Paycheck Protection Program (PPP)How To Optimize Loan Forgiveness

July 16, 2020

SPEAKERSChris Nichols, Director of Capital Markets CenterState Bank cnichols@centerstatebank.com

Josh Harris, SVP Credit Administration CenterState Bank jaharris@centerstatebank.com

John Carpenter, Principal Cherry Bekaert LLP jcarpenter@cbh.com

Disclaimer

PPP Forgiveness is an evolving process, subject to change as further guidance comes out from the SBA and US Treasury. 

This presentation is for general information purposes only and should not be relied upon as a substitute for obtaining independent advice or undertaking independent research before starting the process to apply for PPP forgiveness. This presentation does not take into account any particular borrower’s situation or needs. 

All PPP Borrowers should obtain professional advice based on their unique situation before making proceeding with the forgiving process. In addition, any implied projections or views of the hosts are their own personal opinions and are not the official position of CenterState Bank, N.A., Cherry Bekaert LLP or their respective directors or successors or assigns, and may not prove to be accurate. While the information contained herein is believe2d to be accurate as of the date of production, the information is subject to change and revision. 

Speakers

Host

Chris NicholsCenterState Bank

Subject Matter Experts

Josh Harris, CPASenior Credit Administrator 

CenterState Bank

John CarpenterPrincipal

Cherry Bekaert LLP

Agenda

Where are we now?Forgiveness  Calculations Limitations

Documentation requiredAudience Q&A

PPP Flexibility Act

SBA releases 3508 EZ form8 or 24 week covered periods 

(elected by borrowers) Payroll minimum reduced to 

60% of forgiveness costsRestrictions for owner‐

employees

SBA approval process not yet released to banks

CenterState forgiveness portal expected to launch on August 10

Optimizing Forgiveness

PPP – Application vs. Forgiveness

Application Phase2.5 times average monthly payroll costs including:

Salary, wage, commission, or similarcompensation up to $100,000 annualized per person;

Payment of cash tip or equivalent;

Payment of vacation, parental, family, medical or sick leave;

Allowance for dismissal or separation;

Payment required for the provision of group health care benefits, including insurancepremiums and any retirement benefits;

Payment of state or local tax assessed on the compensation of employees;

Forgiveness PhaseAccumulation of forgivable expenses including:

Up to 24 weeks of Salary, wages, commission, tips, or similar compensation up to $100,000 annualized per person;

Employer portion of health insurance and retirement contributions;

Mortgage interest and rent on company facilities

Utilities

Subject to reductions based on wage/salary reductions or FTE reductions

Payroll Costs Incurred or Paid

Must be at least 60% of loan forgiveness amount 

Option of 56 days OR 168 days of wages paid and incurred for employees whose primary residence is in the US, beginning either:

On the PPP loan funding date, or for borrowers with bi‐weekly or more 

frequent payroll, day of first pay period after loan funding

Wages incurred in forgiveness period and paid after 

forgiveness period ends are included

Payrolls are effective as of date of distribution of 

paychecks or effective date that ACH deposits are originated

For employees other than owner‐

employees, no more than $15,385 per 

person (8 weeks) OR $46,154 (24 week 

option)

Payroll Costs Incurred or Paid

8 weeks OR 24 weeks of wages beginning when the loan is funded for employees whose principal residence is in the US Severance pay for terminated employees included

Earned payrolls paid in first payroll after loan funding included

• By starting period on day of loan funding, may include morethan 56 days (or 168 days) of wages

Payrolls paid on first payroll date following covered period may bealso be included where applicable to payroll periods occurringduring covered period

Payroll Costs Incurred or Paid

Reasonable bonus payments can be paid provided that nosingle employee receives more than $15,385 during the 8week period OR $46,154 during the 24 week period

For owner-employees no more than $15,385 duringthe 8 week period OR $20,833 during the 24 weekperiod, capped at the 2.5 month equivalent of their2019 compensation (including health benefits andretirement plan contributions)

Mandated paid leave wages cannot be included

Other Payroll Costs Incurred or Paid

Qualified health care costs for employees only Employer share of costs paid during the 8 (or 24) week period

• Pre‐tax amounts included in gross wages

Includes health care premiums and costs of a self‐insured plan

Includes dental, vision, HDHPs, HRAs, FSAs and other usual healthcoverages (but not HSAs or QSEHRAs)

Self‐insured health benefits paid from the employer’s general assetsor a special health plan bank account will be included

