Season 2 Episode 7: Traps and Provisions of PPP Loan Forgiveness



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You want to maximize the forgiveness component of your PPP loan(s). However, the rules, accounting, and legal ramifications seem to be changing each day. Join Rick, alongside Tim Ring, an expert in franchise law, as they discuss both traps and beneficial provisions to help you get the maximum forgiveness with less confusion and administrative cost.


Welcome to the Restaurant Boiler Room, season two episode seven. I'm your host, Rick Ormsby, Managing Director at Unbridled Capital. Today in The Boiler Room. We infuse a recent webinar with Tim Ring franchise lawyer with MNB Law Firm, and we'll be discussing the PPP forgiveness program under the CARES Act. The Restaurant Boiler Room is a one stop shop for multimillion dollar merger and acquisition activity and financial complexities affecting the franchise restaurant industry.

We talk money deals, valuations and risk delivered to the front door of franchisees, private equity firms, family offices, large investors, and franchisors on a monthly basis. Feel free to find our content at unbridled capital's website at Now let's enter The Boiler Room.

We'll just kind of shoot the breeze for the next few minutes. So those of you who are just clicking on and joining. But hope everyone's doing well, crazy times we're living in. This topic has been a popular one. Because there's been so much change in legislation. And I mean, my goodness, guys, I don't know if there's a day that we wake up, we don't have some changes in the PPP legislation. So I'm looking forward to hearing your all's thoughts today. We're excited to be on yet another webinar.

This is webinar number three for us. The first webinar we did was, gosh a month ago, and it was basically about M&A multiples, EBITDA multiples, cap rates, valuations and what we expect will happen due to COVID-19 and after COVID-19 ends. And that was four weeks ago, two weeks ago, we did a webinar on business interruption insurance, which I thought was really good. And which I think is the next shoe to drop as people look for ways to capture funds for their business. And for those of you who listened, you were offered a free consultation from a Harvard trained attorney. Which was pretty cool, to look at your business interruption insurance.

And then today we're chatting of course about, the official title is CARES Act Traps and Provisions of PPP Loan Forgiveness. Okay, that's a lot in one sentence. And we've got a couple of upcoming webinars. One is on June 2. And it's with, we're going to talk about liquidity and the lending market with a special focus on what happens when we come out of COVID-19. And that's going to be with John Hamburger of the Franchise Times. So you're not going to want to miss that I think it'd be a good one. On June the 16th. We're going to do a franchise bankruptcy webinar with Middleton-Reutlinger Law firm and an attorney who specializes in the area named Andrew Stosberg.

And then June the 30th, we're going to delve into alternate sources of capital. So if you're going to be financing a transaction, whether it's an M&A transaction or some sort of a recapitalization, buying out a partner and these kind of times, and you can't get the money you want from a lender. Because the banks aren't lending like they used to, how do you make your transaction happen. And we'll we're doing that with capital spring, which is a nationally known private equity group that specializes in franchise work, so that'll be cool, too. And that'll be a good way to kind of kick off the summertime for everybody.

So we'll just wait a maybe another minute or two, before we get going here. Organizationally, I'll say a couple of things. Number one, if you would like go to our website at And up on the top right hand side, you're going to see a yellow button. And if you want to join our database at all, if you want to get updates on these webinars, or you want to get the information as it comes out. Obviously our firm Unbridled helps people buy and sell restaurant franchise companies and finance them. So you'll also get a chance to see some of our deal flow, some of the transactions that we do either before they're going out or as they're going out or after they're completed.

So feel free to sign up if you'd like, we're going to have a button under the media section where we put all of our webinars. And so that'll hopefully be something that you can come to as a library and take a look at it for the future. After this webinar is over, we will send everyone who has signed up a copy via email, the audio video of this webinar, as well as the PowerPoint presentation. So rest assured we'll do that, you don't have to ask. So thumbs up there.

And if you have any questions at all, during this webinar, you can raise your hand in the chat feature. And we will try to catch your question. We're going to try to catch them at the end. But I might pull in the middle here and pause everybody and then try to answer questions partway through, okay. And then the last thing I would have... And be patient if you ask questions, because you can't actually I don't think, share the screen and look at the PowerPoint presentation at the same time that you can see questions coming through. So I'm going to have to do a little technology manipulation.

And then lastly, you'll get the contact information at the end of the webinar of everyone who's on this call here. And if you have any questions, feel free to ask us, man. We're glad to help and we're here to help you guys. So with that being said, I'm going to introduce our All Star team here. And we've got Derek Ball and we've got Tim Ring, and honored to have them here to join me today and let me share this screen so that you guys can kind of see the PowerPoint presentation as we get going here.

As we start here, I would just like to kind of introduce everybody. I'm Rick Ormsby. You guys know me, I'm not going to do much talking here we got two great experts to talk about PPP loan forgiveness, but I'll tell you a quick story. My quick story is kind of my love of the franchise system. I love the grittiness. I love the passion for people and for the business. I love the brands and love the entrepreneurial zest that I see in the franchise community.

People who started 30 years ago with one or two restaurants in the back of a pickup truck and built a sustainable business that's been successful and thriving after all these years. And so our very DNA kind of supports us I'll tell you a quick story I left Yum Brands corporate in 2005 and I had a plan to call KFC, Taco Bell and Pizza Hut franchisees and ask them if they needed help buying out partner, selling their stores or to find financing for their remodels right. Hundreds of phone calls a week.

