Yesterday, a group of front line leaders working to implement the economic relief programs got together and brainstormed ideas about opportunities and ideas about improving the next round of relief. This morning I would like to bring one of the specific questions that we debated to this community.
All indications are that a new round of PPP will be approved soon in Washington D.C. Like everything else in life, the devil is in the detail. A legitimate question is, how should this round work.
Last time, almost any business who wanted to could apply for two and a half months of their pre-Covid payroll costs. And you had to make an attestation that you were concerned about the economic uncertainty of Covid, and it’s impact on your business. It was a broad program.
This time will likely be different. The assumption is that business owners will be able to apply for the second round of PPP. So what should the criteria be, and how much should the business qualify for? Think about this, and put yourself in the shoes of a legislator trying to finalize the deal.
Let’s share our specific ideas about the next round of PPP. Remember that the economy and many struggling small businesses need help. But it’s also our taxpayer money that we will be leaving the bill for this to our grandkids one day. Let’s collaborate and share below.
Ami, the first and easiest thing for our government to do would be to go back to the original interpretation that the PPP forgiveness would not have tax implications. The IRS has interpreted this issue differently than most people expected. I don't quibble about the IRS's interpretation. I think it is technically correct. But I think the IRS, by telling the businesses in our country what the technically correct answer is, are giving Congress the opportunity to address it. All Congress has to do is say that the expenses that were covered by PPP can be deducted for tax purposes and reconfirm that the forgiveness of the loan is not a taxable event. Congress should take the opportunity that the IRS is giving them. That puts a lot of money back and simplifies the accounting. Right now businesses are scrambling to figure the tax impact out and it is draining time and resources. This would not require appropriating new dollars, which will be difficult. Note that 1099 people got the same loans, but don't have salaries to deduct, so they get forgiveness. Saying that salaries that are forgiven are not deductible is inconsistent because it applies differently to different businesses.
Here is what I would suggest: to qualify businesses need to show revenues down 35% or more from the period April - November 2019 vs. 2020 and have 300 or fewer FTEs as of 2/15/20. Amounts would be based on 26 weeks of payroll prior to COVID and amounts would be forgiven if used 50/50 on payroll/other expenses over the entirety of 2021. Any forgiven amounts would be tax free (all expenses tax deductible) and non-forgiven portions turned into interest free loans with a five year term. The bill should also clarify that amounts forgiven under the original PPP bill are also tax free (all expenses tax deductible)
I don't think every business should qualify again. Would I love to take it? Yes! But I don't think it is the best solution.
I think businesses should have to show a sustained 20%+ reduction in sales over 2 consecutive quarters YoY in 2020. I think it should also have to show "effort" to mitigate losses and sustain the business. Criteria there could be staff reduction, verifiable expense reduction, and some way to show attempts at "pivoting" the business, though I know that would be hard to underwrite.
I also think there should either be a threshold of 2019 sales (avoid lending to very large companies) and a restriction on lending to companies that are publicly traded, or have large shareholders that are publicly traded. All of these companies have access to capital in ways that smaller businesses do not.
Ultimately what I think would be helpful is look at the "scandals" from the first round, and try to avoid them again. Think- Ruth's Chris, is the information going to be public (we now know that answer is likely yes), and others.
I don't think any of that is groundbreaking, but I would fully support a bill that contained something like this.
I agree with Scott Smith’s comments but would add with revenues down 35% timeframe should consider 2020 and 2021 as some companies will realize more of an affect come early next year. (ie non renewals of expired contracts) Also the lost revenues should also take into account lost sales which perhaps can be an averaged % shown of historical sales growth from 2017-2018-2019.
I do hope they come up with a better calculation of PPP funds versus how it was done recently. Our business has experienced successful growth over the past five years. We ran through the PPP funds in two payrolls due to headcount increases we had in January and February of 2020. Proper funds were not provided to assist us through 2.5 months due to how it was calculated on historical payroll. We were short proper assistance but yet still have to show we retained our staff.
There are many small businesses that consist of less than five people. Determining relief needed for companies with payroll is terribly insufficient for many small businesses (unless another EIDL type program is happening again also). Using prior year's revenue and % loss yoy to determine eligibility would enable many more small businesses to be eligible for relief.
As an owner of a catering company in NYC, whose revenues are down 90% for the year, I feel like there should be a tiered system of funding, based upon need, not just based on gross payroll. It didn't seem fair that the employer was turned into an unemployment office during the first round when we needed money for everything. The relaxed rules helped, but it was far from perfect. Also, as a company who relies greatly on staffing companies, my gross payroll is relatively low compared to other companies of my size and hence my PPP was lower than it would have been if I directly employed more people. Additionally, many companies who received funding may or may not have been down with any significance, regardless of any attestation, and they may not have ever planned on cutting back on staff, and they ended up getting a windfall even though they never planned on laying off anyone. The whole thing feels very unfair, especially for those of us in hospitality, entertainment, and live events.
As a caterer in the Washington, DC area our revenues are down 81% for the year. The PPP Flexibility Act enabled us to stay around until now. We have $2 million booked for next year. The majority of the work doesn't start until late April. I need a path to get there. I believe there needs to be priority for those of us on the brink. What should the criteria be to qualify? I think if you ask a caterer they would say significant loss of revenue from the previous year, such as 50-75% should qualify one for PPP. How much should one qualify for? In my industry that will depend if there are gatherings of over a hundred in the spring or if there are still restrictions until the fall. It will depend if people go back to offices. Payroll from last year, would probably leave me with too much money if people begin to gather in the spring. It won't be enough if events don't return until the fall. Congress has a tough job. I am grateful for the first PPP and wish congress had acted earlier. I will make the best of whatever they can provide.