PPP Stimulus Round 2: How Contractors Can Maximize Benefits
New PPP round, new rules for construction businesses. Do you qualify?
Watch this webinar led by CPA and PPP expert Hannah Smolinski, CEO of Clara CFO Group to find out, and hear how to take maximum advantage.
- How to qualify under the new rules
- How to take full advantage of the benefits
- Tips to make a PPP plan for your business
Michael Williams: (00:23)
without further ado, uh, I’m Michael Williams, I’m the financial services manager over here at Levelset. And this is, I believe the second time we’ve had Hannah on a, uh, a webinar pretty recently, she does an incredible job and with the new stimulus package, uh, we wanted to have another webinar for you guys. So we’re going to jump into the PBB loan update with the economic aid act. It should be super valuable for everyone involved. And so, um, over to you, Hannah, thanks so much for jumping on again and helping us out.
Michael Williams: (01:54)
Yeah, thanks so much for having me. Um, yes, it’s been a busy, busy time with the economic aid act, so I just we’ll, we’ll just hop right in because we’ve got a lot to talk about and I’m sure that there’ll be a lot of questions. So I want to make sure that we leave some time for some Q and a at the end. Um, so I do want to go ahead and talk about Levelset real quick and then we can go from there.
Hannah Smolinski: (02:16)
Yeah, sure. Yeah. Thanks for anyone. For any of you are unfamiliar, who is Levelset. Uh, quite simply we help suppliers and subcontractors get paid faster, um, through lean rights management, data and insights and in payments and financing, uh, we’re here to help you get paid faster and more easily. So make sure if that, if you’re interested in getting paid faster and easier than, uh, check out, Levelset
Michael Williams: (02:41)
Good thing. I right. And I’m Hannah, Smolinski, I’m a CPA and the owner of Clara CFO group. And I have been with, um, I did a previous webinar for Levelset a couple of weeks ago, I guess, maybe a month ago at this point in time. Um, but I’m here to help explain this for you guys. I’ve been helping small business owners for the past eight, nine months. Try to understand and dissect PPP. I have a YouTube channel that I’ve been working on all of this stuff with and trying to explain it as best as I can. And then I’m also a senior advisor to upside financial for their PVP loan forgiveness product. So they’re actually sponsoring today’s, um, today’s webinar. So, um, let’s go ahead and just dive right in and talk about really everything about the economic aid act. So we actually just got the name of this, by the way, the economic aid act.
Michael Williams: (03:34)
It has been kind of known as the $900 billion stimulus bill, which was passed December 27th, along with the full government funding package. So you might have heard about that. It’s a couple trillion dollars and then specifically carved out in that is this economic aid piece. So even carved out within that 900 billion there’s additional funding now for PPP. So we’re going to kind of talk about really all of everything related to PPP. And I just kind of want to give like a big caveat at the beginning. This bill was 5,593 pages, and it was, we got it on December 21st and then guidance is now been coming out, explaining these things in further detail because the actual legislation is very legal ease. And then we get SBA treasury guidance. That’s a little bit easier to understand last night, another hundred and 25 pages, 124 pages of guidance was posted.
Michael Williams: (04:37)
So I’ve already done a preliminary review of that, but I do want to give a caveat to say like, there’s still lots of information that’s going to be dissected. And what we’re going to focus on in this webinar is what we know and what you need to know now for your PPP loans, either existing PPP loans, or if you’re eligible for a second round, we can definitely talk about all of that. Um, and then I just want to say, like, if there’s questions specifically about EDL and employee retention credits, we’re good. Those are going to kind of be out of scope for the purposes of this webinar today. We’re going to mostly just be focusing on PVP because those other things are still kind of TBD if you will. So, um, economic aid said that the purpose of this additional funding is really all to be, um, is, is just to continue helping small businesses, just like PPP one.
Michael Williams: (05:28)
It was really focused on trying to help small businesses maintain status quo, any businesses that were in, in, um, in business before COVID hit, we wanted to keep those businesses running and operational and employees paid. So the purpose with PPP second round, what we’re seeing is that they’re trying to target more harder, hit businesses. That’s actually kind of part of the purpose of this. Um, they’ve specifically get specifically called out certain types of businesses that are harder hit. Um, and now it’s open to potential first-time borrowers that didn’t get money the first time around, but then also now people who did get a first loan are potentially eligible for a second round of PPP. So we’re going to talk about that. The maximum amount that anybody can get is $2 million. Um, originally it was 10 million. So now they’re again targeting the smaller companies and potentially some of the more harder hit businesses as well.
Michael Williams: (06:28)
And they’ve set out like special allotments for even smaller companies. For example, companies with under 10 employees, they have like a specific amount of money earmarked for those businesses, which is all within the 284 billion. Um, so what, what I really want to start with is for anybody who has an existing PPP loan, what has changed because with the, um, economic aid act, it updated some things that was really critical. And we even talked about this in the last, um, in the last webinar that we did, the big thing that I want everybody to know, write it down, have your ears perk up right now is that taxability on PPP is non-existent. There is no tax effect of the PPP loan. What we had known the last time we did a webinar is that you weren’t allowed to deduct the expenses that were going to be forgiven for PPP.
Michael Williams: (07:24)
Um, but the act has clarified that both PPP is not taxable income and you can deduct those expenses for the purposes of your taxes. So this means that you get money from the government with zero tax effect. That is really, really huge. People are right now planning to make their Q4 estimated tax payments. And that is super critical. So I just want to make sure that everybody understands that and that also applies to the Eid grant. So if you’ve got an Eido grant, then also not taxable, and you can deduct the expenses when you use that money for whatever you use the money for. Okay. So huge, huge, huge, huge. Okay. I just want to make sure that is really, really clear. Um, I also wanted to mention that for they, they’ve also offered a potential simplified forgiveness for loans under 150 K. Um, I imagine it’s going to be very similar to what the 3,508 S forum was looking like for loans under 50,000.
