Update and clarification on PPP and EIDL

Thursday, May 28, 2020
by Barb

An update to PPP loan/EIDL grant issues.

  1. Correction Of Earlier Advice – The EIDL and PPP law and the rules concerning how they are going to be applied, are continuing to evolve as does most law.  Once the legislature passes a law (code), it’s up to the regulatory agency, in this case, the SBA, to write rules (regulations) clarifying it.  Accordingly, we have seen the SBA create regulations and create two major changes or interpretations to the law.
  1. EIDL Grants Won’t Be Forgiven If You Got PPP Money – A few weeks ago the SBA indicated if you got PPP money, the EIDL grants won’t be forgiven and will have to be paid back under your PPP loan rate of 1% over 2 years.  However, if you didn’t get any PPP money, the EIDL grant can still be forgiven if spent on permissible expenses.
  2. Owners Cannot Bonus Themselves Out Any Excess PPP – We previously believed based on the law, seminars we had attended, and articles we read, that if business owners had excess PPP money after paying allowable expenses, they could bonus the excess to themselves.   Last week the SBA published the form to apply for PPP forgiveness and the department of treasury updated the federal register which is setting forth the PPP and EIDL rules and made it clear the maximum amount owners can pay themselves from PPP loan proceeds is limited to their average weekly payroll times eight and this applies for all borrowers.  If you can’t spend it all, you may want to consider giving your employees a bonus with the leftover money.  Understand if you do this, you would be out of pocket any matching employer payroll tax and insurance expenses, but the rest of it would cost you nothing.
  1. Deadline To Spend PPP Money – Your PPP money must be spent 8 weeks from the date your loan funded.  Be sure to know the date your loan funded and note on your calendar the day 8 weeks later to be sure all of the PPP money is spent.  We recommend you consider spending the money the day before your 8 weeks is up, just to avoid unforeseen circumstances.
  1. PPP Money Can Only Be Spent On Expenses Incurred During The 8 Week Period – For example.  Let’s assume the following scenario.   You got your PPP money on April 26, 2020.  The 8 week period starts April 26, 2020 (the day you got the proceeds…not the day after) and ends June 20, 2020 (56 days or 8 weeks later).  Your payroll is paid on the 4th and 19th for payroll earned from the 1st to the 15th, and the 16th through the end of the month.   That means when you pay payroll for time related to April 16, 2020 – April 30, 2020 on May 4, 2020, you can only use PPP funds for the payroll incurred April 26, 2020 through April 30, 2020.   Here is some further guidance from the SBA:

·      Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction.

·   Payroll costs are considered incurred on the day that the employee’s pay is earned.  Which means that if you received the loan disbursement 4/26/20, the PPP loan can only cover employees pay beginning 4/26/20 and cannot be used to pay for payroll in arrears.

·      Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period are eligible for forgiveness if paid on or before the next regular payroll date.

·       Otherwise, payroll costs must be paid during the Covered Period.

·   Alternative Payroll Covered Period:  Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26

  1. Don’t Spend Your PPP Money on Impermissible Expenses – Remember.  Your PPP loan is only forgiven to the extent you spend it on permissible expenses.  Permissible expenses include:  payroll (including employee portion only of payroll taxes), health insurance and retirement plans (both employee and employer portions), rent, mortgage interest, and utilities.   Business utilities include payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.  It is our understanding that cell phone expenses are also considered utilities so long as the primary purpose is for business use.  Impermissible expenses include but are not limited to:  employer portions of payroll taxes, FUTA, SUTA, payroll processing fees, and workman’s compensation fees.
  1. PPP Money Is Not Tax Free – At present it appears any expenses paid with PPP money cannot be deducted on your federal tax return, but this is still subject to some debate.  So while the PPP funds you receive for qualified expenses is essentially “free money” (like extra income you don’t have to pay back) it may not be “tax free money”.   But still, if someone handed you $10,000.00 and all you had to do is pay the tax on it, you’d still get to keep the vast majority and that would be a pretty good deal.
  1. Track Your PPP Expenses – Be sure to keep track of how you are spending your PPP money so you know what you have spent and can report it properly when you apply for forgiveness, so you know what you have spent, and how much you have left to spend.  I have attached another form of sample form you could use to track expenditures.
  1. Budget Your PPP Money – Your PPP loan should have been for 2 ½ times normal monthly payroll.  That means if you only spend it on monthly payroll, you won’t have spent the entire amount.  Remember, you can also spend it on rent, mortgage interest, utilities, in addition to payroll, health insurance, and retirement.  You can also issue bonuses to your employees to make sure you have used the entire amount.  We strongly advise using the entire amount.  It is like “free” money.   I have attached another form of sample form you could use to track budget and expenditures.
  1. You Have To Apply for PPP Forgiveness – You have to apply to the bank from where you got your PPP loan for forgiveness.  Your bank is responsible for auditing your expenses to see if they qualify for forgiveness.  At present there is no deadline for applying for forgiveness but we recommend you do it as soon as possible (within a week or two) of the expiration of the 8 week period until we have further guidance from the SBA.    Last Friday the PPP loan forgiveness application was published see   This loan forgiveness application may require significant time to complete so please be sure to budget enough time to complete the form and compile all supporting documents.
  1. See if Your Banker Will Conduct A Test Run – These forgiveness applications will be reviewed and/or approved by the lender from whom you obtained the loan.  We recommend contact your lender at least a couple of weeks before the end of your 8 week period and see if:

·        they can tell you if you submit an application and they deny some of the expenses, if they will give you the opportunity to amend the application to designate other qualifying expenses if they exist;

·        if they will briefly review your expenditures to date and advise if they see any expenditures they believe do not qualify.

