The COVID Thread

[Fort Knox]

The number of <500 people businesses adds up to A LOT of people.
The businesses that are getting 10-20 million are required to pay the employees, so they can pay the rent and buy food. The CEO isn't pocketing it.
Of course a larger biz with a everyday working relationship with the bank will get better treatment.
Its not perfect, but its run by the government.
So lets open it up.

Well, when you say they are "required" to pay the employees, that's not necessarily true. The way the PPP loans work is that once you qualify for the loan, you have 8 weeks to spend the loan funds on approved expenditures, which includes payroll costs (wages, salaries, retirement plan, health insurance), plus rent, utilities, and mortgage interest. You are capped on the wages you can spend at an annualized $100k per employee. Also, rent, utilities and mortgage interest can't be more than 25% of the total spend. The total amount you spend, after deductions (see below) is then forgiven. Whatever is leftover of the loan that isn't forgiven is then treated as a 2-year loan at about 1% with payments deferred for 6 months.

So, technically you don't HAVE to spend it to pay employees, but what you don't spend has to be paid back. Certainly, the purpose of the program is that companies use the funds to maintain employment and payroll levels and they heavily incentify employers to do that, but some employers may not do that 100% and will probably end up using the funds as a short-term working capital loan at a really low rate.

How does the SBA incentify employers to follow the purpose of the program? After the 8-week period, you calculate what you spent on those approved items and then you reduce that amount by two deductions, both of which are aimed at pushing employers to use the funds for their intended use.

1. FTE Reduction - First, you take the number of Full-Time Employees (FTE's - at least 30 hours per week) that you have as of the end of the spend period (approx. June 30th) and divide it by the number of FTE's you averaged for the most recent 3-month quarter prior to the loan (Jan. - March). So, let's say you averaged 100 FTE's in the first quarter, but only had 75 FTE's as of June 30th, then you can only use 75/100 or 75% of the amount you spent towards forgiveness. So if you cut half your employees, then not only do you not spend as much, so you're not forgiven for as much, but you also would have to reduce the amount you are forgiven by half, so it's kind of a double whammy.
2. Payroll Reduction - You also have to reduce the potential forgiveness amount by how much you reduced your payroll spend by employee more than 25%. After taking the FTE Reduction, you then have to calculate how much you reduced your employees' pay in excess of 25% (for the employees who make less than $100k). For example, if you reduced Joe Employee's pay from $4,000 per month to $2,500 per month, then over the 2 months / 8 weeks spend period, you would pay Joe $5,000 instead of his normal $8,000. So, you would have to reduce your forgivable amount by another $1,000.

So, if you use the funds for their intended purpose and keep your employees on payroll (or bring them back), then you'll get forgiven for all or most of the PPP loan, but if you don't.....you still get the use of those funds as a loan over essentially 2 1/2 years at 1%.

Sorry for the long post. This is a lot of what I have been dealing with over the last couple weeks here at work, since COVID has really kicked my company in the cajones, like many others.

 

[mtweller]

Well, when you say they are "required" to pay the employees, that's not necessarily true. The way the PPP loans work is that once you qualify for the loan, you have 8 weeks to spend the loan funds on approved expenditures, which includes payroll costs (wages, salaries, retirement plan, health insurance), plus rent, utilities, and mortgage interest. You are capped on the wages you can spend at an annualized $100k per employee. Also, rent, utilities and mortgage interest can't be more than 25% of the total spend. The total amount you spend, after deductions (see below) is then forgiven. Whatever is leftover of the loan that isn't forgiven is then treated as a 2-year loan at about 1% with payments deferred for 6 months.

So, technically you don't HAVE to spend it to pay employees, but what you don't spend has to be paid back. Certainly, the purpose of the program is that companies use the funds to maintain employment and payroll levels and they heavily incentify employers to do that, but some employers may not do that 100% and will probably end up using the funds as a short-term working capital loan at a really low rate.