Finally I found a client who was interested, and it was Greg and Barb Morgan in the plains of Junction City in Salina, Kansas. They were a four unit Taco Bell franchisee, who started, Greg did, his occupation beforehand was selling vacuum cleaners on a door to door basis, knocking on doors and selling vacuum cleaners. One of his buddies was a Taco Bell franchisee he built a unit and I got in touch with them. They decided they wanted to sell their stores, they're ready to retire. We did a great job for them. But when the deal closed, I didn't have enough money to pay my next month's mortgage.

And so many stories I've heard of people who have started successful businesses, obviously Unbridled has done awesome. We're one of the best known franchise M&A firms in the country now. But I know what it's like to be three o'clock in the morning looking at the ceiling, not knowing if you can make payroll or having your back against the wall at a time like this. So we bring that understanding of compassion, but also that experience to the table and appreciation for everything that franchising is, especially for the entrepreneurs who are listening to this audio here.

So that being said, we got Derek Ball and Tim Ring here. And real quickly, Derek works for Unbridled and Derek has been with me since 2017. He's my right hand guy, he is just absolutely excellent. His background and training is as an attorney, he also has an LLM in tax. And he's one of those guys want to have in the trenches with you back to back, fighting the enemies. And so I think you'll appreciate his perspective today. He's a brilliant guy.

And then we got Tim Ring on the webinar as well. And Tim's just a fantastic man and a great attorney specializing in franchise law for MMB, Monroe, Moxness & Berg and they are specialists out of Minneapolis, they do a ton of franchise M&A work, we see them a lot on our transaction, sometimes representing buyers, sometimes representing our sellers. And many of you know Dennis Monroe, who started the firm and still, he's kind of a stalwart in the industry and writes a monthly in the Restaurant Monitor. So that's our special team today.

I'm going to just go over the topics, and then I'm going to hand it over to them and let them kind of start the discussion. And I'll moderate, ask questions, raise your hand as we go along. I'm excited for it. So number one, we'll talk a little bit about the PPP loan, the purposes in the coverage. We'll talk about how to maximize forgiveness, some of the benefits and traps that you need to watch out for. A little bit of commentary from both guys on this. And then we'll talk about this economic uncertainty discussion. If you borrowed more than $2 million, or under $2 million, what that means or doesn't mean. So hopefully that'll be valuable to you.

And then I think the question is, what do we do from here? You borrowed the money? How do you maximize your forgiveness? And what should you do to make sure you're in compliance? So these are some of the questions we'll answer today. And with that, I turn it over to our two esteemed... The Last Dance just ended. So we've got Jordan, Pippen and Rodman on the call so we're going to turn it over to Pippen and Rodman, you guys, go for it.

Great. Hey, thanks, Rick, and Welcome, everybody. Happy to have you with us to talk through these issues. At any point you have questions, please feel free to submit them and we can track those questions as we're going through the presentation to help respond to issues. Starting out of the gate. The purpose of the PPP loan will help drive some of our discussion later in the presentation. But unlike the media portrayal of the Paycheck Protection Program, it is focused on maintaining and restoring employment. And that's a key hallmark to consider as we talk through forgiveness in particular. The purpose of this program is employee oriented and employee paycheck oriented, despite a lot of other provisions or allowable uses under the Act. And Derek, you want to chime in on things you're hearing in the marketplace.

Yeah, it's unfortunate. I mean, it's the media, it is what it is. But it's unfortunate what they're saying about this program and essentially making it sound like franchisees and business owners are just getting rich and you essentially have to be borderline bankrupt in order to take this money. That's not the case. The idea is to prevent layoffs, prevent hours being cut, and to prevent people from going on unemployment, which arguably costs the government more than this program, with that $600 weekly check they're giving out.

So hopefully, this program has allowed you to maintain your people, maintain those hours, ensure you're not laying people off. So ignore the media, I recommend that always not just in the PPP program. It's unfortunate that they're rousing the public so much against this program that's really saving franchisees in many ways, so don't be scared, is my economic uncertainty really there. The media is going to make you think that it's not, but it is. So yeah, that's about all I have on that retain your people and keep the payroll up. That's what this is for.

Thanks, Derek. So under the CARES Act, there's a list of items that you can use payroll protection loan proceeds on. However, for forgiveness, there's a very narrow subset of that allowable use. And it starts of course, with payroll as we introduced our dialog. And concerning payroll, there's a number of questions that we'll get to in this webinar. Is payroll gross or net is one of the most common questions that we face.

Turning next to rent. That's an item for a contract in force before February 15. However, there is conflict in the CARES Act and in the interim rule discussing rent. And finally, the most recent publishment by the SBA introduced the forgiveness calculation worksheet, which helps illuminate some of that conflict or helps answer some of that conflict. So a contract in force before February 15, has now shifted from the CARES Act to a contract dated before February 15, offering some maybe greater elasticity on the rent component.

The next item that people are hearing about frequently is utilities, and what's included as a utility. Is a cell phone. That's the most common question, is a cell phone covered under utilities. We'll talk about that a little more later in the webinar under calculation of forgiveness.

And then the last item for loan forgiveness is mortgage interest, and that's for a debt incurred before February 15, 2020. Debt incurred has remained consistent from the CARES Act to the interim rule, which is dated April 15. And then finally, to the forgiveness worksheet calculation. Mortgage interest, we likewise, will expand upon what does that include within that category? Derek, any items you want to fill in or elaborate here?

