Your Triple P (PPP) Loan Was Funded - Now what | Incite Tax

If you were fortunate enough to get a PPP loan, what next? That's the question that I'm going to answer for you right now because it's a question I've been getting a lot from my clients and getting tagged on Facebook. So I wanted to make this video as a resource for you to answer that question and all that what's next entails. Not to mention, as of the recording of this video, it does look like the government is going to pass an additional funding amount for the PPP loans and EIDLs, and I'll get into those dollar amounts here in a second. Let me first go over the basics, and then we'll get into the specific questions that I've been asked. The first thing I want you to be aware of is that the loan amount you received is 2.5 times your average payroll cost, but they're only giving you 8 weeks or 2 months to spend that money in the window where the amount is going to be forgiven. So you do run the risk that you may not be able to use all of those funds to pay, you may not be able to use all those funds on things that are forgivable, or you just may not be able to use all those funds. I am fortunate enough that I received the PPP loan I plan on using it completely for payroll because while I have rent expense, I'm also the owner on title for the space, and that's in a separate entity. And I just don't want to run the risk that they're going to find any reason to not forgive the amount. So my personal approach is to use it completely on payroll. Okay. But they gave me 2.5 times worth and I only have 2 times to spend it. Hopefully that makes sense. Let me read a few things directly from some of the rules and regulations, and then I'll summarize a few things as well when it comes to this period. Because what's next, really what we're asking is, how do I make sure the loan amount I got is going to be forgiven and I don't have to pay it back? So, the use of the borrowed funds is restricted to payroll costs, and they are lumping into their employee compensation, group health benefits, retirement benefits, state unemployment taxes. All of those are wrapped into payroll costs. Then you can also use it on rent, mortgage interest, interest on other loans, and utilities. It's important to note it's interest, not principal payments. And they're certainly not accepting people like prepaying interest or prepaying mortgage. They've also clarified that only 25% of the loan can be used on rent, mortgage interest, and utilities. The other 75% has to be payroll if you want the full amount forgiven. All that means is if you use the full PPP loan on rent, then likely you're only gonna get 25% of the loan amount forgiven, and you will be required to pay back the other 75% over 2 years, which generally works out to be a sizable payment for most businesses. So the way I'm looking at it is, man, if I can't— whatever I can't use that isn't forgiven, I'm going to hope that I can just pay that back within the 6 months of my window. Because that's the other thing, you will have 6 months before they start asking for payments from you. Here are some other things we need to know about the loan. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines or if salaries and wages decrease. What that means is if I had 10 employees at the beginning of the year up through February 15th and I only end up having 5 on my payroll during the window that I'm using the funds or before June 30th, I'll get into what the June 30th date means in a second. If I don't have the same number, if I have a decreased number, they are going to limit how much of the loan amount will be forgiven. They've also said if you cut the person's pay, so I could have 10 people on staff as of February 15th, and now I get the loan, I still have 10 people on staff, but I cut everybody's pay. That also puts me at risk of not having the full amount forgiven. They say you can cut the pay by 25%. Anything more than 25% and they're going to reduce how much they allow you to be forgiven. We have to go back to why are they giving us this money. They want to keep people employed. And so in order to do that, laying off people and not hiring them back doesn't serve their purpose of giving the money to you. Keeping people on but reducing their pay by more than 25%, that also doesn't serve their purpose, and so they're not going to play that game. So really, they made the rules, we just have to play by them. Some specific things, this is from the literature itself. Do independent contractors count as employees for purposes No, independent contractors have the ability to apply for a PPP loan on their own, so they do not count for purposes of a borrower's PPP loan forgiveness. This is one of those areas where I am just going to give you my opinion. I read for you something that's directly in their rules and regulations as of April 15th. I know that some banks have given out PPP loan dollar amounts based on the independent contractor's pay and your average monthly payroll cost. I know that. I've spoken to clients and they've confirmed for me that that has happened. But this paragraph concerns me deeply because what those clients and what those banks haven't said or found out Is will they