Michael Williams: (08:32)
Now they’re going to raise that up to loans under 150,000 forgiveness is going to be simplified in a one-page form. This does not mean blanket forgiveness, which a lot of people were hoping for. Um, I think it probably just came down to too much potential fraud. Um, so they are offering simplified forgiveness for loans under 150, but not blanket forgiveness. Okay. And then they’ve done a couple of things for existing loans that they’ve essentially just made retroactive into the original cares act. Um, they’ve added some additional payroll cost. And so these are going to be pretty important for a lot of contractor businesses, I would believe, um, or business like construction businesses because they have added in the ability to include disability insurance and, um, life insurance. So from what I believe, this is my interpretation and we are waiting for kind of really clear, um, guidance here, but disability would probably include workers’ compensation insurance.
Michael Williams: (09:39)
So that’s a big expense. I know for lots of contractors. So I want to just kind of bring that up. We’re waiting for like, I want to see it in writing that that is okay for workers’ compensation, but that is likely a additional payroll costs you can now include. Okay. And then non-payroll costs. I actually have a slide on this because we have lots of additional non-payroll costs that I want to talk about. And really with non-payroll costs, they’ve added these and again, these are added retroactively. So if you got a PPP, one loan, you got it in the first round, you can now include these costs. Let’s say you, um, you applied for a loan and you had included, you got too much money. Let’s just say you had included some 10 90 nines or something, and you got a loan that was too big.
Michael Williams: (10:27)
And when you were doing your forgiveness documentation, you still had a leftover remainder amount that you weren’t able to use on any non payroll or payroll costs. Now we have these additional costs that you can potentially try to see. I mean, almost everybody’s going to have something like this. Okay. So I want to bring this up to you guys. Um, so they’ve added four additional categories and excuse me, I’m actually just going to read it straight from, I’m not going to read everything cause it’s gets a little, a little overbearing, but I’m actually, I’ve got the guidance in front of me. Um, so they have added covered operations expenditures. And this is really talking about any software or any business software or cloud computing service that facilitates business operations. So this could be an inventory management system and accounting software, a payroll processing, software, HR, um, really any software that helps your business function is included now as a non-payroll cost.
Michael Williams: (11:27)
So that has been, um, that’s a really big one that basically every business operating in this day and age has some of these costs. Okay. Um, so these can be included. We also have covered property damage costs. I think fewer people are gonna probably be able to, to, um, count these, but this would be if you were a part of a public disturbance of all of the looting and things that happen in 2020, if you had a damage like that, that was not covered by insurance, you can include it here. I think that was kind of by, um,
Speaker 1: (12:00)
Um, I don’t
Michael Williams: (12:02)
Know, a little bit of a gift I suppose they were trying to do there. Um, and then this is a big one. I think for construction businesses is covered supplier costs. So I have vendor costs on the slide here, but it’s technically covered supplier costs and this is any expenditure made by the borrower to supply goods that were needed during the covered period. So who’s building stuff, um, who had a job that you needed to go and buy supplies for basically mostly every type of business is going to have some of these. So really in inventory purchases that were needed during the covered period can be included or any, um, product costs that you might have or anything that you’ve had an existing contract to purchase or a purchase order can be included here. Okay. So this is a big, um, a big potential bucket of money that lots of people will be able to use
Speaker 1: (12:59)
Who’s this for? Um,
Michael Williams: (13:02)
And the last one would be workers’ protection expenses. So this is if you’ve, you were, you know, buying masks for your employees, you’re buying extra hand sanitizer, you are maybe building out a certain section of your business to help protect workers or maybe installing, um, I mean, this is not a restaurant or anything, but, um, if you had to like install a drive-through service or something like that, that would be included here, but, um, bigger, bigger thing for you guys is probably more like, what are those things you’re doing to help protect your workers? Are you buying, um, you know, more temperature gauges as people go out, you’re taking their temperature or hand washing stations or things like that, all of that, to help prevent the spread of COVID-19 and to protect your workers. Those expenses can now be included here. Okay. So that’s probably going to be a big one.
Michael Williams: (13:54)
That’s going to be pretty helpful for people who already have loans that need to kind of round out their total expenses. And then as you’re going into 2021, you can also think about those expenses. Um, you have payroll costs and then you have non-payroll costs. So these are potential things you can spend your money on. All right. So let’s go ahead and talk a little bit about second draws on their PPP loan. So we talked about existing loans. That’s all good. Um, let’s talk a little bit about what it looks like to get a second round of money. So the first thing we need to determine is are you eligible?
Speaker 1: (14:32)
And I’m going to take, are you eligible here? So this is, this
Michael Williams: (14:41)
Eligibility requirements are specifically for anyone who’s getting a second round of money. If you are getting your initial PPP loan, you will actually go back to the original eligibility with the first round of PPP. And you are not subject to these eligibility standards that we’re talking about right here. This is specifically for if you want a second round of PPP. Okay. So you have to have under 300 employees and then you have to prove that you’ve lost revenue in any one quarter comparing 20, 19 to 2020. Okay. So 2020, let’s say, um, let’s say in Q2 of 2020, your revenue was a hundred thousand dollars, but Q2 of 2019, your revenue was 150,000. Okay. So you would actually have a 33% decline from 2019 to 2020, and that would trigger you to be eligible for PPP two. And it only has to be one quarter and it doesn’t have to have, like, you don’t have to prove out a total year loss or anything like that.
Michael Williams: (15:51)
You could be up every single other quarter and just show a decline in one corner quarter and that’s okay. All right. So, um, I want to make sure that that’s really clear for people. I did a video on this and I have a spreadsheet specifically for this. So if anybody’s looking for a kind of a walk step-by-step walk through on how to do that, um, we can make that available afterwards on YouTube or something like that. Um, so w uh, eligibility under 300 showing a revenue decline, and then you also need to, well, this is a little bit of a no brainer. You have to have been in business before COVID started to be able to be eligible. So if you started in June of this year, you are not eligible for a PBP low, and you can pursue other potential, um, funding, but you can’t get a PBP loan.