How does the SBA incentify employers to follow the purpose of the program? After the 8-week period, you calculate what you spent on those approved items and then you reduce that amount by two deductions, both of which are aimed at pushing employers to use the funds for their intended use.

1. FTE Reduction - First, you take the number of Full-Time Employees (FTE's - at least 30 hours per week) that you have as of the end of the spend period (approx. June 30th) and divide it by the number of FTE's you averaged for the most recent 3-month quarter prior to the loan (Jan. - March). So, let's say you averaged 100 FTE's in the first quarter, but only had 75 FTE's as of June 30th, then you can only use 75/100 or 75% of the amount you spent towards forgiveness. So if you cut half your employees, then not only do you not spend as much, so you're not forgiven for as much, but you also would have to reduce the amount you are forgiven by half, so it's kind of a double whammy.
2. Payroll Reduction - You also have to reduce the potential forgiveness amount by how much you reduced your payroll spend by employee more than 25%. After taking the FTE Reduction, you then have to calculate how much you reduced your employees' pay in excess of 25% (for the employees who make less than $100k). For example, if you reduced Joe Employee's pay from $4,000 per month to $2,500 per month, then over the 2 months / 8 weeks spend period, you would pay Joe $5,000 instead of his normal $8,000. So, you would have to reduce your forgivable amount by another $1,000.

So, if you use the funds for their intended purpose and keep your employees on payroll (or bring them back), then you'll get forgiven for all or most of the PPP loan, but if you don't.....you still get the use of those funds as a loan over essentially 2 1/2 years at 1%.

Sorry for the long post. This is a lot of what I have been dealing with over the last couple weeks here at work, since COVID has really kicked my company in the cajones, like many others.

 

[mtweller]

Double post - Mud acting weird / slow for me today.

 

[NCFJ]

Thank you Allen, coming from you it was not long but a good explanation from a professional.

 

[lt1fire]

It's been a long while since I've been on here. I just read this entire thread and it's a relief to see that this group remains level-headed. Ya'll keep staying safe and taking care.

 

[NCFJ]

The number of <500 people businesses adds up to A LOT of people.
The businesses that are getting 10-20 million are required to pay the employees, so they can pay the rent and buy food. The CEO isn't pocketing it.
Of course a larger biz with a everyday working relationship with the bank will get better treatment.
Its not perfect, but its run by the government.
So lets open it up.

By all means, feel free to go mingle with the like minded. Just stay away from those of us that prefer not to wind up a statistic. You know, like the over 45K dead in this country alone. "It's not perfect, but it's run by the government." Screw science go with the money grubbing government's point of view.

Just my OPINION!

 

[onemanarmy]

I'm not going to a 500 person rager party. I don't want to mingle with the general public ever, even before all this. They are dirty and ignorant. I'm not putting myself at risk. No handshakes, no hugging, no coughing on others (as of this was a problem before?)
But if Walmart and the grocery store can be open, why can't my local bar or the beach or a campground or "public" lands?
If anyone is scared or worried....stay at home.
I don't trust the govt or media, ever. Never once did I advocate for govt intervention/insight. You shouldn't either. Keep yourself safe.

 

[Rice]

We joked about a COVID baby boom and on a more serious note there are fears of increase in domestic violence. I’m curious if divorce rates will fluctuate in any significant measure.

 

[SeanLX]

It’s not just domestic violence, there’s a real link between unemployment and suicide. Open things up vs stay home is not as simple as the media might lead you to believe.
Opening too soon is a real risk but shutting down that conversation is dirty politics.

 

[GLTHFJ60]

It's not a political decision . When the data says we're safe to open, and/or have enough test kits to reopen without another dramatic spread, then it's time. Not any sooner, not for any other reason.

No one wants to be locked in, but with 35k deaths right now, we're the global leader. Reopen now and something like 10% of the population in this country is likely to die.