let you pay those independent contractors and still give you debt forgiveness? You may use that money to pay them, but they may not forgive that amount. If it were me and I was in that situation, I would be contacting the bank every day, even though their answer likely will be, we haven't received guidance yet from the SBA on that. I'm, I'm still gonna like annoy them until I get that answer because That's a big, that's a big open like question mark. If they gave me the funds based on my payments to contractors but then don't end up forgiving it, honestly, that's something that I would expect out of this, you know, the government being involved and banks being involved. They just, they seem to want to screw us all the time. All right, so here's another paragraph I wanted to make sure I highlighted. What happens if PPP loan funds are misused If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. That F-word is very serious, and in my mind, a lot worse than the other F-word. So here's what that says to me. If it's unclear and the bank can't give you answers and you've asked them questions, for example, about, I got money for the independent contractors, but it says you're not gonna forgive it, but you still gave it to me even though I don't think you should have, but because you decided to do that, maybe that means you're gonna forgive it. So I'm gonna choose to pay my independent contractors with that money. And then you find out they in fact are not going to include that And the amount that's forgivable. That is just an error because there was not enough information out there. You are not going to be in trouble for fraud in that scenario. Something fraudulent would be, I'm going to use the PPP fund money to buy new equipment. I'm going to use the PPP loan money to pay off other debt. I'm going to use it to I don't know, like the list could go on and on because the authorized use, the authorized uses are payroll costs, rent, interest, utilities. That's it. So I think if you, like, if you use it to go out and buy a car, for example, that's going to be fraudulent. Yeah, not good. Don't do that. Okay, the next thing I wanted to highlight: can lenders rely on borrower documentation for loan forgiveness? Yes, the lender does not need to conduct any verification if the borrower submits documentation supporting its request for loan forgiveness and the borrower attests, which is basically saying you are telling the The truth, pinky promise, telling the truth. If the borrower attests that it has accurately verified the payments for eligible costs, the administrator will hold harmless any lender that relies on such borrower documentation and attestation from a borrower. So what that tells me is the burden of proving that you did use the funds for the appropriate reasons is on you. So you want to document the crap out of everything. So what I'm recommending is, uh, the simplest way. Now there are more complicated ways that you can do it. The complicated ways are creating a chart of account, um, a specific chart of account in your books, or a specific class in your QuickBooks so that you can, on— in your software, bookkeeping software, keep track of all these things. Um, that to me, like, if you have a bookkeeper, you can ask them to do that. I want to give you advice that I know you guys are capable of doing. Not to say you're not capable, because I know you are. That probably shouldn't have said it that way. Sorry. Um, but you know what I'm saying? Like, getting into the QuickBooks software, some of you just might be like, I'm not doing that. So here's a simple way. Excel file. It's super simple. Like, you will just list out every single expense that you incur that you are using towards the PPP loan amount forgiveness. So when I run payroll coming up next week, I would go into my Excel file and say, payroll, here's the date I ran it, Here's the dollar amount. I would probably even put next to that number of employees on that payroll. If I then write a check for my rent, I'm gonna write, I'm gonna put on the next line or row technically in Excel, rent, dollar amount, date. See how I have these columns? I just, simple, very simple, do it that way. So then the next thing I could do is Go into my payroll software that I just ran. I'm going to print off a report for that payroll period. I'm going to save it in a specific folder that I've now called Triple P folder, or on your computer. When I write my rent check, I'm probably going to take a once it clears, I'll go into my bank account and get a cleared check image so that they can see that that rent check. Was actually written to the landlord. I'm probably gonna find my lease agreement and copy that file into this folder because they're probably gonna ask for that. And if not, and you provide it to them, you're still a step ahead because that's super good documentation. You have a legal agreement that shows who the check needs to be made to and the dollar amount. You have a check that matches. They put those 2 together, for sure they're gonna allow you to have that part forgiven. Utilities, same thing. I'm gonna make a copy of the bill that I get in the mail. I'm gonna save it in the folder. I'm gonna write the