Michael Williams: (16:42)
You had to have been in business before February 15th of 2020. And then you have to, if you did get a PPP, one loan, you have to have spent or plan to spend your PVP one loan before you apply for a second, you do not have to have gotten forgiveness, and you do not have to have applied for forgiveness before getting before applying for a second loan. Those are big questions that I’m hearing over and over again, because it was talked about at some point in time, but you don’t have to apply for forgiveness just yet. Okay. But you have to have spent the money.
Michael Williams: (17:18)
All right. So how are we calculating our new loan amount? Um, it’s very similar to how we did it in for PPP one. You take average payroll costs and then have to, they’re giving you the option of two time periods. You can either use 2019, which if you got a PPP, one loan, you used probably 2019, or you can use the 12 months proceeding the date of your application. So if you apply in January, then you’re going to use all of 2020, and they’re actually anybody to just use all of 2020. Even if you apply in February, they’re saying, Hey, it’s really easy to pull annual reports from a payroll provider for a full calendar year. So just use 2020 that actually just came out in the guidance last night, that if anybody wants to use 2020, they can, if you want to use the 12 months proceeding, let’s say you apply in March and you want to use, um, February to February.
Michael Williams: (18:15)
That’s fine, too. Okay. Um, but you have the option so you can choose which one is better for you. So I actually recommend people doing the calculations for both. So you can see which one is higher and then take that number if you want a higher loan. Um, so you take your average payroll costs, get the annual cost divided by 12, and then that would get your monthly costs. And then you multiply that times 2.5. So you essentially get 2.5 months of whatever your average payroll costs, and that will be the amount of your PPP loan. All right. The total maximum for any person is 2 million. I think we mentioned that earlier, but I have a little note down there for it. Um, documentation required for application. Um, they, they put out the guidance of this today. I’m just going to briefly cover it. It’s really similar to whatever you had to do for PPP one.
Michael Williams: (19:06)
They are, if for sole proprietors, they’re going to want to see a schedule C and you might say, well, let’s say my schedule C in 2020 is actually higher than, or what might my profit was higher in 2020 versus 2019. Overall, even though I still met the revenue decline number, um, I haven’t filed my taxes yet. Hannah, what do I do? You can do a proposed schedule C. So even if you haven’t filed your taxes, you can still submit that that’s what we were able to do for PPP one round as well. So, but if you are a sole proprietor, you’re going to have to provide your schedule C for whatever year you use payroll reports to prove out your employee costs, um, your quarterly payroll taxes, your nine 40 ones, and your state quarterly payroll taxes will be needed needed. And then if you’re including payroll costs, likes retirement contributions and insurance, you’re going to need to include, um, proof, proof of those expenses as well.
Michael Williams: (20:03)
So those are looking like statements from your retirement plan or, um, same statements from your insurance company or, um, canceled checks or bank statements, whatever you have to prove out that you’ve actually paid those mounts. Um, and then proof of revenue reduction for loans over 150,000. So this is kind of that, that revenue decline we talked about, um, they’re saying any, any business that has getting alone under 150,000 at the time of application does not necessarily need to prove out that they have that revenue loss. However, they’re saying that you will have to provide it at some point in time, but not right when you’re applying for your loan. I think they know that a lot of small business owners don’t necessarily have an accounting software that they can go and pull a quick report, right out of QuickBooks super quick and easy to prove out this revenue reduction.
Michael Williams: (21:01)
Um, so they know it’s going to take a little bit time to pull that information together in order to prove this out. Um, I agree with that. I also say like, you’re going to have to do some kind of, at least initial investigation to know whether or not you’re meeting this 25% reduction. So you’re going to kind of have to have some numbers to be able to like, honestly certify that you have had a 25% reduction. So, um, that’s just something to think about, uh, again, um, there’s like to prove out the loss of revenue reduction you’re going to have to either provide an accounting report from an accounting software or approve out with bank statements or, you know, re checks received or something, some kind of documentation showing that you’ve received money in. Okay. Um, let’s see. Okay. So just as you’re thinking about it, applying for another PVP loan, the first thing I want you to do is check with your bank, that you got the first round of PPP with and see if they are accepting applications, or if they will be accepting applications for PPP, too.
Michael Williams: (22:04)
Most of the banks that participated the first time around are going to participate the second time, but some are not. So you want to make sure that you have a bank lined up before you assume that they’re going to take applications, and then you, you get left, you know, potentially not having a bank to help you out. So if your bank is not, you could go and look for potential other local businesses or we local banks, or you could do online lenders. There’s a lots of people who are still helping with this process. Um, you know, and if you were really unhappy with your bank, the first time around, it might be time to go and try to find a different, uh, different, um, lender to help you out this time. Um, second is to, no, if you qualify for that revenue and decline revenue decline, you know, do that calculation, make sure that you are able to apply for this money and then go ahead and calculate your loan amounts.
Michael Williams: (22:58)
So like we said, pull the information, compare 20, 19 to 2020, see which amount gives you a higher payroll cost and determine what you want to ask for. So you, you know, whatever your loan amount is, you don’t have to take your maximum loan amount. So if you’re, if you’re planning to lay a bunch of people off or you’re planning to close your business, or you, you have some kind of, um, you know, you know that you’re not gonna be able to spend the money, you don’t have to take your maximum amount. You can take less than your max. Okay. You can’t take more than your max, but you can take less. Um, I right. And then have a plan to spend the money. So this is kind of one of the big things. One of the big things I was pushing when PVP came out is, you know, make sure you are being strategic about planning your money and how you’re going to use it, forecast out what you’re going to be spending on payroll.
