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This webinar and content was originally posted in the Beat The Box Stores Facebook Group.
If you’ve applied for or received a PPP loan for your flooring store, you’re not alone. For many flooring dealers, the Paycheck Protection Program (PPP) has provided a measure of relief from the ongoing economic hardships of the COVID-19 pandemic. However, uncertainty about the PPP still remains—especially concerning loan forgiveness.
How do you get your flooring store’s PPP loan forgiven? What are the exact guidelines? How can you get as close to 100% forgiveness as possible?
To answer these questions, Broadlume (parent company of FloorForce and Creating Your Space) once again sat down with financial planning expert Bob Saunders—this time, alongside accomplished flooring dealer Richard Scherzer—for an exclusive webinar on the subject of PPP loan forgiveness for flooring dealers.
Richard Scherzer is the owner of About Floors n’ More, a highly successful flooring business with two stores servicing the North Florida market. Bob Saunders is the founder of Saunders CPA, an accounting and financial planning firm with 700+ SMB clients. Together, they were able to explain, in detail, how to maximize PPP loan forgiveness for flooring dealers.
While we have condensed this webinar in the interest of readability, please feel free to watch the complete video above. Additionally, we recommend downloading this PPP loan forgiveness calculator to optimize your forgiveness application.
Table of Contents
- 1 Applying for PPP loan forgiveness
- 2 What will keep me from receiving full PPP loan forgiveness?
- 3 Other questions on PPP loan forgiveness
- 4 Using the Broadlume PPP forgiveness calculator
- 5 Conclusion
Applying for PPP loan forgiveness
Q: How exactly do I apply for PPP loan forgiveness?
A: According to the US Treasury Department PPP Fact Sheet, you can submit your request for loan forgiveness directly to the lender that’s servicing your account. Once you do, your lender will have 60 days to make a decision regarding your loan.
Q: What documentation do I need to ask for when requesting PPP loan forgiveness for my flooring business?
A: It’s interesting; when flooring dealers started applying for PPP loans, every bank was asking for different documentation because the rules weren’t clear yet. Now that they’ve had time to regroup, we believe banks are going to take a second look at the loan forgiveness process. To that end, they’re going to need:
- Payroll records
- A copy of your lease
- Rent receipts
- Health insurance bills
And probably a lot more. Additionally, now that they’ve had a chance to regroup, banks might start looking into whether they’ve lent specific borrowers too much. If they decide they’ve lent you too much, they may take that off your forgiveness as well. Again: they have 60 days to decide on your loan forgiveness levels after you apply.
What will keep me from receiving full PPP loan forgiveness?
Most flooring dealers know the general rules of the PPP loan—that it has to be spent on payroll and rent, that forgiveness depends on how you spend it in the eight weeks after receiving it, etc. But how exactly does your loan forgiveness level go down? What will keep you from receiving 100% forgiveness?
There are 5 major ways your loan forgiveness can be reduced:
- You underspent on qualified payroll, rent, and utilities. If you borrowed $100 and you only spent $80, your maximum forgiveness is already down to $80.
- You reduced your employee count. If you reduced your workforce, your maximum forgiveness will be reduced as well.
- Your employees are earning less than they were before. If this occurs, your loan forgiveness will be reduced on an employee-by-employee basis.
- Your rent and utilities exceed 25% of your loan usage.
- You received an EIDL. If this is the case, your forgiveness level will be lowered by the size of your EIDL.
We’re going to go over reductions #1–3 in detail below.
PPP Loan Forgiveness Reduction #1
Q: How do I avoid “underspending” on qualified payroll, rent, and utilities?
A: As soon as you get your PPP loan, you’re basically in a sprint. If you want your PPP loan forgiven, you have eight weeks to use it on appropriate expenses for your flooring business.
Q: For full forgiveness, how much of my loan has to be spent on payroll vs. on rent and utilities?