Remember to be kind to your banker.  After all, they got you this money.  They probably have a lot going on right now.

Several important developments on the PPP and EIDL programs

Wednesday, May 13, 2020
by Barb

Since our last CARES Act email concerning the Economic Impact Disaster Loan (“EIDL”) and Payroll Protection Program (“PPP”) there have been several important developments.

Here are a few common questions:

What tax dates have been extended?

For individuals, the due date for your 2019 form 1040, payment for any balance due on your 2019 form 1040, and your first quarter estimated payment for your 2020 1040 have all been moved from April 15, 2020 to July 15, 2020.  The due date for your second quarter estimated payment for your 2020 1040 has been moved from June 15, 2020 to July 15, 2020.  If you need additional time to file your 2019 return after July 15, 2020 an extension can be filed to extend filing to October 15, 2020.

For C corporations, the due date for your 2019 form 1120, payment for any balance due on your 2019 form 1120, and your first quarter estimated payment for your 2020 1120 have all been moved from April 15, 2020 to July 15, 2020 The due date for your second quarter estimated payment for your 2020 1120 has been moved from June 15, 2020 to July 15, 2020.  If you need additional time to file your 2019 return after July 15, 2020 an extension can be filed to extend filing to October 15, 2020.

For estate and trust income tax returns and gift tax returns, and FBAR returns, your 2019 form 1041, form 709, and form 114 have been moved from April 15, 2020 to July 15, 2020.  If you need additional time to file your 2019 return after July 15, 2020 an extension can be filed to extend filing to October 15, 2020.

IRA, various qualified retirement plan, HSA. Archer, and MSA contribution deadlines which were originally April 15, 2020, have also been extended to July 15, 2020.

For Texas entities, the due date for your 2020 (calendar year end 2019) Texas Franchise Tax Report, payment of any tax due, and Public Information Return has been moved from May 15, 2020 to July 15, 2020.  If you need additional time to file your return after July 15, 2020 an extension can be filed to extend filing to November 15, 2020, but payment is still due July 15, 2020.

Is there any PPP money still available?

Yes.  If you haven’t applied, you may still have a chance.  The application process only takes about 20 minutes. I found a smaller bank that processed and funded a clients’ loan in five days. 

How do I book receipt of the funds?

Remember.  These funds are a loan until they are forgiven.  So they belong in a note account, and not an asset, equity, income, or expense account.  Set up a note account called Note EIDL and Note PPP.  When you get the money and deposit it into your cash account, book it there.  If and when the loans are forgiven, set up two income accounts with the type “other income”, and call one PPP Income and one EIDL income and move the money out of the note account and into the income account via journal entry or an entry in the note account.   

Who decides if the PPP loan is forgiven?

Your bank.  Accordingly, it would likely be a good idea to get with your bank approximately 30 days after your loan has funded to review with them how you have spent the money and if it is forgivable, documentation they may require for forgiveness, and if they have an application/department to send the forgiveness application.

If you have made a mistake, some banks may allow some flexibility to recategorize expenses and “undesignated” improper expenses and “re-designate” proper expenses.  

Remember, much of this money must be spent within the 8 week period after funding and as the eight week period comes to a close, your banker is going to be deluged with these questions, so better to get an idea of what they will and will not find acceptable long before that deadline approaches.  Unfortunately, they may not have an answer.  The banks are waiting for guidance from the SBA which has still not been issued.

At least one source has said if you got both EIDL grant money and PPP money, the EIDL grant portion will be applied toward you PPP and will not be forgiven.  This is new.  That is not what the law said.  You may want to hold back the EIDL grant money you received in the event it will impact your PPP loan forgiveness.    

How do I get the PPP loan forgiven?

At present there are no regulations in place that discuss this in great detail so we are left with what the statute and other experts say.

One catch is you have to spend the money within the 8 week period from when you get the loan.  Because of this it is important to keep track of the date you got funded for the PPP loans.

Generally EIDL grants will be forgiven so long as they are used for working capital, inventory, materials, equipment purchases, real estate (rent) payments,  loan or credit card payments, and other operating expenses (such as automobile expenses, advertising, dues and subscriptions, insurance, professional fees, office supplies, travel, utilities).  They may also be used for payroll and sick leave expenses, but see the caution below about double dipping.  The funds are not supposed to be used for physical repairs, expansions, bonuses or refinancing long-term debt. 