Michael Williams: (23:47)
And then think through that so that you don’t get left holding the bag at the end of the day, okay. That we want this money because it’s essentially free if it gets forgiven. So let’s, let’s kind of use it, use it strategically and use it wisely, um, using the money will go into that. So the, um, we’re using this money similar to what we did with PVP one, it’s still, you need to use at least 60% of the money on payroll costs. And then, um, the rest remaining can be spent on non-payroll costs. So up to 40% can be non payroll. And then, um, at least 60% needs to be spent on payroll. I, with these new added non-payroll costs, please don’t get this loan and use it all on supplier goods and then expect it to be forgiven. You have to have payroll costs in order to use the money for non-payroll costs.
Michael Williams: (24:42)
Okay. So that, that rule has not changed. All right, still we have to use the money the same way. Um, now that we have these additional costs, so we have the additional insurance added to payroll costs and these additional non-payroll costs, you can plan out your, your spending that way. And then the kind of the interesting thing about this is they’ve also given us a selection now of a covered period. And you can select anywhere in between eight weeks and 24 weeks for the covered period. So this might be helpful to you. If you are planning for letting someone go, you might say, Hey, well, I know, you know, I have somebody that needs to leave, but I’m going to be strategic about when that person goes, because you want to make sure that it’s after you’re covered, period. If you’re trying to keep FTE count up, okay, so you can do that.
Michael Williams: (25:38)
And then once the end of your covered period, then you can go ahead and apply for forgiveness. Okay. Um, with the FTE counts, they, I haven’t gotten any guidance yet on FTE counts and exactly how things are going to be counted. Um, my assumption right now is that it will all be similar to how things were handled. The first round of PPP. You want to keep your head count up between like the time of the application and, um, you know, the end of your covered period. So just keep that in mind. Um, if you’re planning for a major headcount reduction, you’re going to need to be strategic about that. Alright. Um, kind of more information to come on, FTE stuff, uh, let’s see, documenting for forgiveness. So we talked about documenting to apply for the loan, and this is documenting now for forgiveness. It’s going to be really similar to PPP one, a lot of the information that you’re going to need to provide payroll reports, tax returns, things like that will be very similar.
Michael Williams: (26:40)
Um, they have, they have opened up this forgiveness that helps you provide less documentation for loans under 150. We’re waiting for that forgiveness, documentation or forgiveness form and application to be available. It has not been yet published by the SBA. They have, I think, another, another like two weeks or something to publish it. So they’re going to take a little bit of time to get that out to us. Um, so just stay tuned if you’re alone is under 150. Whoo. So that was okay. So I think we’re at Q and a time at this point. So yeah. What questions do you guys have?
Hannah Smolinski: (27:20)
Yeah, thanks Hannah. Um, if anyone hasn’t typed in their questions, uh, as we went along, I’ll, I’m gonna get to those that did now, but feel free to ask away. Um, so with, let’s just jump right into it. Uh, if someone’s business was started in 20, in, uh, November of 2019, it’s not a full quarter. What is the actual definition around a full quarter going to be, or is it going to be partial quarter of 2019 to use a comparison?
Michael Williams: (27:48)
Yeah. There, um, if it’s partial, I think what we do is we prorate it. Um, you prorate it essentially to the same time period. I’d have to, I have to look up, they have specific calculations for all these different scenarios. Um, but essentially you could kind of prorate if you started like November one of 2019, you would take like, that is two months and then kind of, I guess you would probably make that into like a full quarter. Like what would that full quarter revenue be and then compare it, um, that one, that one I’d want to like see exactly what the calculation would be for that. So we can, we can, um, update people afterwards on that too
Hannah Smolinski: (28:40)
In, uh, in, in regards to [inaudible], if you did not take out a PPP line for PPP, one does the new stimulus package. If, if this is your first loan, are you taking, are you doing it using what set of rules are you using to take out, um, your first PPP loan today?
Michael Williams: (29:00)
Yeah, your first PPP loan will be the original rules. So you’ll still use your payroll costs to apply. And you’ll take the two and a half months of average payroll costs, but you do not have to certify to that revenue decline. So that’s the good thing like you don’t like if you didn’t have a revenue decline, you can still get a first round PPP loan.
Hannah Smolinski: (29:22)
Would the, are the, um, so the additional allowances of the non tax effects and then the additional expenditures that can be, that can count as the 40% that is forgiven. Is that grandfathered in to the original PPP? If you got your first one today. Yeah. Yeah.
Michael Williams: (29:42)
Um, they they’ve, they basically said they want to take those additional costs that they’ve added. They basically are saying like, as if they were written into the original carrots cares act. So then any loan given after the original cares act, which is all of them would now be have those additional payroll allowable costs.
Hannah Smolinski: (30:03)
I just saw a quick, a quick question pop up that you can answer pretty quickly. How do you find yourself on YouTube if someone wants to learn more?
Michael Williams: (30:11)
Yeah. So, um, my channel is Clara CFO group. So if you go to at Clara CFO group, you can find me there. Um, and then my last video that was posted was that eligibility one, which has been, um, kind of, uh, kind of the big question, you know, um, there’s also like a download available to kind of do that revenue calculation to prove out the decline. I asked a quick question, somebody posted in the chat, and I just want to answer that real quick is what does, what does FTE and FTE means full-time equivalent? So your employees, um, are they, if you have two part-time employees that are both working 20 hours on the regular, that’s one full-time equivalent of like, you know, a normal 40 hour work week.
Hannah Smolinski: (31:01)
Yeah. Thanks for that. Is the PPP two. So the $2 million maximum for PPP to, if one were to have a $1.9 million PPP, one loan is the $2 million in aggregate or separate to the second, uh, PPP
Michael Williams: (31:20)
It’ll be completely separate. So it’s not like the combined total needs to be, um, under 2 million, it’s just each one individually. Like the second round can’t be more than 2 million. So I helped a client with forgiveness on a $4 million loan and they need a second one. Although they probably qualify for three or $4 million, they’ll probably, they will only be able to get a max of up to 2 million.
