SBA Updates to the Paycheck Protection Program Loan Guidance

SBA Updates to the Paycheck Protection Program Loan Guidance

 

LUTZ BUSINESS INSIGHTS

 

SBA Updates to the Paycheck Protection Program Loan Guidance

SBA Updates to the Paycheck Protection Program Loan Guidance

On June 22nd, 2020, the SBA provided updated guidance to the Loan Forgiveness Interim Final Rule. This new PPP guidance contains the following key updates:

Flexible Covered Period Option

A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. If the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25%, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period.

S-Corp Owner Retirement Contributions Allowable

S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf. However, employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation.

FTE Reduction Safe Harbor Date

The date on which borrowers need to have eliminated any reduction in salary/hourly wage greater than 25% or reduction in FTEs (Reduction Safe Harbor dates) has been updated to “anytime on or before December 31st, 2020.”

C-Corp Owner Compensation Clarified

C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf.

If you have any questions, please contact your Lutz representative or email us at ppploan@lutz.us.

Updated 6/25/2020

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OMAHA

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Omaha, NE 68154

P: 402.496.8800

HASTINGS

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Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Paycheck Protection Program + FLEXIBILITY ACT OF 2020 – H.R.7010

Paycheck Protection Program + FLEXIBILITY ACT OF 2020 – H.R.7010

 

LUTZ BUSINESS INSIGHTS

 

Paycheck Protection Program + FLEXIBILITY ACT OF 2020 – H.R.7010

Paycheck Protection Program + FLEXIBILITY ACT OF 2020 – H.R.7010

This bill was passed in the House on Thursday, May 28, 2020, and the Senate on Wednesday, June 3, 2020. Once the President signs the bill, it will become law; it is anticipated the President will sign the bill. The below commentary contains Lutz’s interpretation of the updates. Note, the below may change upon the SBA’s implementation of the bill.

CHANGES TO THE PPP IN H.R.7010 

  • PPP Loan Maturity: Updated to 5-year term from a 2year term (needs to be mutually agreed upon with the lender). 
  • Extension of the covered period. The borrower may select: 
    • Earlier of 24 weeks after PPP loan proceeds received or December 31, 2020, OR
    • Currently defined 8week covered period 
  • FTE Reduction and Salary/Hourly Wage Reduction Safe Harbor Date: Updated to December 31, 2020 from June 30, 2020.
  • FTE Reduction Test – Exemption based on employee availability: 
    • For employee reductions made between 2/15/20 – 12/31/20, these reductions will not be considered so long as the Borrower makes a good faith certification and documents that:
      • Borrower is unable to rehire the employees who were employed as of 2/15/20 AND unable to hire similarly qualified employees for those positions by 12/31/20, OR
      • Borrower is unable to return to same level of business activity that such business was operating at before 2/15/20 due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, Director of the Centers for Disease Control and Prevention, or Occupational Safety and Health Administration during the period from 3/1/20 – 12/31/20, related to the maintenance of standards for sanitation, social distancing or any other worker or customer safety requirement related to COVID-19
  • Payroll Requirement: reduced to 60% from 75% (amount of forgiveness that must have been spent on payroll). 
  • Deferral of Principal, Interest and Fees: Any payments are now deferred until forgiveness application is remitted to the lender from the SBA. 
  • If the borrower does not apply for forgiveness before ten months from the last day of the Covered Period, payments of principal, interest and fee will start on the date that is ten months after the last day of the Covered Period. 
  • Deferral of Payroll Taxes: PPP borrowers can delay payroll taxes per Section 2302(a) of the CARES Act.

 

FORGIVENESS CALCULATION UNCERTAINTIES AS A RESULT OF H.R.7010 

As can be expected, changes in the bill resulted in confusion as it relates to existing PPP provisions. Below is a list of the questions that will need to be clarified by the SBA. 

  • For the Salary Reduction Test: Is the average salary still determined based on the average over the entire covered period? Issues could arise for borrowers who temporarily laid employees off but now must average those salaries over the entire 24-week period. 
  • Will more clarity be provided on the FTE exception based on the compliance requirements established by the three named government entities? 
  • Does the 60% payroll requirement rule act as a cliff, in that if 60% of total forgiveness is not made up of payroll, the entire portion is non-forgivable? This would go against prior guidance in the forgiveness application. We do not believe it was intended for this 60% rule to act as a cliff. 
  • Does the Alternative Payroll Covered Period now extend 24 weeks? 
  • If a borrower chooses to maintain an 8-week covered period, will they be subject to the same 12/31/2020 Reduction Safe Harbor date? It would likely be more beneficial for these borrowers to measure at 6/30/2020. 