A: According to the SBA, at least 75% of your PPP loan must be used on payroll expenses. Some people are interpreting this law as “if you don’t use 75% of your loan on payroll, none of your loan is forgiven”—but we don’t believe that interpretation is true. Rather, we believe it simply decreases your forgiveness level.
Just remember: the law is difficult to read and understand, as it was written poorly and quickly. As we mentioned in our COVID-19 Stimulus Package Roundtable Q&A, the law currently about 800 pages—but it’s probably going to reach 5,000 pages or more when complete.
Q: Do health insurance and pension benefits count as qualified payroll expenses for PPP forgiveness?
A: They do, but according to the most recent interpretations of the law, they do not count for the business owner. Translation: if your business is an LLC or a sole proprietorship, we don’t believe you’ll be able to count your own health insurance and pension as qualified payroll expenses. If your business is registered as a C Corp or an S Corp, it may be different. We’d recommend asking your accountant.
Q: What counts as a qualified rent expense for my flooring business?
A: Here, we have to use some more deductive reasoning since the law is, again, unclear. However, we believe that the word “rent” applies broadly in this situation. That means it includes the rent for your flooring store, the rent for your copy machines, your postage machines, etc. The interpretation is going to come out eventually, but at this point, we believe it will even include the rent on your company cars.
Just remember: this rent coverage only applies to the eight-week period following receipt of your loan. That means you can’t use it to pay back rent, and you can’t pay rent in advance—you can only pay rent that was incurred during this eight-week period. You can not open a new lease, rent a new company van, etc. using your PPP loan.
Q: What counts as a qualified utility expense for my flooring store?
A: Utilities are also very broadly defined. Gas, electricity, and water are obvious—but utilities also include phone bills and gas for your car. Again, you need to have been paying these utilities prior to the eight-week loan period. If the lender does their job, they’ll look at your 2019 tax return to make sure you were already paying these expenses.
Q: Can I use the PPP loan to pay my flooring store’s mortgage?
A: According to the US Treasury, you can use your PPP loan to pay mortgage interest. Just remember: rent and utilities can not exceed 25% of your PPP loan usage if you want full forgiveness!
PPP Loan Forgiveness Reduction #2
Q: Things are incredibly turbulent right now. How exactly can I make sure I end up with the same number of employees during the eight-week loan period as I had before?
A: This really depends on the way you counted employees for your flooring store’s PPP application in the first place. If you’ve read FloorForce’s guide (linked above), you’ll know that we recommend calculating your employee number using the Full-Time Equivalency (FTE) method rather than counting heads. That’s because the FTE formula accounts for part-time employees, meaning you end up with a smaller number of full-time equivalent employees.
At the end of the eight weeks following the receipt of your PPP loan, you have to divide the FTE from those past eight weeks by the FTE you used to apply for your loan. When you convert the answer into a percentage, you want it to be at least 100%. If you’re not at 100%, your forgiveness will start to go down.
Essentially, the fewer FTE employees you claim when you apply for your PPP loan, the easier it is to demonstrate that you have not reduced your employee count and that employee pay has not gone down either—meaning you’ll get more PPP loan forgiveness.
Q: What if I’m already in the midst of this eight-week period? Is this the only chance I have to qualify for 100% forgiveness?
A: Luckily, no. When it comes to the FTE requirement, you have two options: get to 100% FTE within the eight-week loan period, or get to 100% FTE by June 30th, 2020.
Q: If I’ve already applied for or received my PPP loan, how can I alter my FTE count for more forgiveness?
A: You can’t alter the FTE count you applied with, but you can hire more FTE employees. Do you have a subcontractor who’s willing to become your employee for eight weeks? Hire them. It’s perfectly legal!
PPP Loan Forgiveness Reduction #3
Q: What does “employees are earning less than they were before” actually mean?
A: The way the law is written, you need to take the amount you paid each employee for the first quarter of 2020, and compare that to how much you paid them during the eight-week loan period. If you paid them less than 75% of what you did during the first quarter, the difference comes off your forgiveness level.