Just one comment. And something I've heard a lot on my phone calls and in conversations with franchisees is what's the difference. You keep seeing where you can use these expenses or use the money through June 30. I want to just quickly highlight the difference between being able to use the expenses through June 30, being able to get forgiveness, if you use those within the eight week period, there is a difference there.

You can legally use the money through June 30. But in order to achieve forgiveness on those expenses, it does need to fall in that eight week period. And note, and we'll talk about it later in the presentation there's a difference between the payroll eight week period and the application and the eight week period for your other expenses. That's a new rule that came out on Friday in the applications, and we'll talk about that but that was a common question that I wanted to touch on.

Yeah, great point. Also expanding on that point I'm seeing some chat dialog come through the webinar and how can someone possibly use the money within eight weeks when their restaurant faces a complete shutdown due to shelter in place or stay at home orders? So we'll introduce the dialog right now that the SBA is expected to extend that eight week period as well as the June 30 period. But to date, or as of this moment, we have not seen any further announcements on that front. But there's a lot of traction, a lot of energy and a lot of dialogue surrounding extending those periods of time.

Item one kind of diving into maximizing forgiveness, the recommendation is right now if you're in your eight week period, start doing pro forma forecasts for your expenses so you can avoid surprises or hastily last minute payments, you can forecast out now identify whether you have a deficiency in terms of your forgiveness amount, and then consider what we're talking about here today, filling the gap on that deficiency to help you maximize your forgiveness amount.

That's a huge one, Tim, I'll just jump in. You won't hear me say much. But I mean, I think that's incumbent upon all of us on this webinar, is don't wait till the last like two weeks to try to figure out what you think is forgivable versus what you borrowed. You want to actively be projecting in looking at this as soon as you possibly can. And figure out what... I mean it's intended to bolster the employment. So if you can hire more people to clean your restaurants, to get your speed of service up, and my goodness, we have speed of service issues in the industry right now with the drive thru times. Do that now. Don't wait until the last two weeks. Right.

So also maintenance, getting people into clean but also performing maintenance on the restaurants themselves. Painting, fixing items, roofing up tile, whatever it might be. Utilize your present employment base to the extent you can realistically do so, but consider that as a gap for additional employee wages during the eight week period.

Next item has been talked about you hear a lot of dialogue in the media about hazard pay. Amazon workers wanting hazard pay, Target employees wanting hazard pay people and interfacing with the public. And this is a tool that's legitimate to use to increase your payroll, and it might unfortunately extend beyond the eight week period but certainly during the eight week period, it's a tool that you can utilize.

Others simplify the calculation and just pay a bonus and allow that bonus to be used at the employee's leisure rather than calling it hazard pay. Another idea to consider is allowances. If you don't presently have a car allowance, a good way to keep an employee off the bus and minimize their contact with the public would be, defray their car expense through an allowance. Not an expense reimbursement, but rather an allowance up front. Expense reimbursements are frowned upon by the SBA and are not considered payroll, at least at this moment. Derek, you want to talk about landlords?

Yeah. So you know one other piece, and this is where point number one, calculate the expenses you'll incur over the eight weeks. This is where it gets really important. A lot of franchisees right now have been able to secure deferred rent, whether that means you pay it all back in August or pay back it all in September, or you prorate it over the next year, and you just have a little heightened rent expense each month over the next year.

If you do that calculation over the next eight weeks and see that maybe you've got 5% to 10% of the loan leftover that you could get forgiven based on your payroll, consider not deferring that rent or consider retracting the deferral and pay it up front. Because if you get it deferred and you could have gotten it forgiven during this period, you actually ended up worse off. So if your deferral period, maybe you got April and May rent prorated over the next year. If you've got leftover PPP money, go ahead and pay it now, it'll be forgiven, rather than actually prorated it over the next year where it won't be forgiven.

So it may not be applicable for everyone. I bet you there's a few franchisees out there that could work for though. So that's where just point one, calculate what you're expecting to be able to be forgiven down the road. And if there's leftover money, go ahead and do that. Really quickly Tim, I'm going to jump back up to point number one and talk about the eight week forgiveness period, just quickly. The new application that came out Friday has provided for an alternative covered period, which for franchisees, I think is pretty important. At the end of the day, a lot of you or maybe every other two weeks, maybe twice a month, some of you pay weekly.

What they have done is previously day one was the day you received your loan and your expenses are payroll over the next eight weeks from there. But if you're in the middle of a payroll cycle you can elect to start it later. So if you have a two week payroll cycle, and you've got it halfway through that pay period, you can start it technically on day eight, after you receive the money, you just add eight days to the end of the eight weeks as well. It's still eight weeks, but you started later than day one.

If you've been ramping up your pay and your employees recently, that actually could end up benefiting you. Most people are going to be paying employees more in June than they were probably in April. So that could end up helping your calculation and your forgiveness amount. That said, your other items aren't necessarily going to use that same alternative covered period. It's just the payroll piece of it, your utilities and rent, the instructions I've read and that I interpret are those will remain day 1 through day 56. So you could have two different covered periods, one for payroll one for your other expenses.

Let's talk about this alternative covered period just for a second so everybody understands that. If, for example, you receive your loan today, your covered period would start tomorrow and run for eight weeks. Now that's kind of confusing for traditional payroll cycles to do that. So what happened with the forgiveness application, the SBA introduced a 56 week covered period calculation that most business follows bi-weekly. So what happens is your payroll period for purposes of the triple P program starts not tomorrow, but rather on the first day of your regular payroll, and that becomes your eight week period.

