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New Round of Paycheck Protection Program w/Rick Braa
A new round for the Paycheck Protection Program is underway and we invited acclaimed restaurant consultant Rick Braa to host another in-depth webinar on what you need to know about PPP loans and forgiveness.
The second draw of the PPP also includes first draws and has $284 billion to bear. For those of you who have suffered errors when you’ve applied or have been kicked back, Braa says this is common — 20% of loans have been kicked back, but the SBA is working to address this.
The program ends March 31, 2021, so time is definitely a factor if you intend to apply. There’s only one coverage period for the second draw, no alternatives this time around, and that’s an 8 to 24-week period. You have a few options to calculate your coverage, and Braa used the example of basing it off of up to 3.5 times of your 2019 payroll expenses. These expenses can include tips and are limited to $2 million per individual EIN or $4 million per corporate group for the second draw. For your second round of PPP loans, you’ll need to demonstrate a 20%-to-25% decline in sales.
Answering what he described as a common question, Braa said that if you applied for a first round of PPP loans under a corporate group, do not apply for the second as an individual, or vice versa. Both EIN and corporate groups have their own portals, Braa said, and he’s consulted with five different law groups who all agree, don’t do it.
If this is your first draw of PPP, your calculation is limited to 2.5 times your 2019 monthly payroll, including tips.
What’s included in forgiveness?
Some new clarity has been provided in regard to what expenses can be forgiven if you apply your PPP to them. The basic thing to keep in mind is no matter what, 60% of your PPP loan must go towards payroll. Payroll, excluding federal employer tax, includes wages, tips, state and local employer taxes, health benefits for employees, commissions and hazard pay. Other expenses that can be forgiven can account for the remaining 40% of the loan, and other expenses have been clarified since the first round.
Interest payments on any debt prior to Feb. 15, 2020 are liable for forgiveness.
Also covered in forgiveness are some operation expenses, specifically in regard to software or cloud computing services used to process payroll or HR. Braa does not believe credit card processors are included in this forgiveness. Property damage not covered by insurance can also be covered with PPP money and be eligible for forgiveness.
Supplier costs, defined as goods and services that are essential to your operation at the time they are ordered, are also included. Braa said this is a big deal.
“This is perhaps the biggest piece for the industry in my view,” Braa said. “What this is, is your cost of goods.” He believes that you can allocate some of the 40% of the PPP not designated to payroll to forgiveness-eligible cost of goods expenses.
Additionally, and perhaps even more critically: costs towards worker protection, including facility modifications, adding plexiglass barriers, outdoor dining expansions, even the installation of drive-thrus — there’s a lot of flexibility with what qualifies here and all of these sorts of expenses can also be eligible for forgiveness if you spend the appropriate PPP monies towards them.
Questions and Answers
These webinars are an opportunity for members to get answers to their questions or specific concerns in real-time. Here are just a few of the questions Braa answered in this segment:
How can we find our SBA loan numbers for the first-round draw? Our first lender did not keep the number on the loan documents we signed. This is a problem, Braa said, noting that big banks didn’t include these loan numbers, or they otherwise masked them. Your only recourse is to hammer the big banks, Braa said, and insist on getting your loan number. It is your loan number, and you should be entitled to it. Big banks want you to use them as lenders again this second time around, so they withhold the numbers. Braa said he’s known many operators who have wanted to change lenders the second time around.
We started our operation in Sept 2020, our bank said businesses must be in operation only before 2/15/20. Is that the case? Yes, and some have challenged this via their attorneys, so you can consult your legal side, but it’s clear in there that you need to have been in operation by Feb. 15, 2020.
My application was rejected, what gives? Braa warns that this time around, in contrast to the first round, the SBA is being very scrutinous in their application process. During the first round of loans, applications were quite readily accepted. This time lenders are paying close attention to details, flaws, mistakes or imperfections in applications. Braa noted that some 20% of applications have been knocked back, even ones with immaculate work done on their applications. This problem may be resolved soon.