Q: But that doesn’t make sense—the eight-week loan period is far less time than the entire first quarter.
A: Correct—so we don’t think that the intention was to have you lose forgiveness if you don’t pay someone the same amount in this eight-week period as you did in the entire first quarter. Rather, we think you have to average out the amount you paid them per week for each of these time periods, and make sure the average isn’t more than 25% less in the eight-week period than it was during the first quarter of 2020.
Q: What if we have an employee that only comes back for part of the eight-week loan period?
A: That’s definitely something to be careful of. If an employee averages more than 25% less pay per week during the loan period than they did in the first quarter of 2020, you won’t be forgiven the difference between those two averages. In that case, it might actually be better for you to not have that employee come back until after the eight-week period.
Q: Do I have to treat every employee equally? As in, could I employ someone during the eight-week period at 75% of their salary but make it up with someone else as long as everyone’s salary is at 75% or above?
A: You should be able to, yes. There are some oddities with the language of the law as far as rehiring employees is concerned, but yes—that shouldn’t be a problem.
Q: Is there a difference between the payroll expenses I incur and the payroll expenses I pay during the eight-week loan period?
A: The language of the law is unclear. Our recommendation: sync your pay periods to the eight weeks of your PPP loan.
Other questions on PPP loan forgiveness
Q: When exactly does the eight-week PPP loan period start—the day I sign the documents, or the day the money is transferred into my bank account?
A: It’s interesting—people are interpreting this differently. We interpret the start date as the day after the loan hits the bank. So if the money gets in the bank Tuesday and it’s available to you on Wednesday, we interpret the start date as Wednesday.
In fact, Saunders CPA is recommending that most clients close their payroll out on Tuesday, pay employees whatever they’re due, and start a brand new pay cycle Wednesday to sync with the PPP loan period. A one-week-long pay cycle is even better—that way, it’s easier to keep track.
Q: What if an employee refuses to come back to work? How can I keep the same number of FTE employees at my flooring store?
A: That’s a tricky question as far as Reduction #2 is concerned, but we addressed it a little bit when we discussed averaging pay for Reduction #3. The bottom line is: if your employees aren’t returning to work because they’re on unemployment, we can’t blame them. It doesn’t make sense to start unemployment and then jump off immediately, especially if the future is uncertain after the eight-week loan period.
As a flooring dealer and a business owner, you have to put the good of your company first. Make sure you aren’t continuing to pay employee COBRA benefits while they’re on unemployment, and do your best to fill your FTE requirement with temporary hires!
Being a flooring store doesn’t mean you can’t hire people to do non-flooring-related things. Hire someone to paint the store, remodel a bit, you know—pay people to do whatever you’ve been needing done! If these new employees are on payroll, they’ll make up for the employees that either aren’t willing to come in or would have nothing to do if they did come in.
Q: If you receive a PPP loan for your flooring store, can you also receive a payroll tax credit?
A: Sadly, no—it’s one or the other. And to that end, keep an eye out for our next webinar; we’ll be discussing payroll tax reductions for flooring dealers who didn’t receive a PPP loan!
Using the Broadlume PPP forgiveness calculator
If you haven’t done so already, you can download Broadlume’s PPP forgiveness calculator here. This interactive worksheet is an easy-to-use tool for calculating:
- Your flooring business’s FTE employee averages for each PPP application and forgiveness period.
- Employee salary averages for each of these same periods, including minimum necessary payments for full PPP forgiveness.
- Projected work hours and allowable forgiveness levels for specific employees.
- Baseline costs and time period comparisons to help you select your optimal PPP range.
Basically, it’s an all-in-one tool for calculating and optimizing your PPP loan forgiveness. And it’s completely free.
As the CARES Act continues to grow and develop, FloorForce and Broadlume will continue to release helpful and informative content for flooring dealers. If you have any questions or comments relating to this webinar, please don’t hesitate to post in the Beat the Box Stores Facebook Group. Thanks so much for reading!
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