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

The new regulations provide more complicated requirements for small business owners to apply for and receive PPP loan forgiveness. The post House 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.

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

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.

Other Articles From AllBusiness.com:

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  • Financial Help for Freelancers and Independent Contractors Affected by the Coronavirus Crisis
  • What Advice Are Venture Capitalists Giving to Startups in Light of the Coronavirus?
  • 5 Ways to Improve Employee Communication During the COVID-19 Crisis

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.

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Can robotics actually improve creativity in the kitchen?

Amidst covid, calls for robotics wihin the hospitality industry are rising. Richard Alvin chats to Barney Wragg of Karakuri for a fresh view Read more: Can robotics actually improve creativity in the kitchen?

Can robotics actually improve creativity in the kitchen?

Robots replacing human jobs has been typically a controversial issue within the workplace, however amidst the global pandemic, calls for a robotised kitchen are rising as restaurateurs and food service providers are recognising the health benefits of less contact between staff and customers.

To gain a greater perspective on this new way of thinking, Richard Alvin, Managing Editor speaks to Barney Wragg, CEO and co-founder of Karakuri to find out how chefs and the industry are hoping to merge robotics within their workspace.

Here’s a snippet from their chat, ensure you never miss an episode again by subscribing to the podcast.

Backed by Ocado, Firstminute Capital, Taylor Brothers and Hoxton Ventures, Karakuri has gone from a back of the envelope idea to a fully fledged robotics system that’s seeking to drive the hospitality industry forwards. How are Michelin chefs taking to the news of a potentially roboticised kitchen?

At first I was actually quite nervous thinking that they would be against the idea, however we’ve found the exact opposite to be true. Actually having an automated system in place can achieve all of the jobs that chefs don’t want to do, actually giving them more time to focus on the artisanal side of being creative.

One of your advisor’s is Heston Blumenthal, one of the most forward thinking chefs at the moment, what’s his involvement and how is he embracing the tech. Is he hoping to bring it into his own kitchens in due course?

Heston’s great to work with – he’s like a ball of creative energy that’s just waiting to go supernova at any moment. He’s always got a million idea of what’s going on. Famous for his scientific approach to cooking, he looks at things in a great amount of detail that means that everything has to be prepared scientifically with a massive degree of control otherwise some of his dishes just don’t work. When we talked to him he felt that it was a great tragedy that he was creating these great dishes but in the process, making his chefs become automatons. The sheer level of accuracy required meant that they had very little opportunity to express their own creative nature. He echoed what we had found above, saying: ‘if you can help me automate tasks that don’t give my staff the opportunity to be creative, you would allow them to be the artisans I want them to be, then that’s a fantastic result.’

We’ve seen that across the industry. Right at the beginning of Karakuri we sat down with Ruth Rogers from the River Café and I was concerned because they don’t even have a menu, they just make it up every day based on what they have access to and what they think will be the tastiest options. She mentioned that they had an issue with consistency – they might serve the same two dishes but they may contain different levels of ingredients as different chefs have different interpretations. Whereas there’s a standardisation within a restaurant offering that needs to work hand in glove with the artisanal aspect.

Given the social distancing currently in play, a robotic kitchen could be quite an important addition allowing restaurants to reopen faster and food to flow quicker. How do you see your devices working in a commercial kitchen?

It’s really early days, we’re all still learning what social distancing is going to mean within the hospitality industry and how we’re going to work. It’s a definite issue to be solved –  many restaurant kitchen spaces are small with people working literally cheek to jowl to get the max efficiency. Robotics can optimise human workflow so you can have lower density of people around but it’s also very hygenic – the food is separated from people, it’s very good for allergies, uniquely contained or dispensed with no one to contaminate it. However, we’re a long way off powering multiple kitchens at this point.

So the problem of the Travel Lodge buffet isn’t going to be solved anytime soon?

Sadly not, although we’ve been inundated with calls in the last six to eight weeks from everybody trying to work out how they can make hotel breakfasts through to staff canteens safe from a social distancing point of view. With our DK1 product, we are automating buffets and canteens and servicing – automating that pre order pack is extremely attractive in that space and I wish we could say: ‘ah yes covid turned up and all of our development could go a year faster than we expected’, but the reality is that things don’t happen quite like that.

Covid is a huge opportunity for us, but like anyone in the hospitality industry, we don’t know in a year’s time what the operating model of a school canteen or service restaurant is going to be. In the meantime we’re just trying to go as quickly as we can and provide as much data to people as possible.

Every day we progress and find out how we can help each other, it’s one of those times where everyone wants to see hospitality running again and trying to find creative solutions to doing that is a priority for everybody.

Is there a sweet spot to be found mixing humans with robots?

Yes definitely. To me the interesting sweet spot with this technology and the business case is how you best use both humans and robots together. Humans with all their strengths and weaknesses, their ability to deal with problems, with other people, to be creative and then merging that with machines with which it’s their ability to be reliable, deterministic and do the jobs that we don’t like doing. How do you marry those two together to get the best commercial result? Answering that, to me, is the exciting part about what we’re doing.

Is there a substantial time saving in addition to the actual labour saving?

The question for us is what does one machine replace and that depends on the menu of what it is we’re dispensing, but typically we see sights where they may have had two or three people working a full shift throughout the day, opening up, preparing, lunchtime, cleaning own and in peak times you may have seen 8-10 staff there. We’re working with people where their model is to have those full time staff throughout the day without needing the extra people at busy times.

That allows their business to hit a though-put that’s required and that through-put can be well north of 100 unique meals an hour. So nothing’s prepared, nothing’s pre assembled so people can be as specific as they want with their preferences and it can be done.

It’s that flexibility which is a huge incentive for a customer to use the machines or to frequent a restaurant that has them. And it’s that leveling of a staff profile in a difficult environment where most restaurants are trying to hire those few people for an extra couple of hours and finding it impossible to do so that makes the economics of our industry work. 

It’s interesting to hear this perspective – it’s actually all about helping humans become more focused on their creativity and run viable businesses?

Yes. Our business is driven by two economic factors within the hospitality industry. We can’t really do anything about the fixed costs of rent, insurances etc but the two major factors of operation are: input costs and staff. We can help manage both of those by managing what order patterns look like and understanding what the volume should be. It’s interesting when we talk to the big chains, their feedback is not that they necessarily want to reduce their costs by reducing head counts, it’s more about reducing churn.

We’ve got one chain that we work with where it’s it’s not unusual for them to be recruiting between five  and six times a year for every role that they have, the turnover is phenomenal which has a huge cost associated with that – recruiting, training, managing and putting people through those processes to get them there. It’s extremely time consuming and extremely costly.

It also has a negative impact on quality and the overall working environment so their brief to us was: we’ve done a survey, here’s all the jobs that people don’t like in the kitchen can you help us reduce those jobs because if you can take that away we can keep our headcount the same but our staff cost saving will be long term employees.

Hear the rest of Barney’s findings on the Business Matters podcast here.

A big thank you to Barney for chatting to our listeners and readers. We wish you all the best in pushing forwards with your work.

Read more:
Can robotics actually improve creativity in the kitchen?

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