Generally, PPP loans may be used for payroll (including employer portion of healthcare and retirement benefits, of up to $100,000.00 per employee before retirement and healthcare benefits, but not employer portions of federal payroll taxes), mortgage interest, rent,  and utility expenses.  Further, to get the loan forgiven:

·        at least 75% must be spent on payroll;

·        the other 25% on other allowable costs;

·    your full time employee head count cannot decline from average monthly levels during the 2019 or the past 12 months (there are exceptions for seasonal employees); and

·        employers cannot cut salaries or wages.

If you let people go between February 15 and April 26, you have until June 30 to restaff.  If you have staff refuse to return after their jobs have been offered you need to be sure to document it in writing to prove you attempted to re-hire.

Accordingly, every time you cut a check to be used for EIDL or PPP purposes, we recommend you make a notation in the memo field in QuickBooks (but not on the actual check, so you can change it if need be) to advise it has been used for EIDL or PPP purposes.  Some people are taking this one step further to ensure they can track where the money goes and are putting the EIDL and PPP money in two separate new bank accounts, separate from their operating funds.  Given the amounts at stake, an ounce of prevention could be worth a pound of cure.

Further, the funds cannot be used for the same purpose.  So be sure you are not writing checks to the same general ledger account for both funds.  

The PPP loan is 2.5X monthly payroll.  How can I spend 2.5X payroll in 2 months (8 weeks) if I am just using it to pay payroll?

You can pay you or your employees a bonus.  You don’t have to pay your employees the bonus; it can be just you.  You can also use it for other permissible purposes as described above.

I’m a self employed Schedule C business.  I don’t have any employees.  I don’t have payroll.  How do I spend the PPP money?

 Cut yourself a check.  Charge it to owner’s draw.  Cash it. Just like the way you normally pay yourself.   If the business needs the money, redeposit it as an increase to the owner’s note payment.  

Is loan forgiveness taxable?

Kind of.  To the extent the PPP loan is forgiven, the expenses you use it for are not tax deductible.  Accordingly, you need to keep track of the expenses you use the loan for so that your bank can determine if the loan is forgivable and so that you properly prepare your taxes.  As near as we can tell, the same is not true of the EIDL…..yet.



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TMG arranged a $3MM refinance of construction loan to a long term for a car wash in Utah

Tags: car wash loans, construction loans, long term conventional loans
Tuesday, May 12, 2020
by Jared Shupe

Summary:  The Madison Group (TMG), a leading national lending source of real estate finance, arranged a $3,000,000 refinance of construction loan to a long term conventional permanent loan for a Car Wash in Utah.

With the borrower scaling on a national level, TMG was asked to help place both construction and permanent debt in certain high growth markets.  TMG integrated into borrower’s financing plans, learned and understood goals, assisted with various financing requirements across multiple lender programs.  The team was able to alleviate paperwork overhead of borrower’s staff, assisted with terms negotiations, and worked with all partners to successfully close two locations in the Utah market.  TMG is currently working on multiple other loans for locations nationwide.   

Location:  Utah
Property:  Tunnel Car Wash
Loan Amount: $3,000,000           
Interest Rate:  4.25%
Term:   10 Years
Amortization:   20 Years
Prepayment:   None
LTV:   65%

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Apartment Financing

Recent Closed Loan: $1.6MM cash out nonrecourse refinance of a 22-unit apartment complex in Utah

Tags: Apartment loans, Multifamily Financing, Utah Commercial Loans
Tuesday, May 05, 2020
by Angela Kesselman

The Madison Group (TMG), a leading national lending source of multifamily financing nationwide, arranged the $1,600,000 cash out refinance of a 22-unit apartment complex in downtown Salt Lake City.

The borrowers were seeking a loan to refinance the property at today’s low rates while getting cash out and putting a non-recourse loan in place.

While many institutions are not currently lending, TMG's extensive lender relationships allowed the us to lock in a rate of 3.12% fixed for 10 years on the property giving the clients cash out.   

Location:  Utah
Property:  22-unit apartment complex
Loan Amount: $ 1,600,000
Interest Rate:  3.12%
Term:   10 Years
Amortization:   30 Years
Prepayment:  Yield Maintenance

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Mobile Home Park Financing

Recent Closed loan: $2,150,000 cash out bridge loan for MHP in Oregon

Friday, Apr 24, 2020
by Brandi Link

Summary:  The Madison Group (TMG), a leading national lending source of Mobile Home Park financing, arranged the $2,150,000 cash out bridge loan for MHP in Oregon.

The borrower’s goals were to get cash out from her refinance of Mobile Home Park to purchase a SFR. There was a short timeline to close this loan due to the contract date of the SFR purchase.

TMG sourced the right lender that could close in time allowed. The team faced many challenges along the course of underwriting. “We stayed in close contact with the seller’s agent to keep her apprised throughout the whole transaction. We did have a delay closing of the 7 days due to COVID-19, but were able to get this loan closed for the borrower” said Brandi Link, the lead originator at TMG.

Location:  Oregon

Property:  Mobile Home Park

Loan Amount: $2,150,000

Interest Rate: 7%

Term:   3 Years with 12-month IO

Amortization:  30 Years

Prepayment:   3%,2%,1%

LTV:   55%