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Houses Passes PPP Loan Forgiveness Bill, Treasury Issues Harsh Forgiveness Regulations—What You Need to Know

Posted: 30 May 2020 12:46 PM PDT

On May 27, 2020, the House passed the Paycheck Protection Program Flexibility Act by 417-1, which attempts to ease restrictions on small businesses as they seek loan forgiveness under the Paycheck Protection Program authorized by the CARES Act.

The House bill comes on the heels of new Treasury Department "Interim Final Rules" on PPP loans issued late on May 22, right before Memorial Day weekend. These new regulations provided more complicated and harsher requirements for small business owners to apply for and receive PPP loan forgiveness.

Starting with the good news, the House bill addresses many of the concerns expressed by small business since the passing of the CARES Act, which created the PPP. First and foremost, it reduces the amount of the loan needed to be spent on payroll from 75% to 60%, thus increasing the amount of funds available for other expenses from 25% to 40%. These expenses still include rent, mortgage payments, utilities, and interest on loans. This change is less than the 50-50 level most small business advocates were seeking, but it is still an improvement.

The plan outlined in the bill would also offer the following:

  • Extend the window businesses have to use the funds from eight weeks to 24 weeks
  • Push back a June 30 deadline to rehire workers to December 31, 2020
  • Provide more leeway on loan forgiveness for business owners who show they could not rehire workers or reopen due to safety standards
  • Extend the time recipients have to repay the loan
  • Let companies that get loan forgiveness defer payroll taxes

These changes address the "original sin" of the PPP loans: namely, putting small business owners in the position of the unemployment office and forcing them to do so during the government-mandated shutdown, when revenue was close to zero but expenses like rent continued unabated.

On the Senate side, Minority Leader Charles E. Schumer (D-NY) endorsed the House bill and wants to push it forward. Senator Marco Rubio (R-FL), Chairman of the Senate Small Business and Entrepreneurship Committee, is supporting a different bill, however, but there are enough similarities to give hope for a compromise bill. Specifically, Rubio's approach would only extend the rehiring deadline to 16 weeks instead of 24. He also opposes the House bill's easing on forgiveness without rehiring workers.

Treasury Guidelines Crack Down on Forgiveness

While there is optimism in Washington that this new bill will reach President Trump's desk for signature, there is no guarantee of when or if this may happen. And, until that occurs, the new and harsher Treasury regulations issued on May 22 will dictate how the PPP loan forgiveness process works.

The biggest problem with the new regulations is that you will likely need a lawyer, accountant, and advanced degree in mathematics to figure out how to calculate the forgivable portion of the loan. The government once again did not realize the administrative burden these rules place on business owners at a time when they're trying to figure out how to survive the coronavirus shutdown and cautious reopening of our economy.

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Even more surprising, the new rules seem to fly in the face of the intent of the PPP, which was to get money to small businesses as fast as possible to keep the economy afloat, with the assurance that most loans would be forgiven. These new rules will leave many business owners in debt and banks holding short term 1% interest loans—something that neither wanted.

Here are the top things you need to know about the new rules:

1. The SBA can review any loan at any time

The May 13 Treasury FAQs provided a "safe harbor" for all loans under $2 million, deeming them made in "good faith" that the economic uncertainty faced by the borrower necessitated the loan. However, it did leave the door open to the possibility that the SBA could review all loans to determine eligibility and accurate calculations for the loan amount and forgiveness.

The new regulation elaborates on this as follows:

For a PPP loan of any size, SBA may undertake a review at any time in SBA's discretion. For example, SBA may review a loan if the loan documentation submitted to SBA by the lender or any other information indicates that the borrower may be ineligible for a PPP loan, or may be ineligible to receive the loan amount or loan forgiveness amount claimed by the borrower. 13 CFR 120.524(c).

Once again, eligibility refers to access to "credit elsewhere," or the "liquidity" of the borrower. So, under these rules, the SBA could review your loan and determine you had credit elsewhere or other funds, and require you to pay back the loan in full or in part. Banks lose out on this one too, as the SBA can withhold the bank fee or "claw" it back if they make this determination. The SBA will still guarantee these loans, however.

Many business groups, including the Independent Community Bankers Association (ICBA), are lobbying aggressively for a true "safe harbor," for which loans under $1 million will be considered eligible, not reviewable, and forgiven. The overwhelming majority of PPP loans are under $1 million. Even without this, audits of this nature will likely be rare as the SBA lacks the capacity to conduct a large number of them. However, if your loan is over $2 million and you had sufficient liquidity or credit elsewhere, you may consider repaying the loan or be prepared for an audit.