Prepaid premiums and contributions to health plans may be allowed

• Can create funded trust to receive prepayments of self‐insured benefits ifnecessary

Other Payroll Costs Incurred or Paid

Retirement plan contributions for employees only Employer share of costs paid during the 8‐week (or 24‐week) period

• Pre‐tax amounts included in gross wages

2019 contributions not previously paid if funded in the 8‐week (or 24week) period

2020 contributions for employer match, discretionary profit sharingcontributions and maximum allowable defined benefit plancontributions if funded in the 8‐week (or 24‐week) period

• Contributions may perhaps be prepaid and allocated to employeeaccounts as required later in 2020

• Need to be sure you comply with plan provisions regardingmaximum contribution

Restrictions for Owner‐Employee Forgiveness Amounts

Owner-employees includes any shareholder of a C corporation or S corporation, any member of an LLC, any partner of a partnership and all sole proprietors

Amount forgiven is limited to lesser of $15,385 during the 8 week period or $20,833 during the 24 week period, capped at the 2.5 month equivalent of their 2019 compensation (including health benefits and retirement plan contributions) Amounts included in gross wages, SE income or Schedule C or

F amounts Group health plan benefits and retirement contribution not

included in gross wages added to compensation before limitation(with the effect of reducing the maximum salary amountattributable to Owner-employees).

Rent and Mortgage Interest

Rents under leases and interest on mortgages for real or personal property used in the business

Only covers rents and mortgage interest for obligations that were in place as of 2/15/20

Evidence of leases or promissory notes must be provided

Past due amounts can be included

Prepaid mortgage interest cannot be included; prepaid rent may be permitted

Utilities In Place As of 2/15/20

Payment for a service to include:

Prepayments of next month and past due amounts can be included

Evidence of utility obligations must be provided

Payments for trash pickup, recycling pickup, outdoor maintenance, VPN service, email service, and other IT support cannot be included

Electricity

Gas (natural gas service)

Water

Telephone (including cell phones), 

Internet access

Transportation (gas for business vehicles)

Documentation requirements

Bank will approve forgiveness and forward to SBA for further approval Payroll reports, tax forms (e.g. Form 941) which 

overlap the forgiveness period, cancelled checks, payment receipts,  transcripts of accounts, or other documents verifying payments  of wages, covered mortgage obligations, payments on covered lease  obligations, and covered utility payments.

FTE support for reference period prior to forgiveness period

Documentation supporting calculations for the mandatory forgiveness reductions will not be provided to the PPP lender but must be retained in borrower’s files;

Documentation requirements

Other required loan documentation to be maintained in borrower’s files Support for borrower’s certification of necessity for the 

loan on loan application date

Support for borrower’s eligibility for the loan

Entities included in affiliated group, as required

Employee count including foreign and domesticemployees

Alternative tangible net worth on 3/27/20 and averagenet income for prior two years

Maintained for 6 years after forgiveness or repayment

Documentation requirements

Other required loan documentation Remember that all borrowers must maintain 

required documents for 6 years and that SBA may review them, regardless of loan size 

There is no “safe harbor” from audits for borrowers with loans of less than $2 million

How can Borrowers Prepare?

Start tracking eligible forgiveness payments at the time of PPP loan disbursement

Gather copies of lease agreements, mortgage documents, and evidence of utility services in place as of 2/15/20

Save evidence of payments, payroll reports, and bank statements

Careful planning around levels of qualifying expenditures

Plan to avoid mandatory forgiveness reductions for FTE and salary/wage levels, 

FTE percentage reduction especially detrimental

Loan Forgiveness

Timing of Forgiveness Decision  Loan forgiveness applications must be filed with the lender within 10 

months of loan funding. Payment deferral ends at earlier of forgiveness determination and expiration of 10 month period

No later than 60 days after the date on which a lender receives an application for loan forgiveness from an eligible recipient, the lender will issue a decision on the forgiveness application 

Final approval still comes from SBA, with a determination made within 90 days from the lender’s decision on the application

Amounts not forgiven are due at scheduled maturity, not immediately

What Questions Do You Have?

Chris Nichols, Director of Capital Markets CenterState Bankcnichols@centerstatebank.com

Josh Harris, SVP Credit Administration CenterState Bankjaharris@centerstatebank.com

John Carpenter, Principal Cherry BekaertLLP jcarpenter@cbh.com