Hannah Smolinski: (31:47)
Cool. I’ll try and combine a few questions. And two, one, um, in regards to looking at someone’s financial health for the second round of PPP, um, if someone, if there’s a revenue decline, but someone has significant savings, like a significant nest egg, or is that taken into account and assessing the company’s financial health or financial decline. And then secondly, is the revenue gross revenue or a net revenue scenario where all not all revenue is, is kept at the end of the day.
Michael Williams: (32:24)
Yeah. Um, I, it says gross receipts. I’ll I’ll, I’ll answer the second question first. So gross receipts would be, um, you know, before any expenses are taken out, um, I would go with gross seats. I know you guys probably like contractors probably are in a situation where they’re have, um, they bring in money, but then, you know, a large portion of it is to buy supplies or things like that. And if that was the case, um, you would still go with gross, gross receipts before any expenses are taken out.
Hannah Smolinski: (33:04)
Okay. Yeah. There’s certain situations where a joint check agreements, um, are where money is coming in, but it’s already pledged somewhere else. So I think it’s good to have that distinction of gross receipts.
Michael Williams: (33:17)
Yeah. And it’s, it’s important to remember to the PPP loan does not get included in gross receipts. Um, the IDL grant does not get included in gross receipts because those are not considered income. Um, and then any other kind of funding, or, you know, be clear if you’re taking a deposit for somebody that is not like if it’s deposit and it’s technically more of a liability on your books and not a income piece, you know, that’s something to think about, just make sure your accounting is kind of up to snuff on that piece that should help
Speaker 1: (33:51)
Michael Williams: (33:56)
And then was there another piece of that question?
Hannah Smolinski: (33:59)
No. Um, um, yeah, yeah, we have, we have quite a few, so everyone, everyone. So we have, we have 23 minutes until the cutoff, so everyone just kind of be patient. I’m trying to get the most answered to see if I can aggregate a few of these or find some quick ones. Um, I may have missed this, but is the revenue decline 25% or just a decline for any quarter?
Michael Williams: (34:29)
It has to be at least a 25% decline in any one quarter. So it, if you have 10% decline in every quarter, that wouldn’t count, we need to show like when one quarter of 25% or more
Speaker 1: (34:44)
Hannah Smolinski: (34:47)
Our work in progress, journal entries allowed in revenue calculations, reduced revenue calculations.
Michael Williams: (34:57)
I’d have to see that. I don’t know. I don’t, I don’t do enough construction accounting to be able to answer that question, but work in progress is typically on the balance sheet. So
Speaker 1: (35:14)
Hannah Smolinski: (35:14)
And someone asked if, uh, if you would be sending out, you referenced this spreadsheet earlier, and if that could be made accessible, or if you could send that out to the attendees, I’m not sure which one.
Michael Williams: (35:25)
Yeah. I can make a link to it. So it’s just available on my website. It’s the one that I go through on the video. Um, the YouTube video that I mentioned on eligibility, but we can definitely make that available.
Hannah Smolinski: (35:38)
Okay. Can you review the vendor costs again for PPP one and PPD two?
Michael Williams: (35:43)
Yeah. Um, yeah, this, so this is for everybody and I’m just going to read it because I think that it’s kind of, um, the way that they word it can sometimes be sometimes be a little interesting. Okay. So this is covered supplier costs. That’s what you’re talking about, right. Okay. Expenditures made by a borrower to a supplier of goods for the supply of goods that are essential to the operations of the borrower at the time in which the expenditure is made. And then as may pursue it to a contract order or a purchase order, um, in effect at the time before the cupboard period, with respect to the applicable covered loan, this is where it gets like look, uh, with respect to perishable goods and effect before at any time during the covered period with respect to the applicable loan. So what I interpret that to mean is that these are supply that you are paying the supplier of goods to supply goods to you.
Michael Williams: (36:42)
So you are buying, you’re buying goods that are essential for the operations. I think that’s the key part of this is are they essential to the operations of your business and or maybe they weren’t essential, but you were in contract to purchase something. So you had an obligation to purchase. Okay. So those are kind of the two things where they essential. So basically like if you had to use them for a project during the covered period, then that would make it essential to the operations of your business, right? Um, like if you had, if, if you get this money in February and you have a project in March that you have to buy goods for, that would be essential to the operation of your business. Right. Um, and or if you maybe made a purchase request previous, but you you’re kind of locked into it, you have to buy it one way or the other, you can’t back out. Then this would also be okay, even if it’s not essential to be used during the coverage period, but you have committed to it. That would also be included.
Speaker 1: (37:44)
Hannah Smolinski: (37:46)
Just to clarify again, um, someone wanted someone was, is still a little confused if, if you were, if you were, if you received PPP one and you do not have a revenue decline, then you are ineligible for M P P P round two. Correct. But if you did not receive PPP one, regardless of your revenue decline, you can get a PVB loan now in this new, with the new stimulus package.
Michael Williams: (38:16)
Yes. Yeah. So if you had never gotten one before and you need one, now you can go ahead and apply and you don’t have to prove a loss of revenue.
Speaker 1: (38:27)
Yes. This is an interesting question. Um,
Hannah Smolinski: (38:37)
The, the person asking didn’t apply for in the last round and, but they ended up having a settlement from a car accident, which they use that funds to keep the company afloat. Will that count against me if I were to apply for a PPP loan now,
Michael Williams: (38:54)
So that sounds like a personal, like they, they got, does that sound like a personal car accident that they, that money to fund the business? Yeah. As an equity in infusion, which either you had gotten a first loan that would still not be considered revenue. Um, that’s an equity infusion from the owner to the business. So that’s on the balance sheet and it wouldn’t affect your revenue. Um, the, and then the key point of that though, is more that the person didn’t get, they didn’t get the, the loan to begin with so they can totally apply.
Hannah Smolinski: (39:30)
Great. Yeah. Since, since these loans are not taxable and have no tax effect, how else should they be accounted for on financial statements?