2. The loan forgiveness process could take up to 5 months

Once you file the forgiveness application with your bank, it will have 60 days to review it and let you know the amount of forgiveness. The bank will then notify the SBA of the amount of forgiveness and the SBA will have 90 days to approve the bank's decision.

The SBA can request more information from the lender or the borrower directly and then will approve the amount in whole or in part. If the SBA determines a portion or all of the loan did not meet the guidelines for eligibility or forgiveness, it can request repayment of the loan or "pursue other available remedies." The guidelines do not explain what these other remedies might be. Borrowers do have the right to appeal decisions rejecting forgiveness to the SBA.

It is important to note the SBA now requires borrowers to keep all files and paperwork on PPP loans for six years. The regulation states:

As noted on the Loan Forgiveness Application Form, the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request from the time of application.

While not expressly stated, presumably the SBA may have six years to audit loans and potentially take action.

3. The borrower is responsible for forgiveness calculation

The guidelines make clear that the borrower is responsible for calculating the forgiveness amount and providing the necessary documentation along with the forgiveness application released on May 15. It is then the lender's responsibility to make a "good faith" review of the application. The guidelines articulate that a "good faith" review would include checking a payroll report from a third-party provider, or, in lieu of that, cancelled checks, lease agreements, and utilities bills.

4. Employees must be rehired by June 30, 2020

The rehire date did not change from June 30 in these new regulations, but they did clarify a few items. First, if an employee was fired for cause, voluntarily resigned, or voluntarily requested reduced hours due to the coronavirus, the borrower can still request forgiveness for the amount of payroll for that employee. It is critical to document this scenario in writing to provide to your lender with the forgiveness application. Likewise, as before, if an employee rejects an offer for rehire, the correspondence must be documented in writing for forgiveness.

5. Loan forgiveness tied to maintaining the same number of full-time employees

Your amount of forgiveness is tied to having the same number of full-time employees as you did when calculating the loan amount. Thus, your forgiveness amount will be reduced by the same percentage of the reduction of your full-time employees or full-time equivalents.

So, break out your calculators for this one. Traditional SBA loans consider 32 hours per week as a full-time employee. Under PPP, a full-time-equivalent employee must work 40 hours per week. The new guidelines give you two ways to calculate the amount of forgiveness for employees working less than 40 hours per week: If a 40-hour-per-week employee equals 1, you can just calculate all part-time employees as 0.5 or, alternatively, divide the actual number of hours worked by 40. So, for example, an employee working 30 hours would count as 0.75. You will need to add up these part-time employees to determine by what percentage your workforce was reduced, and be prepared to have your loan forgiveness amount reduced accordingly.

6. Loan forgiveness tied to maintaining the same wages per employee

Any amount of wages reduced in excess of 25% per employee will not be forgiven. The new Treasury guidelines also provide that if an employee earns less than $100,000, you can offset wage reductions with hazard pay and bonuses that are eligible for forgiveness. While this is fairly straightforward, the new guidelines clarifiy that the wage reduction "applies only to the portion of the decline in employee salary and wages that is not attributable to the FTE reduction." This rule, a rare positive in this round of guidance, is intended to avoid double harming borrowers for both wage and head count reduction.

7. Owner employees and the self-employed payroll forgiveness capped at $15,385

There seems no rhyme or reason for this rule. The maximum loan amount for a self-employed individual would be based on $100,000 annual compensation, the limit for all employees covered by PPP. $100,000 divided by 12 months and multiplied by 2.5 as provided in the application process results in a loan amount of $20,833. This arbitrary cap will create roughly a $5,000 difference. Many self-employed individuals work from home or have minimal expenses to make up this gap, likely leaving many with a portion of the loan unforgiven.

In addition, many self-employed workers based their loan amount on a draft Schedule C form as they had not filed their 2019 taxes. If you fall into this category, it is important to ensure that when you actually file your 2019 taxes, there is not a large discrepancy from the draft you provided your lender for the PPP loan. This may cause scrutiny from the SBA.

Conclusion

Once again, many advocacy groups like the ICBA expressed dismay over these regulations to both Congress and the Trump Administration. The House bill could fix many of the problems created by these new regulations and the unfavorable and unfair result of new debt for struggling businesses; short-term, low-interest, and potentially "bad" loans held by banks; and the administrative burden on business owners an SBA audit would demand. Not to mention, there is still tremendous economic uncertainty as the U.S. economy cautiously reopens. It would be in the best interests of our economy to make the PPP forgiveness process as simple and seamless as possible for the small business community.