check. I'm gonna save my check image. I'm gonna go over the top for the next 8 weeks because I do not wanna have to pay that money back. One of the reasons they're— I mean, they want this to be forgiven. That's why they're trying to stimulate the economy after they forced us to shut down. So over-document, um, over-document anything that I have that I'm spending that's related to those 5 items. Uh, I'm gonna document, save it in a folder, mark it on my Excel file. That's what I recommend you do. Okay, so let me get into 2 other things before I get into the specific questions. Let's talk about, you have to retain your employment level. What does that really mean? It's kind of a little unsure. So let me give my scenario as an example. I got my loan deposited April 16th, which means I have until June 11th, the 8-week window, to spend the funds on those appropriate expenses. But the regulations say I have until June 30th to get my employee count equal to what it was, whether that's February 15th or the date I took the loan. They also haven't really clarified that. I'm gonna assume February 15th. That's good. That's my interpretation, to be honest. So whatever my employee count was February 15th, They're giving me until June 30th to get my employee count back up to that. However, I only have until June 11th for my 8-week window. So the way I'm looking at that as well is I think I'm going to try to get my employee count back up by June 11th because that's the end of the 8-week window. I don't want to take any chances. So when I don't want to take any chances, I'm going to interpret things the most conservative conservative way that I know how. February 15th headcount compared to the last date of my 8-week window. Because even those who could be getting funding in this next round, I imagine it's going to go as fast as the first round. You may be past the June 30th window for your 8 weeks, and if that's the case, I would I would use June 30th. I'm going to use the soonest date possible because again, their intention is, is that we keep people employed. So let's hire them back now. But what does that mean? Because legitimately, some of you might have had team members you let go and you're using this as the excuse to get rid of them because it's a soft way to get them out, but they weren't good for you. And that's okay. We, we know that, like, we're not trying to be callous or mean, but some team members just don't fit with the vision you have, and they're going to be great for someone else's vision. So I've let go of a couple employees. I have no intention of hiring those 2 people back, and I don't have to based on all the rules. What I have to do is get my equivalent full-time count up. So what they call— they call them full-time equivalents. They also haven't defined for us exactly what this means. I have read somewhere that they're going off of 30 hours, so an employee who works 30 hours is considered full-time. What this means is if I have 2 part-time people who work 15 hours a week each, that's 1 full-time equivalent. Does that make sense? 1 full-time equivalent could be 2 or 3 or 4 or any number of part-time people. As long as I get to the 30 hours. Once you have however many people that is that represent 30 hours of work, all those people, whether that's 2 people or 10, represent 1 full-time equivalent. So you want to look at your full-time equivalent as of February 15th, and by the end of your 8-week window or June 30th, whichever date is sooner, have the same number. Number of full-time equivalents, and you'll be good. The other thing is, I know a lot of our gym owner clients don't really fit this, but it's worth mentioning. If you happen to have anyone on W-2 that does in fact make $100,000 more a year, you don't actually know right now if they're going to make $100,000 by the end of the year. So what they've done is they've Condensed it and said, really, that means in the 8-week window, no one is allowed to receive more than $15,385 of wages. That's the equivalent of $100,000. So just make sure during that 8-week window, no single employee receives more than $15,000, and— excuse me— then you're going to be fine. If you're over that, then you will have some amount that is— Not forgiven. All right, so that's my basic overview on my interpretation of the rules and what specifically is said. So let me, let me read some of these questions that I've gotten. Do we need to put the money in a separate account? You do not need to put it in a separate account. I have heard some people, other accountants, strongly suggesting that you do that. I'm gonna leave it up to you, especially in this time. Honestly, banks are swamped. If you don't have a separate account already set up, I'm not gonna try to push my luck and try to get in and get them to open up another account during this time period because everyone's pretty much hands on deck with these loan stuff, especially once again, they get new funding likely tomorrow, February 23rd. Sorry, February— April 23rd, dummy. Um, so I'm not putting it in a separate account. Um, I mean, I should say I'm not putting it in a new account. I have— I already— I follow Profit First, so I'm using, um, my profit account to kind of hold