Latest Info on Covid-19 SBA Loans, presented by Tent OX

On May 1, Eric Schuibbeo of Event Central and two other companies and lawyer Dan Gilmore of Squire Strategies offered a full two hours of updated advice on issues faced in anticipation of reopening as well as applying for and seeking forgiveness of loans through the Small Business Administration’s Payroll Protection Program (PPP).

This was the 5th Covid-19 Round-Up Tent OX founder Scott Woodruff and General Manager Scott Pickel has delivered to help the tent and event community emerge from the Coronavirus Pandemic as strong as possible. Pickel points out that “so much has changed in the three weeks since we last addressed the issue. Our featured speakers have new information that tent and event companies can use to take advantage of the SBA loans.”

Dan Gilmore has 30 years experience in employment law and works actively with tent and event companies to help them manage the new challenges related to Covid-19. Eric Schuibbeo owns three locations and has an interest in a fourth. Eric has been leveraging his deep financial experience to maximize his companies’ survival as well as assisting other tent and event companies as they try to weather the Covid-19 storm.

The entire session was recorded and the link can be obtained by emailing Scott Pickel at Scottp@tentox.com.

Here are some of the most significant points Schuibbeo and Gilmore offered:

Dan points out that companies that are considering reopening are asking questions on how to best go about bringing people back. And he sees a shift in questions about how to bring employees back who may not care to come back because they’re doing well on unemployment. And how to implement the paid leave program for those employees who do come back. Finally, as companies shift from applying for PPP loans from the SBA to determining how much of their loan will be forgiven.

Bringing back opportunities once considered lost. Eric’s companies have about 100 employees, and most of them have been laid off, but keeping some on board with hours reduced enough that they can apply for unemployment. He’s trying to do right by them. “And they’re appreciative,” Eric states, “because they’re also getting the extra $600 [that additional series of payments expires July 25, Dan says]. When the business comes back, I’m going to need my employees to be there for the company in September and October to work the extended hours that will be needed.”

He’s been emphasizing to his branch managers that “it’s going to be a year where we’re not going to make any profit. I’m working with my branch managers to minimize loss.” But he is keeping the sales team on board, and they’ve been instrumental in bringing back close to 40% of the jobs they had initially lost by rolling out testing sites and other Covid-19 related activities, and is now pivoting to restaurants, country clubs and vineyards that see tents as a way to recover some of their seating capacity lost by social distancing requirements with outdoor venues.

Payroll Protection Program: stay with the bank you know. Eric recommends working with banks you’re already familiar with, and who already have a working knowledge of your business. A bank that doesn’t know you is going to be asking for things you can’t easily produce, like articles of incorporation, meeting minutes and much more. The bank you’re dealing with is giving you forgiveness offered by the payroll protection program, not the SBA, and if you already have a relationship with the bank and you don’t have all your T’s crossed and I’s dotted, they’re more likely to accept your claim than a bank that doesn’t know you.

What if you don’t have a payroll to protect? If you’re in a state that locks you down, and you can ‘t bring back employees you’ve laid off because there’s no work, you don’t have a payroll to protect, Eric points out. But it doesn’t mean you shouldn’t take the loan. After all it’s a low-interest lifeline, even though it may not be forgiven. Keep in mind that the circumstances set out for the loans may change. The forgiveness period could conceivably be extended by revised SBA guidance, and the scope of things that can be forgiven by the loan could – conceivably again – be expanded, though neither of those possibilities can be counted on, since changes haven’t yet been announced. “So as a business owner, I’ve taken this to be a loan, and if I get something forgiven, that’s fantastic.”

Forgiveness can be extended beyond your payroll. Rent for example. You may not have all your employees on site, but if you have health care or IRA and 401K costs, state employment (not Federal) taxes based on your payroll can be included in what is forgiven, Eric has found. That piece has to be 75% of your loan. The other 25% that can be counted toward recovered can include rent. But what can rent include for forgiveness purposes? Not just the rent for real property you occupy (which should include property taxes by the way, but rent for trucks, cars equipment like copiers, postage machines and more, so you need to supply those bills as well so toward forgiveness for all of that which you rent.

Mike Cammisa suggests paying all forms of business-related rent through the same bank account (payroll account, for instance), making it much easier to trace these payments if the IRS questions any of them. And then you reimburse your payroll account where the account the PPP money was deposited. Eric adds: It’s your bank’s job to push back if you claim something for forgiveness and they disagree that it should be covered. Dan concurred, saying it’s a common practice for his clients. Remember also, Mark says, you do have to attest to what you’re signing, and you don’t want to be crazy about stuff.”

NOTE: there is much more detail in the Round-UP recording on this subject.