However, as Derek pointed out, the eight week period for all other purposes remains the same and would start tomorrow. However, there is yet one more catch to that. And in the worksheet calculation, the SBA said with respect to rent if it's incurred during the eight week period, it too can be paid after the eight week period. So we're no longer in conflict with this concept of incurred and paid in the eight week period. And the forgiveness application has introduced a little more practical business orientation with cash flow.

One of the questions that came through was is a bonus forgivable? And if the bonus is paid as payroll, yes, it will be forgivable payroll expense no different than a car allowance potentially. And to help augment or support the argument concerning car allowances being legitimate payroll expenses. Well, first, it is a normal course item for many business to have car allowances, but in the SBA frequently asked questions, a pointed question concerning is housing allowance a payroll cost. And the SBA answered that is yes, it is. So certainly car loans would fall in that category. And that's even more common than a housing allowance. Hopefully that helps identify many of the questions that came through Derek, Rick. You guys seen anything that you want to hit?

One of the recommendations I've been getting is and I'll make it quick in terms of bonuses. A lot of you are going to have bonuses due at the end of June, paid early July. One of the recommendations I've been getting is accelerate those bonuses. Pay them during your eight week period. Make sure your employees know that don't expect another bonus in two weeks. But if you owed them a bonus anyway, and Tim correct me if you think that's wrong, but if you already owed them a bonus, go ahead and accelerate it make sure it falls in the eight week period. And that can help maximize the forgiveness there especially if you might be the cutting the total payments a little bit short.

So accelerate Q2 bonuses or P6 or P7 bonuses or June bonuses into that eight week period. And just one question, there are a lot of questions coming through. Or one quick comment. If we don't answer your question on this webinar, please if the Zoom deletes and all your questions are gone, I'm not sure how that works, please reach out to us with your question after the call and if we don't answer it on the webinar, we'll do our best to answer as quickly as possible today or tomorrow. So we don't [crosstalk 00:25:04].

Yeah, definitely, definitely, definitely. That's good. Derek. And there's a couple of quick ones maybe that we could knock off here like data security fees, are they included as utilities? Are garbage removal included as utilities?

Kind of unpack that a little bit. Data Security fees, that sounds like an ordinary normal business expense, as opposed to a quote, utility. And I don't believe utility would pick up a data security fee. Garbage collection a service contract may fall in that category, but it might be a stretch, and the SBA is expected come out with a little further guidance on the subject. So I would stay tuned and wait for cell phones and garbage collection. Garbage collection is more of a service like gas and electric, but a little less infrastructure oriented in terms of the four corners of a building. No different than any other independent contractor that a business must pay. And that was one of the questions. Are independent contractors covered within payroll? The answer is no to that question. That independent contractor is eligible for his or her own triple P loan.

A couple of questions about property tax and CAM, whether they're included in the rent calculation. You guys want to address that here too. And then we'll go back to the presentation.

Derek, you want to handle that?

I'm not sure. My gut feeling, unfortunately tells me it might not be. But I haven't read any guidance on that.

Yeah, I have not read guidance myself. But in dialogue, talking with other real estate professionals they consider that as part of the rent payment or a component of the rent payment. Now we're talking about real estate here. It's important to note that in the most recent application worksheet the concept of rent has been clearly expanded to business rent for real or personal property. So rent for your Pitney Bowes postage meter at the corporate office is now covered. Rent for copier machines, computer equipment, and the like are also now covered within that rent calculation. So the application worksheet for forgiveness expanded the universe of rent, potentially helping maximize forgiveness.

One comment that I have on property tax and CAM. Oftentimes CAM is paid once a year, sometimes it's paid monthly. But property taxes are often paid once or twice a year. So I doubt everybody's just going to have those payments fall in these eight week period. So if you do want to attempt to get those included, they need to be well documented, when you paid them, what you paid them, prorate that amount to these eight weeks. I don't think you're going to be able to get full year CAM and property tax payments forgiven. It just doesn't feel like they would accept that is my gut feeling.

Yeah, I agree with Derek.

Did you guys talk about rent? Derek you chatted a little bit about landlord deferrals. I saw a question come up about, can I pay future rent? And I don't know the answer to that. I think future rent's a lot different isn't it than paying rent that's been deferred.

You're going to have incurred the rent is my understanding. So you haven't really incurred future rent at this point. So my gut would tell me that no, you cannot accelerate a future rent. Tim, one question that was also on here. If you have a related entity that owns the real estate, you have legitimate lease agreements between two separate parties related entities or not, but two separate companies. Can you also get forgiveness on the related rent? What's your opinion on that? My hunch tells me you can. It's a separate third party.

Yeah, to your earlier point, stressing that the expense needs to be incurred within the eight week period for purposes of trying to prepay something in the future, that might be getting a little too aggressive. So the obligation and expense needs to be incurred in the relevant eight week period. And as to rent, affiliated rent is permissible, there's no exception, identified for affiliated rent payments to date. So it's a bona fide rent to a separate entity that needs to be recognized under law, and the contract needs to be recognized under law. So it strikes me that that's a permissible forgiveness expense.