that right now. Whether you use— do that or you just have one bank account and the money's in there, I don't think it matters at the end of the day. Because you're going to have to provide the documentation of the forgivable amount. That, I mean, so why have a separate account? You're also going to have other expenses during the 8-week window that aren't those 5 approved things. It doesn't mean you're using the loan money for that. Hopefully you have some other source of income coming in, whether it's small or not. It's still additional Now, if I have zero income coming in and I have other expenses coming out, then I'm going to be more strongly recommending having this in a separate account other than the one that you're paying other expenses out of, just because that means you run the risk of using some of the funds that won't end up being forgiven. Now, again, it's not the end of the world if you don't use all the funds. To have 100% debt forgiveness. It's a 1% interest rate over 2 years, and depending on the dollar amount, you just want to be aware of what your payments are going to look like and can you afford that. All right, next question. We are still working a part-week schedule. Can we start the 8 weeks later when we are going full-time, or is it from the time the money is deposited? Your 8-week counts the second that money is deposited into your bank account. So you're kind of, you're at that mercy for that window. You can't time it best or choose like this 8-week window would work best for me. And so related to that, can we pay our employees in advance? We are only working 1.5 days a week right now. Is that possible? Now, you may not be working 1.5 days a week, but you might have team members that are working the equivalent of a fifth of what they normally work. Now you have the Triple P Fund. I am suggesting that you pay them like you normally did prior. I'm also suggesting, strongly urging, that you actually have them work for that amount too. So if your gym isn't open, if your business isn't open, there's probably some stuff they could be doing though, whatever that may be. It could be deep Deep cleaning. It could be organizing files. There could be things that you've wanted to do in the past that didn't seem important, and even if they're not that important, you have the funds to pay people right now, at least for the eight weeks. Work. Have them work for it. Okay? Don't just give them free money. I don't think that helps anybody. Even though I say that, and we're all getting free money. Well, we were also. They also told us we can't. Be open. So it's a little bit different. I have one 1099 employee that, that's a massage therapist. I wondered if I should or could move her to an employee status to help her take up some of the employee payroll contributions. So this is definitely a question I've been getting from normal businesses— normal businesses, not that gyms are not normal— non-gym businesses and gym owner clients as well. Do I put my 1099 on W-2 so that I can make sure that I pay enough of wages? I am always going to be a fan of doing what the rules say. If your coaches, based on your relationship, qualify as contractors, I say keep them as contractors. If they are supposed to be W-2, pay them as W-2. Um, if you need to move someone from 1099 to W-2 Then you need to change the nature of the relationship, make them more of a W-2, which means you control more of their schedule. If you're going to make that change, I would not change it back after the end of the 8 weeks. That's a change I would make, and that's a change I'm going to stay with, at least for the end of the year. I just think it looks pretty fishy, and I don't want to use the F word again, but fraudulent. If I have a 1099 contractor, I make them a W-2 for 8 weeks, and then I move them back to contractor at the end of the 8 weeks. I don't want to know what the SBA or the government can do if they feel like that was dishonest or fraudulent or whatever. So I'm not going to do that. If I do need to make the permanent change, then yep, then I will definitely do that because I want to take advantage of having the debt forgiveness now, but I'm not, I'm not making that change back. Like, I'm making the change for business reason, not so that I can, um, you know, kind of basically cheat the rules of the game. Okay. Does getting an EIDL first affect my PPP? You know, all the questions are asking on the PPP application, did you get an EIDL? I think They're mainly asking about your advance, the $10,000 or the $1,000 per employee up to $10,000. If you got that, then it would reduce the amount of PPP loan funds you got. If you applied for both and you need both, what that means is you need the EIDL loan for other expenses that are not payroll, that are not rent, not mortgage interest, and not utilities. For the other bills that you have, potentially even for paying your independent contractors, because those aren't technically considered payroll costs based on all the literature, then I can use those— that EIDL loan for those reasons. The PPP loan should be payroll and those other items. But at the end of the day, they're gonna ask you what they want to know, and you're just gonna tell