Michael Williams: (39:42)
Um, you know, I’ve been like thinking through this and then I, you know, it’s, it’s kind of, I’m still working through this. Um, the only thing I can, I can logically say is that it gets closed out to equity because this is, these were loans sitting on the balance sheet. It’s never going to touch the P and L um, cause what was going to happen is we were going to back out the loan from the expense side. But now when we’re doing journal entries, we basically have to close it out to equity. There’s really nothing else we can do. Um, so when you, when you get forgiven, this, this loan is going to sit on your balance sheet until you’re forgiven and then when you’re forgiven, um, for whatever you are forgiven, if it’s a hundred percent or if it’s, you know, some amount less than that, the amount that’s forgiven would have to be closed out to equity.
Hannah Smolinski: (40:33)
Yeah. That makes a lot of sense. Um, tennis sole-proprietor, uh, qualify for PVP round two, similar to round one.
Michael Williams: (40:43)
Yes. Yep. Same thing. Applying, using schedule C um, income, same thing,
Speaker 1: (40:52)
Hannah Smolinski: (41:03)
Um, while I’m, while I’m going through the other questions, uh, if, if everyone looks at the chat, uh, we did upload the link to not only Hannah’s worksheet, but also her eligibility YouTube video. So you can find both of those things and uh, in the chat box now,
Speaker 1: (41:24)
Thank you, Jen.
Hannah Smolinski: (41:30)
When, uh, when can people start applying for the second round of PPP?
Michael Williams: (41:34)
Yeah. So, um, I think what the banks are waiting for is they’re waiting for the actual application from the SBA to be ready. Um, and after the enactment of the bill, I believe they had, I forget exactly how many days they didn’t have give them a lot of days.
Speaker 1: (41:51)
It was like 12 or
Michael Williams: (41:53)
14 business days or something to be able to, um, put the application to be ready to take, um, applicants. But all of that, just getting to what you want to know, banks will probably be opening up applications within the next week or two. This is why we’re having this conversation now, before we know all the details of every single thing, because this loan, these loans are still first come first serve. So I do think that we have plenty, um, just to kind of give you guys a little bit of anecdotal information. I had a lot of clients apply for PPP loans. And then when I went through and assessed, who was eligible for the next round, about 40% of my clients that got PPP ones are eligible for PPP too. So I’m kind of thinking that could, that is automatically making me think, you know, let’s say about half of the PPP, half of the people who got it the first time around are now eligible for the second round.
Michael Williams: (42:52)
And we do have some people coming out of the woodwork that are now Elliot, that didn’t know about it the first time, or couldn’t get a first round loan and now they’re going to come in, but we’ve got a couple of things for our benefit. The fact that like you’re not having these large publicly traded companies trying to come in and get $10 million of loans. And we’re, you know, we’re not, we’re limiting loan amounts to $2 million. I think there’s going to be a lot of money. And, um, I think a lot of small businesses are going to get this money if they need it, but I still don’t want people to sit on this and wait for too long. It doesn’t necessarily mean that if you don’t get in the first day, you’re not going to get it. But I think, you know, that gives us, it gives us a little bit more time. That’s what I kind of am really getting out of all that
Speaker 1: (43:34)
Hannah Smolinski: (43:40)
And just to confirm the, uh, the 100%, uh, the $100,000 annual compensation calculation, is that still in effect? Um, when calculating payroll expenses. Yeah.
Michael Williams: (43:51)
Yeah. So any individual can only get up to a hundred thousand dollars of cash compensation. So that’s really important when you go to think about, maybe you have an employee who got a total cash compensation of 110,000, but then they also got retirement benefits and they also got a healthcare, those retirements and healthcare. Those don’t go into the a hundred thousand dollars max, those get added on. So you will have to take out those excess wages of the $10,000. You can’t include that from the cash compensation piece, but you can still include the fact that they got a retirement match and they got some health care that was paid for by the company. So that’s, that’s, that’s kind of huge because a lot of people were doing that the first time around, they included all of that and just said, Oh, any one employee could only get up to a hundred thousand dollars total. And that was just, you know, we were all trying to do our best at that point in time. There wasn’t enough information to clarify that when people were applying for these first come first serve loans,
Hannah Smolinski: (44:55)
If, if someone had, if someone had two entities that they merged on January 1st of 2020, can they use the, both of those entities activities in 2019 to calculate the revenue decline comparison?
Michael Williams: (45:10)
Yes. I think the interim role that just came out has more guidance on that specifically for combinations. Um, but I do think you would include both to get cause you, what you want is you want an apples to apples comparison of, of the 20, 20 year to 2019 year.
Hannah Smolinski: (45:35)
I think it’s a good question. That’s a good question for you to re re clarify, um, these, the loan proceeds not being, uh, as revenue. Uh, but the question is our revenue decline in Q2 2020 by 25 minutes, but the bank statements that they use show the show of funds increased due to receiving PBP and E I D L money. Can I deduct that?
Michael Williams: (46:01)
Yeah. Yeah. You would just back that out. Um, if you’re using bank statements are a poor, a poor representation of your actual revenue, because they would include any type of cash infusion. You know, they would include that settlement or an equity. You know, if the owner lets the business borrow some money or, you know, you ha you did get these funding from other places that would be, or if you had to borrow from a line of credit, like that’s, it’s not going to be the best source of information. Some people don’t have an accounting software. I will still plug in accounting software for any small business all day. Please get one. This is like, what we need to do. Um, this is, this is a good reason for that. But, um, if you are going to use your bank statements, you would probably just Mark, like, this is revenue, this is revenue, this is revenue, this is equity or loan blown money. Um, this is revenue, you know, and just kind of, you probably will have to have like a spreadsheet to kind of support that number with working through your bank statement, identifying what income is actually income, like what incoming funds are truly income revenue versus loan.
Hannah Smolinski: (47:12)
This is another question around, um, kind of the, uh, gross or net revenue question, but specifically for construction is revenue sales or cash receipts.