The other comment to rent with Be two employees. So it is a no-no to try to pay your employees for future wages that they haven't yet incurred. That's obviously not the spirit of what this legislation or forgiveness program's about either. Just like rent, you can't pay rent that's not due yet and get forgiven of it. You can't pay people that haven't worked for it yet and get forgiven of it.


This might be a little bit different than there. One other quick one. Full time employee, they came out and said full time employees are 40 hours, not 30. And we'll talk about that here a little bit more on one of the latter slides.

Yeah, so payroll costs with pointing out how payroll and full time equivalency is calculated. Payroll costs are calculated, most recently identified by the SBA on a gross basis, excluding the employer's portion of taxes. Otherwise, it's a gross basis. The statute suggests that it's a net basis. But both the interim rule and the most recent forgiveness application are consistent that it's gross, but excluding the employer portion.

Now, let's also talk about payroll costs as it relates to forgiveness. Payroll costs must be 75% of the forgiveness amount. Hence, the early dialogue, what's the purpose of the triple P program that 75% is anticipated to be reduced by the SBA. There's no indication of what that ultimate number might be. But there's a lot of dialogue about 75% being too high. And for many businesses that are either closed, have been closed or at partial revenue, realizing partial revenue, because they can only open 25% or 50% of the dining room, that's impacting greatly, how much payroll they can currently spend. So we expect that number to go down from 75%.

But presently, the SBA is saying 75% of the loan must be spent on payroll. And then when it relates to forgiveness, you've got no more than 25% being spent on non-payroll. So we've got some issues potentially, on the side of... Rent has been clarified in the forgiveness worksheet, an application is covering both real and personal property, which is great news. Little clarity on the personal property front. Mortgage interest, the SBA has been pretty consistent that it covers real and personal property.

The question right now in terms of potential issues for rent and mortgage interest, potentially capitalized leases, what is a capitalized lease? I think most people feel that under the tax code it's a rent payment, as opposed to a mortgage interest payment. But it might be something to keep your eye on as it relates to revisions by the SBA of forgiveness calculations and dialogue.

Lastly, utilities being the fourth component of loan forgiveness, the SBA has issued guidance on what it considers a utility in prior programs. And a utility is something associated with a physical location, gas, electric and similar items, telephone, most recently, with the triple P program internet is considered a utility. However, there's no mention of cell phones, telephones are clearly covered, but is a cell phone covered?

And in prior programs with the SBA in terms of supporting documents for expenses, they issued guidance said it must be related to a physical location and a cell phone was not considered a physical location but rather mobile by its mere nature, and was not included as utility. Something additionally to watch for whether they take a modern convention on the term telephone or whether they continue to use this physical location guidance post for what a utility is. However, with that all said many modern business are using internet telephone services. So maybe back door some of these expenses just by thought or frame up a different category.

You got anything Derek?

In general, I was going to answer a few of these questions. Potentially before going on to slide eight, I'm going to answer a question. Independent contractors, those are not included as employees. So those should not be included. They shouldn't have been included in your loan amount, nor are they included in your forgiveness amount. When does the eight week period start? We touched on that a little bit earlier. Generally speaking, it's day one, you get the loan. Goes for eight weeks after day one. You can use for payroll purposes only an alternative covered period at the start of your next payroll cycle.

So if the start of your next payroll cycle is at day eight, you would use days 8 through 64, instead of... Or 8 through 63 instead of one through 56 after you received the money. All your other expenses do need to be day one through day 56 starting on the day you got your loan. Storage unit rent as a business expense. And is that forgivable as a rent expense? I believe the answer to that is yes. I think Tim might have just touched on that as well. But yes, if that's a business expense, and you just have a storage unit somewhere to hold maintenance items or anything of the sort yes, I do believe that is part of the forgiveness.

Payments to owners, you're maxed to $100,000 annualized, which over eight weeks is about $15,500. That can be included. One caveat to that is if you did not pay yourself a salary in 2019, you can't take anything. The caveat they just came out with on Friday in the application is as an owner, you can't increase your salary over 2019. So if you were paying yourself 50 grand a year in 2019, that's what you're maxed at in 2020 during these eight week periods, you can't increase that to maximize it to 100. So yes, if you were paying yourself $200,000 in 2019, then you get to take the max 100, which is $15,500. Those are attributable you're just limited to what you took in 2019 on a weekly or two month basis.

So as the owner, you give yourself a bonus in that case, instead of increasing your salary. That's how you would handle that?

No, it's whatever your payments were all in cash last year salary, bonus, are all the same, I believe. If you paid yourself a total 50 grand last year between salaries and bonuses, distributions might be a little bit different. The salary bonus if you paid yourself only 50 in 2019 then that's what you're capped at for this eight week period, prorated down to eight weeks. Health insurance, is that included in forgiveness, the employer paid portion of that? Yes, I'm 99% sure that is the case.


One person. What if someone works 80 hours a week, how are they treated as a full time equivalent, it's 1.0, FTE 40. The most any employee can be is 1.0 full time equivalents. So if they worked a million hours a week, it's still just one. If they worked 40 it's one, there is an alternative calculation in the application now, for part time employees, which is really applicable to everybody on this call. Not everybody has to be calculated as they worked 30 hours a week, they're not necessarily point 0.75 full time equivalents.

You can elect to include all of your part time employees as half of a full time equivalent regardless of if they worked five hours, or 35 hours, you can say that they are point 0.5 FTEs. That's going to make things potentially a little bit easier, and depending on how you've been scheduling recently, that actually may maximize your forgiveness a little bit better. So that's a big new one that they came out with in the application, the exact calculations might not be as important because you can elect to just have every part time employee count as half. And that was everything quickly on the questions list. I'll continue to look at more as Tim's talking.

