Since the CARES Act passed into law in March, there have been new laws, multiple rule publications, and over 50 FAQs released by the SBA regarding the PPP and EIDL loans. KROST’s subject matter experts have compiled a list of frequently asked questions below:
Question: How are full-time equivalent employees calculated in the 2nd PPP? If using 2019 numbers, do they put the average number of FTE’s from that period?
Answer: Do not use FTE – use headcount. Use average for the period.
Question: If a startup company has its first payroll in January 2021, can it apply for a PPP loan? They were in business on January 1, 2020.
Question: We were told by our banker that we did not qualify for our second PPP because we have not applied for forgiveness paperwork with the SBA yet for our first loan. The banker said lots of people are being declined at this point. Any insights?
Answer: We are not aware of that. The Second Draw applications fully opened today, so it is a good time to apply. You do have to answer the following question: Will you or have you used the full amount of the First Draw PPP Loan for authorized purposes on or before the date of disbursement for the Second Draw?
Question: What is nex code?
Answer: The NAICS code is your industry classification code and would be found on your entity tax return.
Question: Are accounting/bookkeeping firm fees covered in the “covered operations expenditure,” or is it just the software ?
Question: We returned all of our First Draw PPP during the safe harbor period (we did not use the funds). Do we reapply for a First Draw or Second Draw loan?
Answer: First Draw
Question: Would a POS report comparing quarterly net sales of 2019 vs. 2020 be appropriate income statement documentation to show proof of a 25% reduction?
Answer: Guidance was just received on this this morning.
- Quarterly financial statements for the entity. If the financial statements are not audited, the Applicant must sign and date the first page of the financial statement and initial all other pages, attesting to their accuracy. If the financial statements do not specifically identify the line item(s) that constitute gross receipts, the Applicant must annotate which line item(s) constitute gross receipts.
- Quarterly or monthly bank statements for the entity showing deposits from the relevant quarters. The Applicant must annotate, if it is not clear, which deposits listed on the bank statement constitute gross receipts (e.g., payments for purchases of goods and services) and which do not (e.g., capital infusions).
- Annual IRS income tax filings of the entity (required if using an annual reference period). If the entity has not yet filed a tax return for 2020, the Applicant must fill out the return forms, compute the relevant gross receipts value (see Question 5), and sign and date the return, attesting that the values that enter into the gross receipts c computation are the same values that will be filed on the entity’s tax return.
Question: How should a forgiven PPP loan be classified in QuickBooks to take it off the balance sheet?
Answer: Once the PPP loan has been forgiven, you should set up another income account (PPP forgiveness on the income statement) and record an adjusting journal entry to move the balance. This is considered a below-the-line item and not included in income.
Question: Can non-payroll costs be forgiven during the 24-week covered period?
Answer: Yes, as long as the nonpayroll costs are for eligible expenses and are no more than 40% of the total eligible expenses, they can be included in the forgiveness application.
Question: Can we deduct accounts payable costs for forgiveness due prior to the start of the covered period but paid during the covered period? Both payroll and non-payroll?
Answer: The guidance suggests that borrowers can use expenses incurred OR paid during the covered period. For expenses that were incurred towards the end of the covered period, you can include them as long as they were paid by the next pay period. Advance payments are excluded. For example, you cannot pay or 6 months of rent.
Question: For PPP loan calculation, can contracted employee wages be included or only employees on payroll?
Answer: Payments made to independent contractors may not be included in the PPP loan amount calculation, however independent contractors can apply for PPP loans on their own.
Question: Do you have to repay the EIDL grant?
Answer: No. Recent legislation has eliminated the original requirement to deduct the amount of EIDL Advance received from your PPP loan forgiveness. The EIDL loan, however, is a loan and should be repaid.
If you have any questions regarding PPP loans, please feel free to contact us.