Michael Williams: (47:25)
Um, they just, they have, um, they say grocery seats, which is clarified in the interim rule, which is referencing another document. What I believe it to be is whatever you, um, I it’s, it’s essentially, I think the question is, is this cash or accrual basis, are we talking about cash or accrual basis, um, from, I need to do the like diving deep to make sure that I’m clear before I tell you guys. But my assumption right now is that it would be whatever you’re taxed, whatever you’re reporting on for tax purposes is probably what you would use. So if you’re a cash basis, tax filer, you probably use cash basis. If you’re a cruel. Now, like I said, there was like a reference to that exact question in the interim role. And I haven’t been able to find the source document just yet. So we’ll get, we’ll get a firm answer shortly.
Hannah Smolinski: (48:25)
Yeah. There’s, there’s a lot of questions around that just asked in different ways. So, um, if, uh, Hannah, if you can, if you can find that and we can send, even if you send it to me, I can send it out to all the attendees to make sure we have that answer, but I just want to commit to the audience. Yeah,
Michael Williams: (48:44)
Absolutely. I think it’s a very important question and we need to know at ASAP for sure.
Hannah Smolinski: (48:49)
Okay, great. So if anyone, if this is still one answered for anyone attending, we’ll make sure and get clarification on that element typically soon and send it out to everyone. Yeah.
Michael Williams: (48:58)
Yeah. I mean, I don’t know if, um, yeah, and then we’re, we’re also kind of diving into this on our side. So upside financial is also digging into all the new guidance as well. So they’re, they’ve got, you know, a team of accountants working on this, so I’m sure that we’ll get like the right answer out very quickly. Yeah. This is that hard part of, um, trying to get as much information out because this is very time sensitive, but also like trying to get the right information out. A lot of people, I, and I’ve been seeing this right now. There’s a lot of people trying to be the first people to get information out. And then sometimes it’s incorrect. We were on a webinar yesterday where there was a pretty egregious incorrect information being spread. So, you know, we do want to try to be really careful and being really clear on really what we know and what we don’t know, so that we’re not leading guys down a path that’s, you know, going to be hurtful down the road.
Hannah Smolinski: (50:03)
Yeah. I have another question around the timeline for the second round of PPP, uh, or PBB two stone. Uh, this attendee started their business in 2020, and they were eligible and did receive, uh, their, uh, PVP the first time around. Are they eligible again for any PPP loan? Uh, now?
Michael Williams: (50:25)
Yeah. So if you started in 20, you’re going to compare your Q one revenue. Um, you’re going to take that as kind of your 2019 revenue sort of like, you’re going to do that calculation. I go over that in the video as well, but, um, you would take Q2 Q3, Q4 and see if you have a decline to Q1. So that’s how you would kind of do that comparison to prove a revenue decline. So you still would have to prove a revenue decline. If you did get a PPP, one loan, you’re just going to do the calculation slightly differently in that case.
Speaker 1: (50:56)
Hannah Smolinski: (51:07)
Could operation operational costs include contracted 10 99, some subcontractor service, not supplies, but a subcontracted labor.
Michael Williams: (51:19)
Um, this is a big question. I don’t want to answer that one. Um, covered supplier costs. It really talks about goods. It says the borrower to a supplier of goods for the supply of goods because, and, and fundamentally sole proprietor. So that independent contractor that’s providing the service to the business can go out and apply for their own PPP loan. So this is, this has been one of our, um, our questions that we’re trying to like clarify. Some people are interpreting it to mean that you can pay 10 90 nines, which I personally don’t feel like is the right interpretation. So I don’t want to tell anybody that that’s the case until I see it in writing from the SBA. I don’t think a co covered supplier costs would cover it. And then operations expenditures also is really talking about software. It’s not talking about like anything for your business to let it operate because all of us would have probably have contractor expenses in that situation. But those individual contractors can go out and get their own PPP loan.
Hannah Smolinski: (52:37)
We’re in one of those situations where the we’re answering them slower than when they come in. So we’re trying, I’m trying to get, trying to get to them as many as I can. Um, cash and bank didn’t get answered, um, just to clarify, uh, assets or equity. Um,
Michael Williams: (52:56)
So there, there’s still gonna be a certification that you, we, we don’t know exactly what the wording of it is going to be, but I imagine it’s going to be really similar to the first round of PPP. There’s a certification that says taking this loan is necessary for the continuing operations of this business. So that’s where it gets into a little bit of a, um, a self-certification a, um, yeah, I mean, you have to determine whether or not you can honestly certify to that as the business owner. Um, we do, we, we know some people who didn’t really need the money, um, for example, like a sports team that had, you know, a billionaire owner and yet took out a four, you know, $4 million loan, is that a necessity if the billion dollar owner is there, you know, so that that’s, that’s kind of where you have to kind of make a determination for yourself and your, your ethics and your business morals, really. And, and are you going to be okay if you get audited? And somebody says, well, you had $200,000 in the bank and you asked for a $10,000 PPP loan. Did you really need it? You know, that that’s kind of where the question comes down.
Hannah Smolinski: (54:15)
Yeah. So I guess what you’re saying is there’s a little bit of gray area and, and would they, is it required to show your bank statement in advance to prove that no, but it could be audited, am I correct?
Michael Williams: (54:28)
Yeah. Yeah. You could be audited. Um, you know, one thing that I think is interesting is, um, if you are, if you do cashflow forecasting for your business, you could have, I mean, you could have hundreds of thousand dollars in the bank and have no current contracts to help, you know, that you’re going to be able to continue on in your business, or you could have access to a line of credit or something like that. But if you don’t have any contracts in place to, you know, make sure that your business can still survive, it might make sense for you to still have a PPP loan and have cash in the bank, because you know, that maybe your runway of cash is only two or three months, but with PPP, you know, that you could get to six months, which then would, you know, you would be able to get contracts at that point in time. So like, I think there’s a little bit of, even if you have cash in the bank, you know, what does the business need and kind of creating a narrative around that can be helpful and creating some support for that. So if you do get audited, you can be like, Hey, this is my logic at the time. And, you know, having that documentation will always be helpful to you.
