How to Avoid Putting Your Loan Forgiveness at Risk 

June 5, 2020
A financial expert notes missteps that business operators must avoid these days, or else they'll risk putting business-recovery loan forgiveness in jeopardy. 

June 5, 2020—California-based industry financial consultant Brad Mewes recently noted in an emailed press release ways in which shop owners can inadvertently put their loan forgiveness at risk. Mewes recently founded in an effort to help business owners like those operating body shops navigate the uncertainty of the COVID-19 pandemic. 

And, following recent news of PPP reform, Mewes provided extensive tips for shop owners. The financial consultant says business operators might be making financial oversights they're not even aware of, thus putting their loan forgiveness in jeopardy.

Conversely, here are a few of what Mewes refers to as "pillars of loan-forgiveness success":

  1. Complete and accurate financial records
  2. Cash basis accounting for covered payments over forgiveness period
  3. Reconciliation of accrual based expenses to tie to cash payments over forgiveness period.
  4. Tracking,of employee wages, salaries, bonuses and commissions. 
  5. Tracking of retirement benefits, vacation, health insurance, 
  6. Budgeting for additional non covered expenses 
  7. Determining how much is needed coming out of the forgiveness period
  8. Consistent and professional communication with [overworked and understaffed] banks and lenders.
  9. Employee / ownership dedicated to reviewing changes in law and guidance regarding loan forgiveness

Regarding the recent passing of the PPP Flexibility Act specifically, the staff at thoroughly analyzed the reform, and noted takeaways. A brief summation:

  • The reform, as noted in news reports, is extending the covered period to 24 weeks (from 8)
  • Reduces the 75% payroll threshold to 60%
  • Features the termination of new PPP loans after June 30.
  • Rehiring provisions / exemptions based on employee availability.
  • Extension of loan payback term from 2 years to 5 years.

Finally, Mewes also noted a few potential pitfalls regarding the PPP reform that he wants small business owners like body shop operators to be aware of:

  • Electing to extend the covered period requires an employer to maintain FTE levels during the entire covered period (24 weeks).
  • PPP funds are not sufficient to cover payroll expenses over the 24 week period.
  • Loan forgiveness reductions if FTE's are not maintained over the 24 week period. For example, employers that have "staffed up" in order to meet the 8-week requirement but are unable to support staffing levels will face loan forgiveness reduction.
  • These changes were implemented to address concerns from very specific types of businesses - namely retail and restaurants, and may inadvertently penalize other types of businesses based on cost structure and employment levels.