RELATED: Loan Forgiveness Under the PPP and SBA EIDL Programs: 10 Things Small Businesses Need to Know

The post Houses Passes PPP Loan Forgiveness Bill, Treasury Issues Harsh Forgiveness Regulations—What You Need to Know appeared first on AllBusiness.com. Click for more information about Neil Hare. Copyright 2020 by AllBusiness.com. All rights reserved. The content and images contained in this RSS feed may only be used through an RSS reader and may not be reproduced on another website without the express written permission of the owner of AllBusiness.com.

Even Small Businesses Can Benefit From Immersive Technologies Like Virtual Reality and Augmented Reality

Posted: 30 May 2020 12:42 PM PDT

All small businesses want to increase customer engagement. After all, the more engaged your customers are, the more loyal they will be to your small business. Immersive technology is a new strategy successful businesses are using to attract the attention of customers and prospects. Augmented reality and virtual reality are two examples of immersive technology, and while that may sound too complex for your small business, they're not. Here's how these relatively new technologies can help your small business.

Previously associated with the gaming industry, immersive technology refers to technology which allows the replication of the physical world by creating a surrounding sensory feeling—creating a sense of immersion. The technology includes virtual reality, augmented reality, and mixed reality; small businesses are just beginning to find uses for engaging experiences.

Augmented reality (AR)

You've probably seen augmented reality (AR) in action plenty of times without realizing what the technology could mean for your marketing strategy. AR places digital images on top of real-world video the same way Snapchat and Instagram filters work. Remember the popularity of Pokémon Go a few years ago? Users walked around neighborhoods seeking digital "species" hiding in real-world locations.

Furniture businesses use AR so users can choose a piece of furniture and virtually place it in their rooms to see how it fits/looks. Many eyeglass websites have similar applications so users can virtually try on eyeglass frames before they buy. In the beauty industry, AR allows people to try on makeup, like lipstick and nail polish, virtually to see how it looks.

Snapchat has made creating and using AR simple for businesses by providing a production tool called Lens Studio. It allows businesses to create both Face Lenses (front camera experiences) and World Lenses (rear camera experiences). The tool provides several templates for businesses to start creating attention for their companies.

Virtual reality (VR)

Virtual reality (VR) is a complete immersion technology comprised of a computer-generated replication or simulation of a real-life situation. Users feel like they are actually seeing and hearing things in the environment created by the technology. VR is used prevalently in the real estate industry for home seekers wanting to tour homes without actually having to be there.

Even more than AR, VR allows marketers to connect with customers in a more personal way by bringing the company's features and solutions directly to the consumer. Furniture and home product retailers can provide online shopping like never before with VR showrooms. Likewise, architects, designers, and construction companies can show real-world examples of their work and/or create a mock world of what could be created. Travel and tourism entrepreneurs can give potential travelers a taste of an experience and locale without leaving their computers.

Like AR, the technology exists and is ready for small businesses to take a test drive. Google Cardboard, Samsung Gear VR/VR 2, and Oculus from Facebook are just three VR systems businesses can use to apply VR to boost customer experiences.

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Mixed reality (MR)

Mixed reality is what it sounds like—a mix between AR and VR—and is currently being used by small businesses for training, project development, and sales. Going beyond mere overlays, MR allows users to anchor virtual objects to the real world for interaction. It's the blending of physical and digital spaces by employing cameras, sensors, and microphones working together to recognize and react to the surrounding environment.

As expected, retailers have adopted MR to enhance customer experience in apparel, home décor, and accessories. MR tech currently available includes Microsoft HoloLens 2, Vuzix smart glasses, and Magic Leap.

Are your customers ready for immersive technology?

If you're wondering if your customers are ready to interact with your business using immersive technology, a recent Nielsen global survey indicates a positive reaction. Nearly two-thirds (64%) of respondents confirm their lives are busier and more complex than they were two years ago, and as a result, many are turning to technology to help provide the solutions needed to simplify their lives. The study also shows 51% are willing to seek out immersive technology as a way to assess purchases and making shopping less stressful.

For businesses looking to build brand awareness and make memorable customer experiences, augmented reality, virtual reality, and mixed reality technology has the potential to create the kind of engagement that keeps customers coming back for more.

RELATED: Virtual Reality Is Finally Here—Is Your Business Ready to Benefit From It?