Hannah Smolinski: (55:38)
Yeah. Just, uh, this, this does help some more, some additional people on the audience saying our construction company uses work in progress to show the difference. It’s an accrual on cash basis for accounting. I think that’s why someone asked if you can use this report.
Michael Williams: (55:53)
Oh, okay. Yeah. Yeah. I’m not familiar with that enough to like speak to it, unfortunately.
Hannah Smolinski: (56:02)
Yeah. And here’s another one, please clarify. If you need to show us cash in bank, including savings, moving to zero or a low balance, since I think you just answered that, that kind of comes into, and it depends. Um, if you feel comfortable when an audit came up. Yeah.
Michael Williams: (56:19)
I mean, you’re not going to have to like prove how much you have in the bank. Now, you, if you had an over $2 million loan before, then there’s a cash requirement that you actually have to fill out a form and say how much you had in the bank at a certain period of time, but we’re not going to have any second round loans that are over $2 million. So, um, they’re not really questioning the liquidity as much. You just need to make that certification.
Hannah Smolinski: (56:47)
Sure. It’s someone else asked if they would receive an email with the actual application form when it’s ready to go. Um, do you have a specific resource for you guys of the easiest way? I know you had mentioned it’s good to go through your existing bank, but if someone wanted to go through you or do you have a resource or best practice for someone to know when the application is ready to complete?
Michael Williams: (57:14)
Um, I mean, I’m, I’m recommending everybody to be proactive with their bank, reach out now, make sure that they’re going to be accepting it and try to understand what their process is. Some banks are already communicating about what they’re doing and then some banks are not, um, I would recommend not having anybody just sit around and wait for somebody to tell them what to do. This is going to have to be something that you need to be proactive about. Um, you, and this is, this is kind of it’s on the borrower to get the number right, to get your, your payroll costs number, correct. It’s not actually the bank’s responsibility. And then, um, it’s kind of on you to apply for the loan. I go to the treasury website and under the treasury website, there’s a specific section for small business assistance. And we can probably find that link and get it out to everybody.
Michael Williams: (58:01)
But that they’re updating, as soon as an application is available, it will be updated on that site. And it will be the SBAs form that then the banks take and they kind of turn it into their own online portal. So they’re essentially going to be asking for all the same information. So it’s nice to have the SBA form because then you know exactly what you need when you go to apply for the loan with your bank. So hopefully that’s helpful. Um, I, I like the, the forgiveness or the loan application process has to go through the banks. You can’t apply directly through the SBA, so you can’t just fill it out and then like send it off somewhere.
Hannah Smolinski: (58:39)
Yeah. Do you, do we have any info on what the PVB to look back periods will be for FTE levels?
Michael Williams: (58:48)
No, I don’t. Yeah. That’s a big question in my mind.
Hannah Smolinski: (58:56)
Michael Williams: (58:57)
I, I think it’s good. I’m yeah. It’s I don’t know what they’re going to do for that just yet. My recommendation to people right now would be don’t let anybody go. That would be, I mean, it’s just until we have better guidance, but, um, if you’re going to take a loan, like be clear, like, okay, I need to keep these people on my payroll.
Hannah Smolinski: (59:18)
Yeah. If PBB, if a PPP one loan has not yet been forgiven, does, are there any special exceptions that one needs to make when going into a second round?
Michael Williams: (59:33)
No. I mean, you just need to make sure that you have either spent all the money or that you have a plan to spend it before you apply for a second round. Um, but apart from that, no, I mean, you’ve got those additional costs now. So if it wasn’t fully forgiven before, um, now you can add those in, but yeah, you don’t, you don’t have to apply for forgiveness or anything like that.
Hannah Smolinski: (59:58)
Well, I think we’re, I think we’re running out of time. I’m trying to get to a few, few remaining questions. Um, there’s a lot of remaining questions, so I’ll try and go through these and if there’s any, uh, that we really didn’t touch, then, um, we can always follow up after. And then, um, Hannah, I think, do you have, um, do you have a slide here with your contact information or the best way for people to follow up?
Michael Williams: (01:00:28)
Yeah, there we go. Oh, look, there’s YouTube. Um, yeah, so you can definitely connect with me. Um, both of our emails are on there. Um, we connect on LinkedIn or YouTube or email. Um, yes, we’ll do. We’ll definitely do a good follow-up email to get everything out to you guys. And I I’d say yes, just kind of keep, keep an eye for like these updates, because what happened last time is there was intermural after intermural after interim role. I don’t think they’re going to do quite as much because they knew that that wasn’t like that. Now we know a lot more. Um, but we are going to get continued clarification on some things as questions keep coming up. Um, FTE, I think that is kind of one of the biggest unknowns at this point. So there’ll be much more to learn. I’m sure.
Hannah Smolinski: (01:01:17)
Well, Hannah, thank you so much. This was incredibly informative and valuable. Uh, everyone, thanks for attending. And thanks for your questions. I hope you found value as well. My email is on here. If it’s specific to, to the PVP and especially PDP two and some of these new guidances, I would probably be going to, to Hannah. Um, but you’re, you’re more than welcome to, to contact me directly. Uh, but Hannah is definitely going to be your best resource here. Make sure to check out her YouTube channel. Um, additionally, you can, you can subscribe to Levelset YouTube channel. We repost a lot of these and have a lot of, um, a lot of resources on our website. Uh, just general guidance of, um, construction, payment issues, and also things regarding the SBA and PVP. So if we can do anything additionally, to help, don’t hesitate to contact me and Hannah. Thanks again so much for taking the time.
Michael Williams: (01:02:12)
Awesome. Yeah. Thanks so much for having me. Good luck everybody
Hannah Smolinski: (01:02:17)
Have a good day, everyone. Thank you.
Michael Williams: (01:02:19)