Decoding the COVID-19 Stimulus Package, Part 2: Q&A With Sibi Thomas
Recently, Jim chatted with Sibi Thomas to learn more about the stimulus package and how nonprofits, small businesses and live entertainment organizations can use the programs to weather this crisis. You can watch the full chat here, or read on for an excerpt of their conversation (which we’ll post in two parts — click here for part 1).
First, a bit about Sibi: He has over a decade of accounting, auditing, tax and consulting experience in the nonprofit industry. He serves on the AICPA’s Not-for-Profit Entities Expert Panel and has been recognized by the CPA Practice Advisor as a 40 under 40 honoree for his leadership in the accounting profession.
Selling Out: Do you have to go to your current bank? Or can you go anywhere?
Sibi Thomas: There’s nothing wrong with going to different banks and shopping around. The only challenge with that is that now you have to establish that relationship, so that may take some time. But if you’re having difficulties with your bank, go to another one. Because most banks, even credit unions, are eligible to give these loans.
To clarify: You can’t have multiple loans, but you can have multiple applications. So there’s nothing wrong if you’re having problems with one bank, to go to another bank.
SO: Are you aware of any limitations on the forgiveness options?
ST: One thing I want to point out right away is that the SBA came out with the interim rule, and one of the things they made very clear is that additional guidance will come out regarding forgiveness, so anything that I say now can change.
One of the requirements is you have to spend this money within the next 8 weeks on payroll costs, mortgage interest, rent and utilities. Those are the four biggest items. I believe that not more than 25% of the forgiven amount should be non-payroll.
If you look at the name itself, it is the ‘Paycheck Protection Program,’ right? The government wants you to keep your employees employed and paid, so if you’ve spent a substantial amount you’ve received on keeping them employed, then you shouldn’t have problems getting that forgiven, almost 100% of it. But again, we have to wait and see on the additional guidance.
Also, you have to maintain a certain level of employment. So say you laid off employees before you applied for the program, you have until June 30 to rehire them. So that’s one thing you should do if you’re applying for this loan. Otherwise you probably won’t get forgiveness.
And if you have cut the compensation on your employees, you want to make that whole again. So those are the two measures, and how you spent the money will determine how much will be forgiven.
SO: Do you think they’ll continue these programs? Is there talk of another phase?
ST: There’s a lot of discussion on expanding this program and additional funding, so I would not be surprised if there is another 200 billion added to this and the June 30 deadline is extended. But there’s nothing concrete as of today.
SO: Do foreign employees count?
ST: A couple things they made clear is the business has to be U.S.-based and the principal residence of the employees has to be U.S.-based. So if you have foreign employees and you pay them with this money, it won’t be forgivable.
SO: What is classified as a payroll expense?
ST: There’s so much confusion in what gets included in payroll costs, to calculate the maximum loan amount. My advice to my clients is to only include what they say you can, don’t try to include everything else.
Here’s what’s included: salaries, wages, commissions or tips, fringe benefits (vacation, sick leave, medical leave, family leave), premiums on group health insurance, pension and retirement expenses, and state or local taxes paid by the employer on compensation.
You can’t include employer taxes, but you can include the employee portion of the withholding.
These are the items they specified in the interim rule, so go with it. The best way to look at this is, you have to corroborate what you report on the payroll costs with third-party documents, like your 941s, your W2s, your W3s, and the bank is going to ask you for that information.
So take your 941 or W3, take the gross salary from there, and then add your premium on your health insurance, and any state and local taxes, and your retirement expense, divided by 12, which is your monthly average, then times 2.5 is your loan amount.
SO: Is compensation for the business owner, which is part of payroll, count?
ST: Yes, up to $100K counts, and that’s for every employee, including the business owner.
SO: What are you seeing among your clients as strategies and ways to weather the storm?
ST: One thing I’ve seen across the board is that cash flow is so important right now. You need money in the bank. So some practical things you can do are ask your vendors for relief. If you have a landlord, see if they can suspend the rent for a few months, ask for mortgage forbearance if you can do that. Most insurance companies are providing discounts, so take advantage of that.
Re-forecast your budget, because what you forecasted for 2020 no longer applies. Take advantage of any type of relief that’s out there. Talk to your accountants.
And the most important thing is to retain your best people, you don’t want to let them go because there is a light at the end of the tunnel. You have to think post-COVID. So keep your best people and keep your board of directors informed. Communication is key.