Great. So as we identified just moments ago, 75% of the loan proceeds must be used for payroll purposes. Now, this is in the interim final rule dated April 15. And it literally says 75% of loan proceeds shall be used for payroll purposes, payroll costs. What happens if you don't do that is a big question as it relates to the program and potential recourse that's been identified in the interim rule. But keep in mind the purpose of this program is payroll oriented. So some degree of a substantial percentage being utilized for payroll as expected. Will that percentage remain at 75% is the big unknown at this point.

The next comment we have and I think many of you realize that the loan is based at 2.5X of payroll costs, not including cash compensation in excess of $100,000 annually, and of course subject to the tax credit. Meaning you don't get benefit for the tax credit as it relates to the loan. And likewise, as it relates to forgiveness. And the application for forgiveness isn't speaking about that tax credit presently. I didn't see a line item on the forgiveness calculation sheet for that.

We talked previously about eligible forgiveness, and that being costs incurred and payments made for payroll, utility, rent, and covered mortgage. And prior to the worksheet coming out last Friday, there was a lot of dialogue about accrual basis or cash basis under the CARES Act. The forgiveness application has helped guide that dialogue a little bit. But I still think you need to adhere to the cost incurred during the relevant eight week period. When it's paid, you have a little more elasticity, now, for rent. It can be paid after the week period on its due date. For payroll, Derek talked about the new 56 week payroll calculation, which is part of the next comment.

But focus on costs incurred during the relevant eight week period. That's what the most important aspect is right now. And when it comes to rent, contract payments or payroll and you have a little more time. For interest, mortgage interest, it's your interest incurred, maybe yes or no, you can pay it after the period. But if in doubt, pay it at the end of the eight week period, and pay the accrued interest to the lender. No harm in doing that. And better avoid surprises.

You guys got anything, this is a total question. I have no idea the answer to it. But it's off the wall a little bit. But you got any idea about how long this stuff takes to get forgiven? Is anyone talking about that?

The initial guidance, six weeks ago was that after you submit your application, the SBA would have 60 days to forgive it. I haven't seen anything in the intermediate six weeks here, confirming or denying that. My hunch is if you're below 2 million, you'll get forgiven quicker. If you're above 2 million, and you're potentially going through a little bit deeper of an analysis and audit and may take a little bit longer. Their initial guidance, though, was 60 days. I don't think any updates have come out. One other item I just want to touch on. This slide says 56 week payroll calculation. Tim, is that supposed to be 56 day payroll calculation or am I looking at it... Or is it 56 weeks?

I believe the app is using 56 weeks, but kind of on a bi-weekly calculation. I'll double check that.

A few more comments over here. One question was if you don't have the entire amount forgiven is it pretty much anything goes at that point business related? My understanding is no, you still need to use the expenses for the four items that they talked about payroll, utilities, mortgage, and rent. But you can use those until June 30. They just might not be forgiven if they don't fall in the eight week period. I would not go out and start using the money for items that they have not said are permissible expenses.

So I would stick to those permissible expenses. I don't want you running into issues down the road, if they don't like something that you went and purchased. In terms of the $100,000 max for employees. Yes, if you're paying someone $150,000 cash compensation that doesn't include maybe you're covering their health insurance or something like that, it's maxed at $100,000, which is like we talked about earlier about $15,500 for an eight week period. But you can tack on some of their fringe benefits like health insurance costs on top of that $100,000 it's limited to $100,000 cash compensation. So that's that salary and bonus and other cash items. Other potential fringe benefits are not necessarily included in that $100,000 max.

And then there's a difference here between, do you have to use 75%. There's two different wordings for this and it's a little bit confusing. Tim, I'd ask your opinion here too. There is a difference between having to use 75% of the money for payroll and not getting more than 25% forgiven for other expenses. The former insinuates that there would be no partial forgiveness. If you only used 70% of the money on payroll, the latter suggests that there would be partial forgiveness. If you use 60% then that means maybe you'd be able to get another 20% forgiven for non-payroll users leaving 20% that you'd have to pay back 10. ANy guidance on that in your opinion?

Yeah, I think the implication is exactly as you suggest, partial forgiveness is the most logical argument. The statute and the interim rule and finally, the application for forgiveness use three different terms, loan amount, forgiveness amount, and then finally a third term forgivable amount. And they apply the 25% to forgivable amount, but then they also apply the 25% to the forgiveness amount. So there's a lot of conflict.

But I think by the mere implication of how this is working, partial forgiveness is expected. And that's one of the biggest clarity items that the business community is looking for as well as our law firm in terms of the triple P program. So I would expect partial forgiveness, especially in light of the concept that what is not forgiven turns into a loan that can be amortized no longer than 10 years. So conceptually, also by implication partial forgiveness is expected. However, does that partial forgiveness apply only to our next dialog point? Or is it broader than that? And that's one of those questions. We're awaiting further guidance from the SBA.

Let me interrupt you real quick. We've got about 10 minutes. No, I think it's appropriate maybe to let this go another five or 10 minutes after the hour to answer questions people can get off as they want. I want to kind of see if we can get through three or four more of these slides. So if you guys can accelerate, and maybe do no more than 60 to 90 seconds a slide. And let's see if we can get through slide 15. Because I know people are going to want to hear about the over $2 million threshold.