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‘What the Coronavirus Crisis Has Taught Me About My Business’: 4 Entrepreneurs Weigh In

Posted: 30 May 2020 12:20 PM PDT

In the stages of grief we are experiencing from the coronavirus crisis, we’ve moved past denial. We’re now keenly aware of how real this pandemic is, and that it will continue to impact every one of us long-term. We’ve (hopefully) worked through our anger and depression, although I think there will continue to be challenging emotions for a while. So if we can agree that we’re ready to accept what’s happening and try to move forward, we’ll be better off.

When I deal with hard times, I always look for lessons I can take away. Otherwise, what good can come from bad? I asked a few entrepreneurs what lessons they and their clients were learning in the midst of all the chaos.

Plans change—keep moving

Kimberly Crossland, owner/operator of The Focus-Driven Biz, says she had a plan for her business all figured out—ha!

“As the plan crumbled because of COVID-19, it became clear that I had two options: 1) stall or 2) keep moving,” she says. “I chose the latter and leaned into taking imperfect action and started getting my business in front of new people. Through the journey, I learned the importance of forging real, human connections and tweaking deliverables according to the current backdrop.”
Like so many entrepreneurs, Crossland found that she’d been in hustle mode before the coronavirus hit and hadn’t been putting her ear to the ground to listen to what her customers truly wanted. She says, “By taking a step back to silence my hustle mentality with this pandemic, I was able to hear my audience’s needs better, get in touch with what customers truly wanted, and adjust my offerings to meet them where they’re at.”

Always save for a rainy day

We all know in theory that we should have an emergency fund, but so many small businesses were taken by surprise during the pandemic. Andrew Schrage, CEO of MoneyCrashers, says, “One all-too-painful lesson that millions of small business owners have rather abruptly learned is that it always pays to save for a rainy day. Building a liquid emergency fund on an irregular cash flow is not easy, but the sudden credit freeze we saw in March made it abundantly clear that business lines of credit aren't guaranteed to be there when you need them.”

He says that many business owners have now seen up close the limitations of fintech lenders—and the federal government—attempting to operate at scale. As a result, thousands of such businesses didn’t receive the funds they desperately needed and were forced to lay off employees. Lacking access to working capital, many businesses suspended operations altogether; some won't ever reopen, Schrage says.

Constant communication is key

Ivana Taylor, small business influencer and publisher of DIYMarketers, says the pandemic has taught her how critical it is to be able to be in immediate communication with your customers through your website, email, Facebook, and Google My Business profiles.

“When businesses started shutting down and changing their hours or ways of doing business, not only were many unprepared with a crisis communications plan that was clear about what businesses were going to do and how they were going to service customers, but everyone was trying to figure out the technology behind all of these communications channels,” she says. “Then came the challenge of shifting their ways of doing business, sometimes making changes to products, services, pricing, and so on. This has been a huge wake-up call.”

Taylor has clients who went from generating $30,000 per week to earning zero, all because they were relying on a single (previously successful) marketing strategy that wasn’t feasible during a healthcare crisis. This is a prime example of the importance of not putting all your eggs in one basket when it comes to your business strategy.

Provide situation-specific advice to your audience

Of course, we didn’t know in March how big or how long this coronavirus thing would be. Adam LoDolce, founder of Sexy Confidence, a dating and relationship resource for women, already knew the importance of community, since his business is built around one.

But LoDolce says he wishes he’d created more content related to dating during a pandemic, because his audience has craved it. “I would have provided more advice for women specifically on how to date with distance. We only just released a training course on how to do this, and it’s a little late,” he says.

He also wishes he had been more available on social media during the early days, answering questions and guiding women on how to handle being in quarantine while trying to date.

Flexibility isn’t optional

Another lesson Schrage says that has come out of the COVID-19 pandemic is the importance of flexibility. Many businesses, he says, learned this valuable lesson prior to businesses having no choice but to work from home.

“When the pandemic hit, countless service businesses scrambled to find ways to ensure their employees could operate safely, securely, and productively from home,” Schrage explains. “With much of the white-collar workforce likely to work remotely for the foreseeable future, businesses that had already made the switch to all or mostly remote—or could do so easily because they'd already laid the groundwork for such a switch—operate from a position of collective strength.”

Hearing lessons like these helps, doesn’t it? They serve as a reminder that COVID-19 took us all unaware and we’re doing our best to move into what comes next.

RELATED: How to Manage a Gap in Your Income During the Coronavirus Crisis

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