Many of our business partners have reached out to the Richwood Bank team about the new FAQs released by the Treasury and SBA on loan forgiveness, specifically FAQ #31, which also envelops #39 and #43 further outlining a vague option of returning your funds and walking away.
There is a new extension of May 14th to decide if you are returning or using the PPP funds on loans prior to April 24th.
As of May 7th, there is not a checklist to accurately determine whether you should return funds or spend them as planned. Adding to the dilema, there is not an outline of penalties to expect if a business is deemed ineligible after being approved to receive the funds either.
As the bank lender who certified your hardship for funding, we want to offer our suggestion to maintain transparency throughout the forgiveness process and possibly help you decide which way to proceed.
Businesses need to certify that an economic hardship required the need for a PPP Paycheck Protection Program.
How to prepare a certification is not yet clear. How PPP eligibility could be reversed is uncertain, as is any penalties thereafter. Ongoing, longer term affects of COVID-19 loom as well, making the need for these funds validated throughout this extended pandemic.
We cannot stress enough that the most important thing you can do as a business owners is document well, document often.
Certification of Hardship – Validating and Verifying
It’s important that you create detailed notes that collectively satisfy all facets of your personal hardship story.
There are three key areas to focus your documentation on– Past success, current efforts, and future projections of the COVID-19 economical hardship. As you begin to lay out your case, the questions below are what we have gathered in an effort to guide you.
Step 1: Documenting Past Success, Before and After COVID-19 Arrived
Q. What key data can you provide to clearly show a negative impact on your business?
A. Think about historical information such as sales traffic, visitors, closed deals, transactions, number of employees, hours of operation, profit margins, cost of business, purchase ability of products, liquidity, increase in accounts receivable/aging and availability of product. What were you used to seeing before and what is it like now?
Step 2: What is the Current Process To Move Forward?
Q. What are specific reasons that Corona virus caused a direct impact to your business, creating economic uncertainty?
A. There’s many to consider and it’s possible you’ve experienced more than one. Document all of them that fit, such as employee exposure, confirmed cases, services once offered requiring possible exposure or deemed non-essential, forced closure, if your products or services are considered elective, the industry you serve had dramatic loss in revenue, aging accounts receivable, supply chain issues, relied on disposable income consumers, etc.
It’s important to look at all areas of your company from people to process to promotion and document the hurdles you’ve overcome or are enduring.
Q. What is your business’s intention to use the PPP loan proceeds to continue its ongoing operations and retain personnel?
A. Upon your application process, the guidelines must align for forgiveness. Here’s the overview.
Q. How are you using the funds and what receipts, transfers and paper trail can you provide to show where it went?
A. The first step, having a dedicated PPP account established at Richwood to receive the funds. Document and keep all statements, payments, etc to show the complete story of the funds.
Q. Are you able to acknowledge the current economic uncertainty is directly related to the COVID-19 pandemic and that you believe the loan request was necessary to have normalcy?
A. Reflect on the answers you’ve come to note through this exercise. This will help you accurately determine that if there had not been a pandemic, your business situation would still be as it is today, better or worse.
Step 3: Projections of Future Economic Hardships
Q. What are the foreseeable barriers throughout the next days, months and years hitting your business?
A. There are many new, unanticipated waves yet to roll in after these past eight weeks of shut down. We hear stories of this lasting through summer, into fall and possibly the rest of the year. Play out all ‘what if’ scenarios of when you can reopen or what it will take to remain open with moving milestones possibly through the rest of the year.
Document the forecast of how your business’s ongoing operations have or will reasonably be impacted by the pandemic.
More things to consider and document:
What guidance for safety directly changed the process of how you do business now and in the future?
What investments are required to ensure you still can complete your business cycle and compete with a growing disparity of consumers?
As more guidance becomes available, answers may become easier for everyone. Until then, documenting all proof of business before, during and after the pandemic will help drive you in the right direction to the path to forgiveness.
Only you can help determine what is best for your business, and we will be here to support you through it.
