Amelia Levin outlines a few things you should know about the Payment Protection Plan and possible extension
As the House presses on with a proposed extension for the Small Business Administration’s Payment Protection Plan (PPP), we know operators and their clients have likely experienced some confusion about all the changes and back and forth. That’s why we caught up with accountant Eric Hjerpe, CPA, managing partner at Hjerpe & Tennison in Bloomington, Ill., to help us navigate these unchartered waters, as the saying goes these days. Hjerpe has been studying the CARES Act since before it was even released to the public and with such detail that he’s been called upon by other magazine writers, bankers and others looking to get the scoop and details on all the inner workings of the Act.
The ongoing problem he says, is that guidance for the CARES Act and PPP continues to change, creating confusion among everyone — from workers to bankers, lenders and other accountants. This most recent guidance from the U.S. Department of Treasury is dated May 19.
One thing should not be confused, Hjerpe says, if you are a business making $2m or less, you should be applying for PPP. However, make sure that at least 75% of the funds go toward payroll, and that you apply for loan forgiveness following the eight weeks. The Treasury Department said it will provide a “safe harbor” from audits or penalties for companies that received a loan for under $2m.
“Apply for it for its intent and purposes and it will likely be forgiven,” says Hjerpe. “It’s a great program. There are still funds available — about $150bn still remains.” To determine how much you might be eligible for, divide the amount earned as stated on your 2019 W2 or W3 by 12 and multiply by 2.5. For $100,000 in earnings, that’s just over $2,000.
Not free money
FCSI executive director Wade Koehler received PPP funds for his staff (at the advice of Hjerpe & Tennison, the accountant for Koehler’s company, Forte Association Management Company. “I applied for PPP and made sure mine was for 100% payroll so I didn’t have to worry about anything illegal,” he says. “I would advise that other consultants and their restaurant clients to be careful with that. It’s not free money unless you officially get loan forgiveness.” Right now, Koehler has set aside the PPP funds and is drawing from his own operating budget and savings first.
Koehler, like Hjerpe, encourages consultants to apply for PPP because “they might not be getting hit with anything right now, but they could in about five or six months if their clients go out of business or suffer,” he says. “The consultant community has always lagged behind when it comes to recessions.”
Hjerpe, from what he’s gathered, explains that the main goal of PPP was to essentially make businesses act as the state unemployment office, almost like the “middlemen” between government funding and employers. It’s that, or employers are to go to through the traditional unemployment process, which overburdens governments.
Even if you don’t need the funds right away and have enough business savings or operating cash to pay employees, it’s still best to use that first and set aside the PPP money until your loan forgiveness application is approved, just to be on the safe side, as Koehler has done. While Hjerpe says it’s likely that funds used for rent and utilities — not payroll — will likely be forgiven, it’s not a 100% assurance at the moment, so that should be considered more like a true loan. Once approved, you can then safely roll the PPP funds into your operating budget.
More support required
Even though an extension surely will help businesses of all types impacted by COVID-19, “it can’t just be the extension,” Hjerpe says. In addition to PPP, the government needs to allow businesses to file for the Employer Retention Tax Credit, available through the CARES Act only to businesses that haven’t already filed for PPP.
“Businesses need both right now,” he says. “For example, if you’re a restaurant and you used the PPP money to put your employees back on payroll, what happens when you open your doors? Most restaurants will not be able to open at full operating capacity anytime soon, so even though their PPP loan is forgivable, they’re not making enough money or have no money because they had to spend whatever they had on other things. Pages 821 to 828 of The Heroes Act, which was passed by the House and was said to be “dead on arrival” by the Senate fixes all of this—it extends PPP for 24 weeks and it allows for use of the ERTC. That way, if a restaurant used 75% of its $100,000 PPP money to pay employees and the rest went to rent and utilities, it could apply for ERTC and get more funds back per employee.”
The holdup, Hjerpe says, seems to be around the definition of “restoration,” and “payroll” for different types of businesses.
The National Restaurant Association has supported the 24-week extension. Lobbying efforts have been led by the interim CEO Marvin Irby, “You need to give our smaller restaurateurs the opportunity to open, continue to have demand and bring back employees,” he said to President Donald Trump in published reports. In a survey from the association in April, more than 60% of restaurants reported that existing federal relief won’t prevent more layoffs from possibly happening.