The next step in this process will be implementation guidance provided by the SBA. The application for forgiveness will likely change considering this new bill, and other key provisions could materially change. 

 

ADDITIONAL LUTZ GUIDANCE AS IT RELATES TO FTE REDUCTION TESTS 

The FTE reduction test was intended to reduce the amount of loan forgiveness afforded to recipients of PPP funds who still furloughed or laid off employees due to COVID-19. The FTE Reduction Safe Harbor test was implemented to relieve borrowers of this reduction in forgiveness if they increase headcount as of 6/30/20 (now 12/31/20) to 2/15/20 levels. 

The FTE Reduction and safe harbor test were well-intended and reasonable on paper. However, issues arose given reductions in employees (FTEs) for nonCOVID-19 reasons. To account for these nonCOVID-19 reductions in FTEs, the SBA added two exceptions when the application for forgiveness was released: 

FTE Reduction Exception #1: 

Any positions for which the borrower made a good-faith, written offer to rehire an employee during the covered period (or APCP), which was rejected by the employee. 

FTE Reduction Exception #2: 

Any employees who during the covered period (or APCP): 

  • Were fired for cause, 
  • Voluntarily resigned, or 
  • Voluntarily requested and received a reduction of their hours. 

Exceptions #1 and #2 apply only if the position in question was not filled by a new employee 

Similarly, bill H.R.7010 passed in both the House and the Senate provided two further “exceptions” for a reduction in FTEs. During the period beginning on 2/15/20 and ending on 12/31/20, the amount of loan forgiveness shall be determined without regard to a proportional reduction in the number of FTEs if a Borrower in good faith is able to document:  

FTE Reduction Exception #3: 

An inability to rehire individuals who were employees of the borrower on 2/15/20; and an inability to hire similarly qualified employees for unfilled positions on or before 12/31/20. 

FTE Reduction Exception #4: 

An inability to return to the same level of business activity as such business was operating at before 2/15/20, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on 3/1/20, and ending 12/31/20, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19. 

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OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Quarter One Middle Market M&A Update 2020

Quarter One Middle Market M&A Update 2020

 

LUTZ BUSINESS INSIGHTS

 

Quarter One Middle Market M&A Update 2020

QUARTER ONE MIDDLE MARKET M&A UPDATE 2020

After a record level of M&A activity in the last decade, the deal pipeline is slowing down as transaction participants are trying to assess the disruptions caused by the economic lockdown. Market analysts around the world were forced to throw away all their March 2020 forecasts, as the economic shockwave that came as a result of the COVID-19 pandemic began to ripple through domestic and international markets.

 Acquisitions are still being completed, albeit at a slower pace and at lower valuations than before. Many ongoing deals have been put on hold or pushed back to the last two quarters of the year due to increased market uncertainty as well as valuation and financing concerns. The 23% drop in monthly transaction volume from January to March is a sobering depiction of the current state of affairs in the lower middle market.

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SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Am I Ready to Sell My Business?

Am I Ready to Sell My Business?

 

LUTZ BUSINESS INSIGHTS

 

Am I Ready to Sell My Business?

Am i ready to sell my business?

bill kenedy, LUTZ consulting and M&A shareholder

 

When is the right time to exit your business? There is never a clear answer to this question. However, whether you are considering a business sale or not, it’s important to understand your options, so you are prepared when the time comes. After all, an important key to a successful transaction is finding the right buyer. Here are a few tips to keep in mind when working on a potential deal:

 

Non-Disclosure Agreements

Before you start any discussions, you must begin by executing an NDA or non-disclosure agreement (confidentiality agreement) with potential buyers. We recommend you have your attorney draft the contract as opposed to just signing an agreement provided by the buyer (or from a Google search!). 

It’s also beneficial to utilize the help of a professional M&A advisor. These individuals spend most of their time on M&A transactions, meaning they have the knowledge and experience needed to be an extremely valuable asset to have on your team. 

 

Financial Documents

Initially, it’s only necessary to provide high-level financial information, such as revenue and normalized EBITDA.  There is no need to provide full financials or tax returns early in the process. You should request that the buyer provides you with a valuation range based on these metrics with the understanding they will have to verify those numbers if you agree to continue negotiations. If the buyer is not willing to provide a range based on these metrics, they may not be a serious buyer.