Yeah, sure. So real quickly, I think a lot of people are familiar with the concept that what the purpose of the program is to maintain employment. And if you start cutting salary and wages or laying people off, well, there should be a consequence. And right here on the slide, we're talking about that consequence, if you reduce an employee wage by more than 25%, the amount in excess of 25% will reduce your forgiveness amount.

But keep in mind, you're comparing payroll on a 12 week basis to an eight week covered basis, there's already a 20% difference in making that comparison. So your real reduction becomes anything in excess of 5%, if you want to look at it from that vantage point. Because you already have a 20% decline due to that comparative periods of time. Next concept is, Derek addressed how you calculate a full time equivalent employee. And the SBA has said 1.0 for full time, 0.5 for part time, or alternatively, you can take the wages and divided by 40, round to the nearest tenth and calculate the total of all employees for measuring full time equivalent employees during the eight week period. And then as it relates to the comparison period or the reference period, you have two choices. February 15 through June 30, or January 1 through February 29, in determining whether there's been a reduction in full time employees. If so that's a mathematical equation that applies to the loan for purpose of determining what additional reduction and forgiveness might occur should you lay people off.

This is some good stuff here. Go ahead. This is maybe some gotchas.

The next most important, or really important point that's come out recently. I think it was question 46 on the Q&A, economic uncertainty. A lot of franchisees have been scared, maybe your sales have been up for the last three weeks. And now you're considering you know whether or not you actually need the loan or needed the loan. Don't let that really worry, you don't know what the future holds. And to sit here and assume that the world is going to be roses over the next year would be probably an incorrect thought. Hopefully it is, but we don't know. And that's the definition of uncertainty. You don't know what the future holds. And it's not unreasonable to potentially be scared of what might happen to sales in August or September or December when the round two might come out. You just never know.

So to think that we don't still have economic uncertainty just because you've had a few weeks of sales lifts, doesn't mean you have to go and rush and give the money back and be scared. One thing they've done though, is they've largely taken out the civil and criminal liability here, or at least the SBA has and Treasury has. So you don't have to worry quite as much about that if you were in the gray area, as long as you're cooperative and don't probably disagree with them too much if they do think you didn't need it and have to pay it back.

One item that we recommend, number one item to be recommended right now, is go back to when you applied for this loan, go find news articles, go find press releases, webinars, anything like that caused that uncertainty in your mind. Go back and look at your sales when you applied for this, you might have been down 30% or more when you applied for this, I'd say that that's pretty massive economic uncertainty at the time of the application. So document that. One thing that the SBA in the application says you have to keep all of this information for six years and be able to give it at any certain time.

They come at you four years down the road, and then start asking these questions, it's going to be difficult to think back at where you were in April of 2020 where your mind was document everything, all the uncertainty you think exists in this business and everything you thought existed 3, 4, 5, 6 weeks ago, documented really well. So you can provide that if they want to challenge it. One item that has been really helpful. If you have a loan below $2 million, they have automatically assumed that you made that economic uncertainty election in good faith, it's a bit of a safe harbor.

And the reason is because it's less likely you can go out and get liquidity other than people who had larger loans. So if you're under $2 million, it doesn't mean you're just going to get everything forgiven, you have to continue to use the expenses properly documented well, but you're not going to be audited on the economic uncertainty piece of this. If you're above 2 million, you likely will be. They're going to try and scrutinize it a little bit more. That doesn't mean you have to go and go about to be bankrupt in order to take this money. They try and say that you have to use your liquid assets. You don't have to deplete every bank account you have in order to get this money. So don't think of it like that. But at the end of the day, you will be scrutinized a little bit more. They'll see was the amount accurate? Was your forgiveness calculation accurate? And was the one necessary due to economic uncertainty. So log, everything that you thought regarding economic uncertainty. That was a very quick rundown anything, Tim to add to that?

Yeah. So on other webinars talking about economic uncertainty, they're suggesting that you prepare a memorandum describing that economic uncertainty as it relates to your business. Do you have to go that far? Maybe not. But I would highly recommend you draft comments concerning all the items of uncertainty your business is facing, and suffered as a result of COVID and what you expect to happen over the next 30, 60, 90 days and put that all down on paper right now, should you need it at a later date to discuss that and save that with all of these other records, I'd highly recommend you do that. As opposed to try and think a year from now, "God what was happening at that juncture? It's long gone in my mind." So do it now while it's fresh in your mind.

Now, look, E on here, we didn't tell we didn't talk about much. But remodels and development obligations have likely been... If you've had those deferred for a year, and many brands have come out with deferrals, that doesn't mean that they're abated, it means that they're deferred. And so these are items add future economic uncertainty. Great points here, guys. And we'll send out this presentation to you afterwards.

This is an interesting slide. So what do we do from here the second point we've already talked about, which is to do the calculation now to figure out where you stand with forgiveness and then to monitor and adjust your staffing accordingly. But you guys want to go through the rest of these 1, 3, 5, 6 and 7 real quick or whatever they are.

Real quick, use a segregated account to track triple P funds. Many of the lenders are actually doing that. But do not co-mingle your PPP funds with your present operating account. It makes it harder to track forgivable expenditures, but it also potentially has other implications that the lawyers don't want to see. So keep those monies in a separate account for a number of different reasons. And those of you that have questions on this, feel free to reach out.

