By Reginald Tucker
The deadline for small businesses to apply for loans under the Paycheck Protection Program (PPP) has been extended to August 8, 2020. At the time of the original deadline, June 30, the Small Business Administration (SBA) determined there was still $130 billion in federal funds still available through the PPP program.
Earlier this month, the U.S House of Representatives approved the extension of the $659 billion PPP lending program, and President Trump last week signed the deadline extension into law. The move opens the door for more small businesses to apply for relief funds—although borrowers are not permitted to apply for more than one PPP loan under the current program rules.
“The PPP is an indisputable success for small businesses, especially to the communities in which these employers serve as the main job creators,” said Jovita Carranza, SBA administrator. “In three months, this administration was able to act quickly to get funding into the hands of those who faced enormous obstacles as a result of the pandemic. Small businesses of all types and across all industries have benefited from this unprecedented program.”
A lifeline for small businesses
To date, SBA has dispersed roughly $520 billion in loans to almost 5 million small businesses across the country. Last week, the SBA and the Treasury Department released the complete database of all PPP loans issued thus far—approximately 4.9 million. “The average loan size is approximately $100,000, demonstrating that the program is serving the smallest of businesses,” said Treasury Secretary Steven Mnuchin in a statement.
Despite hiccups during the implementation of the first round of PPP loan disbursements, many floor covering businesses—retailers, contractors and manufacturers alike—have been able to take advantage of the loans. The National Wood Flooring Association (NWFA) reported more than 75% of members applied for PPP loans, with roughly half of applicants receiving funds. And CCA Global Partners, parent company of Carpet One and Flooring America/Flooring Canada, said more than 80% of members received funding through the program.
While he is encouraged by the steps the SBA and federal government are taking to help small and mid-size businesses weather the storm, Scott Humphrey, CEO of the World Floor Covering Association (WFCA), said he has some concerns—fearing, for some, it might be too little too late. “In all honesty, some will not make it,” he told FCNews. “I have already heard of several that were barely getting by before the coronavirus and have no fight left to see this recovery through. Those that do survive may be aided by the federal government, but that will not sustain them. Those establishments that want to survive and thrive will need to approach business differently. The world has changed, and those who would survive and thrive must change as well.”
A loan program not without its challenges
While PPP loans have helped many floor covering businesses stay afloat, especially during the outset of the pandemic, there have been some bumps in the road. Some retailers were initially discouraged by the complicated application process—a process that caused many to miss out on funding opportunities during the first phase due to filing delays. More recently, applicants became frustrated with ongoing rule changes related to the forgiveness aspect of the loans.
For its part, the WFCA is working closely with its lobbying arm, LobbyIt, to clarify the various rulings and what they mean for dealers in terms of hiring, re-hiring, loan forgiveness and related expenses. “There was some initial confusion on partial forgiveness,” said Jeffrey King, WFCA legal counsel. “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.”
The amount of the PPP loan that can be forgiven will be reduced if the business failed to bring back the average number of full-time employee equivalents (FTEs) or reduces employee’s salaries by more than 25%. In calculating any reduction, the average number of FTEs paid and the amount paid during the loan forgiveness period is compared to the average FTEs paid between Feb. 15, 2019 and June 30, 2019 or Jan. 1, 2020 and February 29, 2020. The employer gets to choose the comparison period. The number of FTEs can be reduced if the borrower was unable to rehire employees as a result of health directives from Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to COVID-19, and did not reduce the salaries or wages of the employees they brought back by more than 25%.
Changing guidelines causes frustrations
Another major criticism of the PPP program was the ambiguity of certain guidelines with respect to owner compensation and so-called “safe harbor” rules. Regarding the former, the new regulation limits the amount of the loan that can be paid to owner-employees, a self-employed individual or general partner. SBA has determined the maximum amount is $15,385 if the borrower chooses the eight-week covered period, or $20,833 if the 24-week covered period is used. In addition, the costs of covered benefits for owners (health care expenses and retirement contributions), and state taxes imposed on employee payroll paid by the employer are not included in the payroll costs for owners.
“The new regulations apply these limits to ‘individuals with self-employment income who file a Schedule C,’ which are filed by individuals who are self-employed,” King explained. “This definition, however, cannot be complete. While sole proprietors and owners of limited liability corporations file Schedule Cs, partners that are specifically included in the limit do not file Schedule Cs. Moreover, the new rules do not define what is included in ‘owner-employee’ and whether it includes owners of C or S corporations. In addition, it is not clear whether any ownership interest is sufficient, or whether there is a minimum ownership percentage.”
The law also has a safe harbor rule, which states that a borrower could qualify for the full amount for forgiveness if it restores its FTE and salaries to its Feb. 15, 2020 levels by Dec. 31, 2020. The SBA has determined that the safe harbor can be applied as of the date the loan forgiveness application is submitted. Borrowers do not have to wait until Dec. 31 to apply for forgiveness in order to use the safe harbors, King stated.
Streamlining the application process
In order to simplify the application process for small businesses, SBA has updated its PPP application forms and revised its previously published form to make it shorter and incorporate the changes in the PPP Flexibility Act. In addition, the agency has issued an EZ Forgiveness Application that is much simpler, requiring fewer calculations and less documentation. However, this new EZ version is limited to borrowers that fit a certain criterion.
“The new SBA rules and forms leave a number of issues open, such as whether the owner compensation limit applies to owner-employees of C or S corporations,” King said. “WFCA is working with legal counsel and Lobbyit to obtain further clarification and will provide further updates to members on the specificities of the above PPP changes, including updates regarding rules, allowances and forgiveness.”