 

[izzyandsue]

Well, when you say they are "required" to pay the employees, that's not necessarily true. The way the PPP loans work is that once you qualify for the loan, you have 8 weeks to spend the loan funds on approved expenditures, which includes payroll costs (wages, salaries, retirement plan, health insurance), plus rent, utilities, and mortgage interest. You are capped on the wages you can spend at an annualized $100k per employee. Also, rent, utilities and mortgage interest can't be more than 25% of the total spend. The total amount you spend, after deductions (see below) is then forgiven. Whatever is leftover of the loan that isn't forgiven is then treated as a 2-year loan at about 1% with payments deferred for 6 months.

So, technically you don't HAVE to spend it to pay employees, but what you don't spend has to be paid back. Certainly, the purpose of the program is that companies use the funds to maintain employment and payroll levels and they heavily incentify employers to do that, but some employers may not do that 100% and will probably end up using the funds as a short-term working capital loan at a really low rate.

How does the SBA incentify employers to follow the purpose of the program? After the 8-week period, you calculate what you spent on those approved items and then you reduce that amount by two deductions, both of which are aimed at pushing employers to use the funds for their intended use.

1. FTE Reduction - First, you take the number of Full-Time Employees (FTE's - at least 30 hours per week) that you have as of the end of the spend period (approx. June 30th) and divide it by the number of FTE's you averaged for the most recent 3-month quarter prior to the loan (Jan. - March). So, let's say you averaged 100 FTE's in the first quarter, but only had 75 FTE's as of June 30th, then you can only use 75/100 or 75% of the amount you spent towards forgiveness. So if you cut half your employees, then not only do you not spend as much, so you're not forgiven for as much, but you also would have to reduce the amount you are forgiven by half, so it's kind of a double whammy.
2. Payroll Reduction - You also have to reduce the potential forgiveness amount by how much you reduced your payroll spend by employee more than 25%. After taking the FTE Reduction, you then have to calculate how much you reduced your employees' pay in excess of 25% (for the employees who make less than $100k). For example, if you reduced Joe Employee's pay from $4,000 per month to $2,500 per month, then over the 2 months / 8 weeks spend period, you would pay Joe $5,000 instead of his normal $8,000. So, you would have to reduce your forgivable amount by another $1,000.

So, if you use the funds for their intended purpose and keep your employees on payroll (or bring them back), then you'll get forgiven for all or most of the PPP loan, but if you don't.....you still get the use of those funds as a loan over essentially 2 1/2 years at 1%.

Sorry for the long post. This is a lot of what I have been dealing with over the last couple weeks here at work, since COVID has really kicked my company in the cajones, like many others.

Thats very insightful. The definitions of the PPP and what "they mean" has been one of most heated debates we have had. Fortunately, or not, we employ people with advanced applied mathematics (like PhDs in Financial Statistics) on board, as well as CPAs. The math is easy, the definitions are the ones that can be taken so many ways. We took it outside to our accounting firm, and even they started arguing back and forth within themselves about definitions. Specially once they called the SBA and got completely different answers to the same questions.
Then the banker got involved (once we applied) and we thought we had our stuff tight from our accountants. SURPRISE! The bank's counsel had different opinions of the definitions and the loan requirements changed again. They claimed that they had the "word" from the SBA and that was a different definition than what the accountants got from their SBA specialists. So who knows, all I know is that small business owners will get screwed in the end no matter what.

Should have bought a senator when they where on sale....Maybe we can buy one cheap with oil being so low....

 

[izzyandsue]

By all means, feel free to go mingle with the like minded. Just stay away from those of us that prefer not to wind up a statistic. You know, like the over 45K dead in this country alone. "It's not perfect, but it's run by the government." Screw science go with the money grubbing government's point of view.

Just my OPINION!

Dr. Phil said there are 360,000 deaths due to swimming pools per year in the US. Not only I am not going near any swimming location, I am not even showering for the duration. That's some dangerous stuff right there.