A Letter from Chad Hoffman, President and CEO of Richwood Bank
Regarding the Safe Harbor Provision and Forgiveness Application
May 8, 2020
Paycheck Protection Program: Preparing for Your Loan Forgiveness Application
Thank you for choosing Richwood Bank to process and service your Paycheck Protection Program loan. We are proud to be able to assist you and our community during this difficult time.
Obtaining the loan is just the first step–While there remain some outstanding questions when it comes to the process of loan forgiveness, we wanted to reach out early to assist you in preparing your application for forgiveness and what required documents may be applicable. As the PPP dictates, loan amounts will be forgiven if:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent and utility costs over the 8-week period after the loan is made; and
- Employee and compensation levels are maintained.
Payroll costs are capped at $100,000 on an annualized basis for each employee. Additionally, not more than 25% of the forgiven amount may be for non-payroll costs.
Funds from your PPP loan can be used for the following purposes:
- Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits
- Mortgage interest—if the mortgage was signed before February 15, 2020
- Rent—if the lease agreement was in effect before February 15, 2020
- Utilities—if service began before February 15, 2020
All expenses falling under these categories are eligible for loan forgiveness. But you must begin preparing now for your loan forgiveness application. The following is a general breakdown of how you can begin this process during your 8-week period.
- 8-Weeks of Coverage
- Eligible expenses are only those incurred during your 8-week period, which starts the date Richwood Bank made your first disbursement of the loan.
- Note: This may not necessarily be the date on which you signed the loan agreement.
- Consider your payroll schedule. You may want to adjust the timing of your payroll date to accommodate as many payroll cycles as possible.
- The 75%/25% Rule
- At least 75% of your PPP loan funds must be used for payroll costs.
- No more than 25% of your PPP funds can be used for non-payroll purposes.
- Payments to independent contractors are not included in your payroll costs.
- Remember! The following payroll costs are not eligible for loan forgiveness but you should be keeping track of these:
- Payments to an independent contractor
- Cash compensation in excess of $100,000
- The employer’s share of federal payroll taxes
- Qualified sick leave and qualified parental leave wages for which credit is allowed under the Families First Coronavirus Response Act (FFCRA)
- Review your staffing requirements
- To receive your highest loan forgiveness, you must maintain the number of employees on your payroll.
- If you are Self-Employed:
- 8-weeks of your 2019 net profit will be eligible for loan forgiveness.
- Mortgage interest, rent and/or utilities expenses must have been claimed or are entitled to be claimed as a deduction on your 2019 Form 1040 Schedule C to qualify for loan forgiveness.
- Keep a thorough, running list of all documentation will need to be submitted by you to Richwood Bank a complete loan forgiveness application. Items may include the following:
- Documents verifying your number of FTEs on payroll and their pay rates for the periods used to verify you’ve met the staffing and pay requirements:
- Payroll reports from your payroll provider
- Payroll tax filings (Form 941)
- Documents verifying any retirement and/or health insurance contributions
- Income, payroll, and unemployment insurance filings from your State.
- Documents verifying your eligible interest, rent, and/or utility payments including but not limited to:
- Cancelled checks
- Payment receipts
- Account statements
- Documents verifying your number of FTEs on payroll and their pay rates for the periods used to verify you’ve met the staffing and pay requirements:
A successful forgiveness application is going to require good recordkeeping and bookkeeping in order to maximize your loan forgiveness amount. Keep diligent track of all eligible expenses and their accompanying documentation for this 8-week period. As we near the forgiveness period, Richwood Bank will you be contacting you with additional information on how to submit your forgiveness application. It is recommended that you consult with your tax advisor, legal counsel, or a bookkeeping service to assist your business if necessary.
Any outstanding balance not forgiven will continue to accrue interest at 1% for the remainder of your 2-year loan term period. Generally, there is no prepayment penalty and you can pay off that outstanding balance at any time with no additional fees.
For additional information, please refer to the U.S. Department of the Treasury’s “CARES Act Assistance for Small Businesses” webpage here: https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses. Additional guidance is anticipated from the Treasury and the U.S. Small Business Administration in the coming weeks.
Richwood Bank is here to assist you with your PPP loan should you have any other questions.
Sincerely,
Chad Hoffman, President and CEO of Richwood Bank