them. If you got an EIDL, you tell them and you tell them how much, and they will tell you how they're going to make that work. Um, so you, in that case, you're just going to deal with the bank and whatever they tell you. All right, the next question I have is related to how this works with Profit First. Currently, I'm not allocating anything to profit, tax savings, or owner's comp because we need it all to stay afloat. Should I start making those allocations again and Rely on the loan funds or minimize using any of those? So for sure, I am not going to use my PPP loan fund for Profit First allocations. That PPP loan fund is either going to live in my operating expense account or in a separate account, and then I move money into my operating expense account as I incur expenses. Don't Don't use it to put money into your profit, tax savings, or owner's comp, unless your owner's comp is W-2 portion, because that would qualify for payroll. But I also want to just emphasize again, I've said this in other videos, when it comes to Profit First, I recommend still trying to do your allocations right now. The reason being you still may have expenses that that you shouldn't be having right now that are not productive. And by putting money into your profit account and probably, I mean, 0% in tax account right now makes sense because you don't have a profit, but your owner's pay account, transferring money over there, then you're left with the remainder in your operating expense account. Being able to compare your operating expense cash available to the expenses that need to be paid is always going to be a good exercise for us to do as owners because it helps us identify if we can truly afford all those expenses. So I still recommend doing the Profit First system even in this time. Are payments to contractors going to be forgiven? I kind of answered that, which was I don't know for the banks who've decided to lend out money on that amount. All I could go off of is the rules and regulations based on April 15th that I've read. I don't think they're gonna be forgiven, personally. And I'd rather be conservative on that. Best way to document, paper trail? I went over that. Excel file, save documents, keep them in a folder. Over-document. You will not be sad if you over-document. Do I worry about commingling the funds? So that kind of goes back to, should I put this in a separate account or not? I think I've covered that. Who is in charge of monitoring that I just don't go buy a car? Ultimately, no one. I mean, the SBA and their regulations to lenders have said they're not going to hold the lender responsible if they make a decision based on the documentation you provide. Then the lender is not going to be in trouble. But I have a feeling someone might audit this stuff. It could be the SBA, and it might be down the road. But honestly, we just have to be honest with ourselves. I don't know if that was a tongue-in-cheek question, but yeah, don't go buy a car. Only use it for the appropriate things. None of us want to be effed fraud. Yeah. Yep. All right, the loan docs make me nervous. Yeah, this situation makes me nervous too. I said this the second all this crap went down in early March. What concerns me most is that there was this stampede for free money, and I get it, we needed it. They closed us down, they stifled the circulation of cash in the economy. I get it. But man, the fact that we won't even know if it actually is forgivable, the thing that got us so excited about it, until we've actually gone through the 8 weeks after we get the loan fund. Yeah, I'm nervous too about what they're gonna do and change the rules. They've already changed it on us a few times, from the law itself being passed to whatever came out after that. There was lots of changes. Yeah, it makes me nervous as well. And the last reason why it makes me nervous is that the government has been known to come out with rules after the fact. I can't tell you how many tax time— how many tax rules happen after the year has passed. They'll come back and say in January of the following year, oh, by the way, here's some other stuff we're going to do. in the previous tax year. So no one had any time to plan for it. No one could take advantage of it. If you happen to fall into the benefit of whatever that tax rule is, great. But if you didn't, maybe you could get screwed. So man, I, I hope they come out with regulations very soon to answer some of these questions because I don't know. Um, but yeah, it will suck if they make some of these rules Um, or just new ones that we didn't even know should have been on our radar after June 30th, or in my case, after June 11th when my 8-week window is done. So guys, that's what I have for you on the PPP funds. If you got it, if you didn't get it, um, I encourage you to keep applying. Apply everywhere you can and wait till you get one. And if you don't, I'm really sorry. But, you know, at the end of the day, we still, we need to control what we can control. Keep fighting the good fight, stay financially resilient, and in the meantime, if you have downtime, revisit your business plan. Make sure that when things get back to normal, you can be as strong as possible going forward.