 

[Fort Knox]

Thats very insightful. The definitions of the PPP and what "they mean" has been one of most heated debates we have had. Fortunately, or not, we employ people with advanced applied mathematics (like PhDs in Financial Statistics) on board, as well as CPAs. The math is easy, the definitions are the ones that can be taken so many ways. We took it outside to our accounting firm, and even they started arguing back and forth within themselves about definitions. Specially once they called the SBA and got completely different answers to the same questions.
Then the banker got involved (once we applied) and we thought we had our stuff tight from our accountants. SURPRISE! The bank's counsel had different opinions of the definitions and the loan requirements changed again. They claimed that they had the "word" from the SBA and that was a different definition than what the accountants got from their SBA specialists. So who knows, all I know is that small business owners will get screwed in the end no matter what.

Should have bought a senator when they where on sale....Maybe we can buy one cheap with oil being so low....

Very true. The math isn't all that hard, but the definitions of the key terms are what is so important. For example, the SBA hasn't defined how to determine what constitutes an FTE (Full-Time Equivalent) Employee yet. It's assumed that they'll use the same definition that the Affordable Care Act does, so it'll be anyone who works an average of 30 hours per week or more and then those who work less will be calculated as partial FTE's and added up. However, other government programs have used different definitions of an FTE, so nobody knows for 100% certain yet.

Part of the problem is that the SBA has had to rush to get this program out, so they've even contradicted themselves at times. For example, in the Interim Final Rule, it is stated that the PPP loan can be used to pay not only mortgage interest, but also "interest payments on any other debt obligations that were incurred before February 15, 2020", so if you had a business loan prior to February that you're paying interest on, the IFR says you can use PPP funds to pay the interest. However, in the section where it talks about calculating how much of the loan is forgiven, it only says that mortgage interest is included in the forgivable spending. Well, whatever is left over after the forgiveness becomes a true loan that needs to be paid back anyway, so of course you can use the unforgiven funds for whatever you need to, as long as you pay the total remaining principal and interest back over 2 years. Including other debt interest in the listing of what the proceeds can be used for has confused a lot of people into thinking that it counts towards the forgiven amount, but it doesn't.

The SBA needs to put out some definitive guidance on the definitions of key terms soon, before businesses start making decisions on how to maximize forgiveness based on incomplete or easily misinterpreted information.

 

[lt1fire]

 

[AJR]

First known U.S. coronavirus death occurred on Feb. 6 in Santa Clara County — San Francisco Chronicle

A person who died at home in Santa Clara County on Feb. 6 was infected with the coronavirus at the time of death, a stunning discovery that makes that individual the first recorded COVID-19 fatality in the United States, according to autopsy results released by public health officials late Tuesday.

apple.news

This is pretty significant

 

[NCFJ]

Have you ever noticed how most every Sci-Fi disaster movie involves Government ignoring scientists?

 

[GLTHFJ60]

First known U.S. coronavirus death occurred on Feb. 6 in Santa Clara County — San Francisco Chronicle

A person who died at home in Santa Clara County on Feb. 6 was infected with the coronavirus at the time of death, a stunning discovery that makes that individual the first recorded COVID-19 fatality in the United States, according to autopsy results released by public health officials late Tuesday.

apple.news

This is pretty significant

It very much is. Part of the "cleaning up the data" story.

 

[AJR]

Have you ever noticed how most every Sci-Fi disaster movie involves Government ignoring scientists?

Well yeah but, there’s also the mad scientist based plots as well.

 

[lt1fire]

First known U.S. coronavirus death occurred on Feb. 6 in Santa Clara County — San Francisco Chronicle

A person who died at home in Santa Clara County on Feb. 6 was infected with the coronavirus at the time of death, a stunning discovery that makes that individual the first recorded COVID-19 fatality in the United States, according to autopsy results released by public health officials late Tuesday.

apple.news

This is pretty significant

Leave it to California to steal our thunder...... Bumped to second now.

 

[izzyandsue]

Off topic, but couldn't resist. GLTHFJ60, here is an opportunity to modernize your avatar