 

Formal Offer

If the potential buyer provides an acceptable range, ask them for a list of what they would need to review to submit a formal offer. At this point, you should involve your attorney and M&A advisor to review the list and determine what is necessary to provide. This is especially important if the potential buyer you are in discussions with is a competitor. It is imperative not to disclose too much information too soon. They could potentially misuse the information if a deal is not consummated (even though they signed and NDA)!

 

Use An M&A Advisor

Most importantly, don’t try to get through this alone! Based on a number of our experiences, we generally advise both buyers and sellers to work with a professional to get the most out of a business transaction. Here are two primary examples of both negative and positive sale outcomes our team has experienced over the years:

Example #1

Company A determines that the Private Equity Group they had been having discussions with for years was the group they wanted to sell to. They understood that a competitive process was an option, but chose not to take that path, as they were comfortable with the offer from this group. The transaction closed successfully, but within 15 months of the closing, the PE Group sold the company for a significantly higher price (with no significant change in the business over the 15 months). This example teaches us not to depend on factors like industry and location. Going through a competitive process is the only way to understand the full value of your business. Although, in this case, the initial sale price was slightly above the average of similar companies in their industry, it was not representative of the actual value of this particular business.

Example #2

Company A signs a non-disclosure agreement with a potential buyer; they provide them with the appropriate financial information and then receive an offer. Shortly after, Company A hires Lutz M&A to run a competitive M&A process, which includes this particular potential buyer. Based on the competitive process and properly presenting the company and its financials, the buyer ended up raising their offer to over 70% higher than their original offer (and was not the highest offer!).

 

Benefits of Hiring an M&A Advisor

We have many examples, similar to the two above, which is why we strongly advise business owners to engage in a competitive M&A process. Here is a list of some of the key reasons we believe this is the best course of action:

  • The competition of having many potential buyers drives up the price.
  • There’s a better chance of meeting the right buyer for the business (note that many of our deals have gone to buyers that were not the highest bidder!).
  • This process typically ensures ‘backup’ buyers if the deal with the original buyer falls through.
  • The systematic process helps reduce the amount of time it takes to close the deal. The selected buyer will know other suitors are waiting for their shot at the business, which keeps them focused.
  • At the end of the process, the owner will feel as though they found the best buyer at the best price for their company.

Selling your business will be one of the biggest decisions you ever make. It’s never too early to begin exploring your options. Contact Lutz M&A today to start the conversation!

ABOUT THE AUTHOR

bill kenedy

402.492.2132

bkenedy@lutz.us

BILL KENEDY + LUTZ CONSULTING AND M&A SHAREHOLDER

Bill Kenedy is a Lutz Consulting and M&A Shareholder at Lutz. He specializes in business valuation, litigation support, and merger and acquisition advisory services.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • American Institute of Certified Public Accountants, Member
  • Nebraska Society of Certified Public Accountants, Member
  • Certified Public Accountant
  • Accredited in Business Valuation
  • Certified in Financial Forensic
  • Certified Exit Planning Advisor
EDUCATIONAL BACKGROUND
  • BSBA in Accounting, St. John’s University, Collegeville, MN
COMMUNITY SERVICE
  • Construction Financial Management Association, Past Treasurer, Board Member
  • A Time to Heal (non-profit focused on cancer patients), Past Board Member

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Toll-Free: 866.577.0780  |  Privacy Policy

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OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

How is COVID-19 Impacting the M&A Industry?

How is COVID-19 Impacting the M&A Industry?

 

LUTZ BUSINESS INSIGHTS

 

How is COVID-19 Impacting the M&A Industry?

how is covid-19 impacting the M&A industry?

dani sherrets, financial analyst

 

As COVID-19 continues to spread across the globe, companies and dealmakers are experiencing increased uncertainty posed by the pandemic. While the world of mergers and acquisitions has not been immune to the effects of the coronavirus outbreak, transactions are still being completed despite many challenges. We wanted to share our initial impressions of what we are seeing in the M&A industry as new deal dynamics are beginning to emerge.

