Bridal stores were caught in a flurry of emotions when the Paycheck Protection Flexibility Act was signed into law on June 5, 2020. On the one hand, the act addresses many of the shortcomings of the original CARES Act. On the other hand, stores that received funds early had to make tough staffing decisions at a time when they weren’t yet allowed to open.
It is important to check with your bank to see if and when they are accepting PPP Forgiveness Applications, as it varies between different banks. If your bank is not accepting applications, it's possible to find one that is. Our friends at Stratlign put together this PPP Loan Forgiveness checklist that can help.
The deadline to apply to PPP was 8/4 - this was extended through the PPP Extension bill . Applications are submitted through the lender; not through SBA.
Payroll spending minimums have been reduced from 75% to 60%.
The spending period is now 24 weeks instead of 8
If you have found it difficult to restore your workforce (FTE’s), your loan may still be forgivable thanks to new exemptions
Loan payback period is five years instead of two if your loan originated after 6/5
The 24-week period allows you to stretch your PPP funding over a longer time period. All borrowers with loans originating after 6/5 will be automatically required to use the 24-week period, with origination dates prior to 6/5 will be allowed to choose.
This longer time horizon is a huge relief to many bridal stores that have been wringing their hands over the near impossibility of spending the PPP funds within an 8 week period with doors closed to brides.
Previously, you were required to spend at least 75% of your PPP funds on payroll. That spending minimum has now dropped to 60% of your funding. This means that you are now allowed to spend up to 40% of rent, utilities and/or mortgage interest payments. This is a huge help, especially when paired with the longer spending time horizon.
Most stores are actually experiencing higher net profit margins right now as a result of two things. 1) Higher conversation rates and 2) Higher labor efficiency ratios. In other words, stores are doing more with less - more sales with fewer appointments and less staff. What does this mean for PPP? PPP was based on last year’s payroll expense. It makes sense to spread that over a longer time period, especially if you have staff that don’t want to come back to work for health or other reasons. Thank goodness congress came to its senses on this one!
The new safe harbor deadline for increasing your FTE headcount is 12/31 instead of 6/30. The new application allows you to enter your FTE count on the date submitted, or 12/31, whichever is sooner. Without further guidance, our interpretation is that borrowers can submit applications as soon as money is spent. Applications must be submitted within ten months after the end of the loan forgiveness period.
A reduction in FTE’s won’t count against you if you can document, in writing, that you made a good faith written offer to re-hire and the employee rejected the offer. If an employee is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule during the covered period, you are similarly exempt from increasing that employee’s FTE count from the previous year.
Over the last couple months, so many conflicts have erupted as store owners have attempted to navigate PPP funds and re-opening. Some employees have been reticent to return, either because they have been receiving unemployment benefits, or because they have health concerns, or both. The new FTE exemptions ease those tensions (even as some stores wish the exemptions would have come sooner).
At this time, for the vast majority of bridal shops, there should be no reason not to receive 100% forgiveness. However, you have to be sure to cross your t’s and dot your i’s when submitting your application. Moreover, you are required to maintain the following documentation for six years following the forgiveness date:
Payroll documentation and calculations pertaining to payroll costs, salary/wages, FTE calculations
Documentation regarding employee job offers and refusals, firings for cause, voluntary resignations, and written requests by any employee for reductions in work schedule
Documentation supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor”
Here is the link to the Paycheck Protection Program (PPP) Loan Forgiveness Application, and you can download my slide deck on how to interpret loan forgiveness application instructions and calculations. I review this deck in the video below:
BridalVision Financial has been studying PPP, EIDL and other federal stimulus options during the COVID financial crisis. We are ready to support your bridal shop in the following ways:
Use our PPP Excel Workbook or have us crunch the numbers for you.
Prepare your draft forgiveness application and organize a PPP file for you to keep for the required six years in the event of SBA inquiry. Book a discovery call - we are happy to help!
BridalVision ongoing Accounting Services are designed to meet the specific needs of bridal shops
BridalVision Advisory Services up-level your growth and financial health through strategic planning
U.S. Congress. “H.R. 7010., https://www.congress.gov/bill/116th-congress/house-bill/7010/text” Accessed Jun 17, 2020.
U.S. Treasury. “Paycheck Protection Program Loan Forgiveness Application, https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf” Accessed Jun 17, 2020.
U.S. Treasury Federal Register “Business Loan Program Temporary Changes; Paycheck Protection Program--Revisions to First Interim Final Rule, https://home.treasury.gov/system/files/136/PPP-IFR-Revisions-to-First-Interim-Final-Rule.pdf” Accessed Jun 17, 2020.