Some banks may ask you to hire your employees back immediately after you get the loan. However, the law only requiresyou to hire back all of your employees (or at least replace the hours they worked as of February 15) by June 30 in order to get the full level of loan forgiveness.  If you hire back 75% of your employees by that time because that’s all you think you‘ll need to do the level of jobs you anticipate, your loan forgiveness will be prorated at that percentage. It’s more beneficial for your company, Eric says, to bring everybody back by June 30 to get the loan forgiveness, even if you lay off the unnecessary employees directly after that. But Dan adds that maximum forgiveness based upon payroll costs comes from hiring back the employees for as much of that eight-week period as possible from the time you get the money.

You’re responsible for applying for forgiveness. At the end of the eight weeks, it’s the business’s responsibility to go to the bank and apply for forgiveness. You will probably have to show a payroll register to applying for the loan and then a register after the eight-week period to show that you brought the people back. You don’t have to bring the same people back, but you do have to bring the equivalent numberof people back using a simple formula for full-time equivalence. A twist on that idea suggested by Mike Holland, a meeting attendee, was to add bonus money to beef up your post-Covid-19 payroll target amount to help meet the equivalency standard if you are not in a position to fully restore headcount back to 100% of where it was compared to either the first two months of 2020 or February  15 through June 30 of 2019. “You want to choose the lower of the two base periods as your target,” Dan suggests.

Will the eight-week timeframe for forgiveness be extended? The hope is that the June 30th date for avoiding a reduction in forgiveness will be extended beyond the current eight-week timeframe from the time the money is placed in your account to give companies more flexibility on when they bring people back. Whether or how far it may be extended is not yet known. “I advise people to bring back as many people as they can by June 30 if they have work for them,” Dan says. “I’m not a proponent of having people stay at home and be paid just to get forgiveness. That’s what the unemployment system is for, at least through the end of July.” Eric adds, that it’s critical NOT to sign any personal guarantees you bank requests to get the SBA-sponsored PPP loan. “You are not required to do it. Only the company representative has to sign it. No personal guarantees. You don’t have to provide financial statements either. Banks use it as a marketing ploy. If you show financial statements that aren’t advantageous to you now, they may put your SBA PPP application on the bottom of the pile.”

In response to a question, Eric pointed out that even though he has 100 employees, he only has 25 employees, now, and the PPP forgiveness will only cover as many employees that are on the payroll in the 8-week period that starts when the PPP money is deposited in your account.

Preserve cash. Scott Woodruff said that as he and Scott Pickel have been talking to many companies, many have indicated they are unlikely to have any big events through the end of the year that will justify bringing all their employees back just to get loan forgiveness on their PPP loans.

“Anything you can do to preserve cash to a later date is a good thing. Even if you don’t hire all your employees back, you can still take advantage of the PPP as a very low interest PPP loan, lower, in fact, than some of the other loans you have in place. You could, for instance, use the PPP loan money to pay off some of those loans.” 

Aggressive pay back schedule on PPP loans. Mike Cammisa says that while the PPP loan is a very attractive instrument that you may want to take advantage of, keep in mind that it includes a rapid repayment – 18 months. If some of the loan is forgiven, the repayment period is actually shortened. However banks apparently are more likely than not to extend that repayment period, and the AICPA is lobbying the secretaries of state treasuries [or did him mean the federal Sec. of Treasury?], pushing to extend time frame for forgiveness to the times shutdowns are released by the state.

Criminal Liability issue. Dan reminds people that if you act and good faith, doing your best to use the PPP money as it was intended to bring back employees, there is very low risk of the government questioning your spending of this resource. Eric adds that what you don’t spend on payroll simply is not forgiven, but you still have a nice one percent loan. Mark Cammisa points out that loans in excess of $2 million are reviewed by the SBA. Less than that, and you’re working with your bank. “If you have very good documentation, are up-front with them and have your financials in on time, that good will will pass through.”

Dan Gilmore shared some additional information on May 5:

Although the overdue additional guidance on forgiveness has still not been issued by the SBA, this Q&A was added by the SBA on Sunday. It answers a question we discussed on Friday.  

40. Question: Will a borrower’s PPP loan forgiveness amount (pursuant to section 1106 of the CARES Act and SBA’s implementing rules and guidance) be reduced if the borrower laid off an employee, offered to rehire the same employee, but the employee declined the offer?

Answer: No. As an exercise of the Administrator’s and the Secretary’s authority under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that, to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

Dan adds: “You can see from the answer that the SBA still intends to issue an interim final rule, which will include this guidance. In the meantime, I am recommending that employers follow the suggestion about documenting both the offer of rehire and resulting rejection if this situation occurs with any of their laid off employees.”

This article summarizes the first hour of the presentation. If you would like more detail, please request access to either the first hour of the video (presentation and about 20  minutes of Q and A) and/or the second hour, which is all Q and A, and we will forward the links. Just e-mail Scott Pickel at Scottp@tentox.com