M&A Industry Outlook

After a record of M&A activity in the last decade, the deal pipeline is slowing down as transaction participants are trying to assess the disruptions caused by the economic lockdown. COVID-19 has caused certain buyers and sellers to pause and rethink their options. Acquisitions are still being completed, mostly between Class A businesses facing similar economic conditions, and primarily within sectors that have not experienced significant disruption by the coronavirus and associated lockdowns. Companies that have been directly impacted, from industries such as tech, retail, or transportation, are primarily focused on preserving cash and, as a consequence, are mostly reconsidering new external investments. Many on-going deals have been put on hold or pushed back to the last two quarters of the year due to increased market uncertainty as well as valuation and financing concerns.

Private Equity Firms

Private equity buyers and investors are still showing a desire to continue doing deals and raising funds amid the economic turmoil. Also, private equity firms have record-sized amounts of cash on hand available to invest. The combination of having plenty of available cash and markets in free fall has created an opportunity for many investors looking to be opportunistic during this period of instability. Although the PE industry seems to be positioned relatively well, the pandemic has affected many aspects of private equity firms’ operations — from financing, conducting due-diligence, closing deals to fundraising in an environment that is extremely uncertain.

Obstacles

Accurate valuations and financing will likely be two of the biggest obstacles for PEs during this time. Sellers still want the price from before the health crisis, while buyers will understandably be pushing for discounts. With traditional banks forced to retreat, there is no debt available right now to finance acquisitions. Investors are forced to cover a larger share of the price, which, in turn, will lead to lower returns. That being said, non-bank debt providers are still looking to loan, but they charge higher interest rates than banks. 

For other PEs, channeling their funds to support existing investments is a top priority.  Once their portfolio companies are being taken care of, they will be open to new acquisitions.

It is important to remember that this time will pass. Some businesses will not survive, but for high-quality companies, the impact will wash out, and more buyers will see the pandemic as an opportunity, not a problem. Once the health crisis is under control, we expect to see a surge in M&A activity for both troubled, as well as solid businesses, as lower middle market business owners will place more focus on their exit options. We remain open and prepared to assist our clients and prospects as they navigate through these challenging times. If we can assist in any way, please feel free to contact us.

 

ABOUT THE AUTHOR

402.796.7045

dsherrets@lutz.us

LINKEDIN

DANI SHERRETS + FINANCIAL ANALYST

Dani Sherrets is a Financial Analyst at Lutz with over three years of relevant experience. She specializes in merger and acquisition advisory services and business valuation.

AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
  • National Association of Certified Valuators and Analysts, Member
  • Certified Valuation Analyst
EDUCATIONAL BACKGROUND
  • BBA, Academy of Economic Studies, Bucharest, Romania
  • MBA in Finance, Bellevue University, Omaha, NE

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

General Guidance on Paycheck Protection Program (PPP) Forgiveness Calculation

General Guidance on Paycheck Protection Program (PPP) Forgiveness Calculation

 

LUTZ BUSINESS INSIGHTS

 

General Guidance on Paycheck Protection Program (ppp) Forgiveness Calculation

This guidance was developed to assist Borrowers with understanding and preparing the calculation of eligible loan forgiveness for their PPP Loan. The Borrower is required to attest to the accuracy of the forgiveness calculation, whereas the Lender is only required to verify that supporting documentation was submitted along with the attestation by the Borrower.

During the course of this loan program, the guidance provided by the Small Business Association (SBA) has been vague, and the following definitions, frequently asked questions (FAQs) and practical advice are intended to be a resource as Borrowers complete the calculation. Note, unless stated otherwise, all discussion points are related to Borrowers that are business entities, not sole proprietors, or independent contractors.

This information, which is subject to revision, is based upon the technical guidance available as of the below updated date. This information is provided for informational purposes only. It should not be construed as legal, business, accounting or tax advice and should not be relied upon as such.

 

Updated 5/5/2020

DOWNLOAD THE PPP CALC GUIDE BELOW

This guidance was developed to assist Borrowers with understanding and preparing the calculation of eligible loan forgiveness for their PPP Loan. The information included in this guide, which is subject to revision, offers insight on:

  • The Basics Of The Paycheck Protection Program
  • Definitions Of Important Terms Related To The Loan
  • Frequently Asked Questions
  • Calculation Tips And Examples
  • Practical Advice From Our Experts

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Before your new business even makes its first sale, you need to know how you’re going to meet your accounting needs. You should select a system that will suit you in the early days of your venture and will also allow you to handle growth…

read more

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

115 Canopy Street, Suite 200

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850