I believe Rick, this will be available. The actual, not the slides necessarily, but the actual webinars available to send out as well.

Yeah, yeah, yeah, both an audio and video. So yeah we'll send it out to everybody. So clearly, I would just say this would be a time to just say, "Look, here's here's your team." You hear that both Tim and Derek have a fantastic handle on all of this. I'll give an endorsement to MNB and Tim Ring is an attorney. Fantastic service, wonderful reputation, great work. So we're thankful to have him on the call.

Derek, obviously, in our team internally is a cracker jack man. So he's happy to help you too. And then I think what we probably want to do here, just some disclosures, but we probably want to do is, we're right at the hour, maybe a minute short of the hour, be respectful of people's time, if you want to hop off, you can and maybe let's take 10 minutes otherwise, and just hammer out as many questions as we can, for people who want to stay on. So I'd encourage you to stay on another 10 minutes if you got nothing to do, and then we'll try to answer more questions. Does that sound okay, guys?


Sounds good.

Rock and roll. Okay.

And again, we're not going to be able to get to all... There's a lot of questions coming through, we're not going to get to all of them, please, if we don't answer it, just reach out to us through email, and we'll get back to you as soon as we can, today or tomorrow. We're not trying to ignore questions. One question that might not be applicable to a lot of people on here is someone's asking who is eligible for more than $10 million, is there a limit to the expenses? I think the answer to that is no, you're probably going to hit that $10 million in payroll alone. So probably set to go. Now you'll have more auditing over whether it was necessary or not. But otherwise, I think you're good to go.

One of the other questions, I just saw. When a shareholder's personal funds not inside the borrowing entity be considered in an audit about good faith? I don't know the exact answer to that, I'd like to believe not, at the end of the day, the idea is not for you to have to just completely deplete your entire personal bank account to keep paying people. If it wasn't for this loan that you received, you're a business person, you would have made layoffs, you would have cut hours, it's just what you would have done to preserve cash. You shouldn't have to then pay all these people assuming you're going to get this forgiven. A little bit of detrimental reliance is a legal term, you're relying on this.

The government can do whatever they want. But they shouldn't be able to go back and tell you "Oh, no, you can't get that forgiven anymore." You're out hundreds of thousands or millions of dollars at that point, potentially paying your people when you thought you were going to get the money forgiven. And now you're not, that just doesn't sit right, that doesn't feel right. And it just kind of doesn't pass the smell test to me personally from maybe a legal and non-legal standpoint, I don't think you have to go to zero in your bank account before you take this money. It just doesn't feel right. Regardless of the government's potential posture.

I think that a lot of the fear that is out there right now over the economic uncertainty has come from the general population being upset about the public companies and the Lakers and Harvard getting all this money that they shouldn't have gotten, even though they were eligible for it legally. It's the government trying to make the general public think that we are going to audit all this and these people committing fraud are going to be punished accordingly.

I just don't see it coming to fruition criminally or civilly for those reasons. So I think it's just a little bit of posturing by the government, is my own opinion, to make the public feel better. Because the general public is being spewed lies by the media on a day in and day out basis about what this money is actually going to. At the end of the day the money's going to pay workers. And that's the whole point of it, regardless of if a franchisee happens to benefit from it. That's just an unintended consequence maybe but don't criminalize yourself for benefiting a little bit.

Hey, Derek, are you on a rant right now?

I'm done.

So to summarize that real quick, alternative sources of liquidity, corporate formalities should be honored. And a shareholder is not the piggy bank for a corporate business. So start there as it relates to available resources and follow a traditional line, as opposed to the shareholder backstopping on the business. Because it's certainly not obligated to do that, I think is the spirit of that message. Derek, did you see any other questions? I saw one concerning hourly rate. And is that the test for the 25% decline? The answer to that is no. It's total salary and wages as opposed to rate of pay. And theoretically, you'll come up with the right result there on that basis.

One other question I see, or a few other questions I can can hammer out pretty quickly. Does the rule applying to owners paying themselves with the paid themselves in 2019, aka you can't increase your owner salary apply to managers as well? I don't believe so. I think you can increase employees' pay. I think that rule is simply attributable to owners. If you use a third party payroll company, with the fees that ADP charges to produce the payroll, be eligible expenses to be recognized as a forgivable expense? I don't think so. I haven't seen anywhere where an expense like that would be considered payroll. Tim do you have any commentary there?

Yeah. I agree with you, that's a traditional business expense that might be a legitimate use of triple P money, but not for forgiveness.

Another one, how are terminated employees handled with respect to the calculation? What about employees who have chosen to stay away from work due to fear, even though their hours may have been offered? They have actually clearly come out and said that you need to document that. So if either someone quit, and you offered their job back at what they were being paid before, and they decline, they should not be included in essentially your employee reduction. But it needs to be formally documented in writing. So you can go back and say "I had these 10 people who decided they would not come back even though I offered them what they were being paid before." So document that. The answer is they won't hurt you. You can't get reduced for that specific item. That's been made pretty clear in the new rules and regs in the application.

Yeah, you got three categories. They are legitimate rehires, people who are fired for cause and then lastly, people who are just too scared to work and refuse to work. Those are all categories that do not reduce forgiveness, just so everybody's aware of them.

And how about this.

One quick question-

I've seen this a couple times from friends of mine here and colleagues. How does the affiliation rule apply to $2 million? Do you have affiliate companies? