By Reginald Tucker
The U.S. government’s Paycheck Protection Program (PPP) has provided a much-needed bridge for thousands of small businesses, including many specialty floor covering retailers, as they seek to blunt the financial impact of the novel coronavirus pandemic. Congress recently passed legislation that substantially changed some of the rules regarding PPP loan forgiveness. The new legislation addresses issues such as flexibility on how long the loan can be used to cover payroll costs and covered expenses, as well as the calculation of the amount of the loan that can be forgiven.
At the same time, however, the new rules raise some issues that have caused confusion for many applicants. In the latest installment of its ongoing “Combatting COVID-19” webinar series, the World Floor Covering Association (WFCA) tapped Jeffrey King, WFCA legal counsel, to explain the changes to the program.
Since the webinar series began, King has answered hundreds of questions from individual WFCA members regarding requirements, conditions and changes to the PPP loan as well as Small Business Administration (SBA) loans. Working alongside Lobbyit, WFCA’s lobbying firm, King has not only helped craft and tweak legislation, but he has also helped members better understand legislation once passed.
“Jeff is not licensed to practice in all 50 states or in Canada, but he does have this uncanny knack for deciphering what comes out of D.C. into a language that’s kind of applicable to us—so we can understand it and know how to act on it,” said Scott Humphrey, WFCA CEO and webinar moderator. “We offer his advice as an overview and to generate conversations between retailers and their professional guidance team, so I hope that’s how you use it.”
Following are excerpts of the presentation:
Updates to the Paycheck Protection and Flexibility Act
One of the biggest changes to the PPP loan, King said, is the extension of the forgiveness period to 24 weeks out of the eight weeks. “The extension of the forgiveness period to the 24 weeks, unfortunately, is a little late for many retailers,” King said. “Many of you got your loans early; your first eight weeks are already done. The good news, if you haven’t spent all the money, is you’re now almost inevitably going to be able to spend all of it, based on if you get 100% forgiveness. The loan is now effective for 24 weeks or until December 31—whichever comes first.”
King’s advice is to use the eight weeks if it’s better for the employer’s business, calculating the full-time employees and salary/wage retention. “If you can get 100% forgiveness now with the basic data you have at present, then do it,” he explained. “There’s no reason not to get the forgiveness immediately. But if you can’t get it 100% forgiven, then obviously you want to wait to see if you can get better numbers.”
Change in the ‘75%’ rule
The requirement that companies who receive a PPP loan must apply 75% of the funding toward payroll was reduced to 60%. According to King, the SBA wanted to allocate a greater portion of the funds to be used for the survival of the business. “It also gives some opportunities to reduce staff, in a way, and maintain your business at a lower level for a longer period of time, i.e., that full 24 weeks,” he explained.
Which portions of the loan are actually forgivable?
“There was some initial confusion on partial forgiveness,” King said. “Under the SBA rule, if you were under 75%, then the amount forgiven was lower. When we first saw the law, we were a little concerned because it said you only got forgiveness of 60% of the loan that was used for payroll costs. That meant if you used 59% of it, there was no forgiveness.
“We approached Congress about that. We had anticipated it might have been fixed in the Senate, which everybody thought would be done, but because of the need to get the bill passed without changes and have it done immediately, the Senate passed the bill unanimously exactly as it was written by the House— without this correction. The SBA made it very clear that it is still a proportionate system. So, if you have 30% of it used on payroll, you only get half your loan forgiven, but if you have 60% of it, you’ll get 99% of the loan (approximately) forgiven.”
Does this apply only to full-time employees or ‘full-time equivalents?’
“The number of full-time employee equivalents means all your full-time employees, and then your part-time employees added together until they make a full-time employee,” King explained. “If it doesn’t make a full-time employee, then each part-time employee—if you have one part-time employee—the count is 0.5 of a full-time employee.
“The law says you have to compare the full-time employees over eight weeks. The average you had between February 15 to June 30 of last year, or February 1 to February 29 this year. If you had the same number of full-time employees that you had on February 15, and you had that on June 30, then that was enough to satisfy the number. Even if you didn’t average the full number during the eight weeks, as long as by June 30 you had the same number you had as of February 15, then it wouldn’t cause any reduction in the amount of loan being forgiven.”
Can employees who cannot be rehired be counted?
“You’re not required to count employees if you cannot rehire them or replace them—or if you’ve offered them a job and they said no,” King explained. “Or if you can’t hire them back because of safety restrictions that are imposed. We know that’s been a problem for some of our members, so this is a pretty big deal.”
What if location state/city restrictions dictate how/when I hire?
A good example of this is if you live in an area where your store traffic is maxed at 50% capacity. As King explained: “Many people are practicing significant social distancing, and there are restrictions as to how many people can be in your store at any given time. Because of that, you might not need as many salespeople.
“In addition, you probably don’t need too many people in your warehouse, so you’ve staggered some of their shifts, and you may have also reduced that number. If you find you can’t hire enough people back to make your full-time employees because of the social distancing requirements and other restrictions, etc., you’re going to be fine—as long as you can document and show that.”
How should retailers document this?
“We’re waiting for SBA guidance on this, but I’m certain what they’re going to require is some documentation,” King said. “For example, if you tried to hire somebody and they said no, then document it in an email saying, ‘I just want to confirm you’re not coming back to work at this time…you’ve been offered your job back but you’re not coming back.’ That’s enough documentation. Also, keep a list of the people you tried to hire or any kind of advertisements you did to do so.”
Do I have to maintain certain salary/wage levels?
“The rule was that you couldn’t lower anybody’s salary or wages, on the average, more than 25%, to qualify for the PPP loans,” King said. “SBA originally compared what the average levels were on June 15 to the average over the eight weeks. If the average wages you were paying as of June 30 were the same as the amount within 25% of what you were paying on February 15, you were safe. Well, they moved that date to February 20. The problem now is, if you’re going to look at it not by the date but by the time, which is now 24 weeks, that creates a bigger issue for everyone.”
Clearing confusion about PPP loan terms
‘The ‘maximum’ term of the loan under the CARES Act was 10 years. Yet, the SBA said two years. Well, the new law says a minimum of five years. However, they recognized many of these loans were written with a two-year term, and they didn’t want to automatically write all of these loans that had already been negotiated with your bank. They said the five-year minimum only applies to loans that were issued after the enactment of this bill, which the president signed on June 5.
“The law also allows you to negotiate with your lender for a longer period of time. For example, if you have a loan before June 5 and you need a longer term to pay this off, again, at 1%, then I would go ahead and negotiate with your bank and try to get the longer term. Again, if you use the 24 weeks, you may actually get it all forgiven anyway, based upon the new mathematics of it.”
What about deferments?
The Paycheck Protection Plan also had a deferred payment time—six months to a year, according to the CARES Act. “The SBA said six months, the new law says a year, but they made it odd,” King said. “The time you pay is when the loan forgiveness is determined. Once they figure how much of the loan is to be forgiven, you have to start paying on the remaining amount. Or, it’s 10 months after the covered period ends at 24 weeks, or if you want to use the eight weeks, the eight weeks end. That’s when you have to now pay the loan. We’re going to assume your loan ends in 24 weeks. You have 10 months within which to file that application for forgiveness. Once it’s determined how much still remains on the loan, that’s when you start making monthly payments.”
Calls to simplify the application process
“Many of you have already seen the new loan forgiveness application—it’s very complicated and now obsolete,” King said. “There is a new application expected soon. It’s very important they put it out quickly, because it tells you what you have to do to get full forgiveness. It really helps you figure that out.”
To view a recording of the webinar in its entirety, including a Q&A session and an economic overview by WFCA CFO Steve Abernathy, visit the WFCA website and wfca.org and click on the “Coronavirus Resources” tab.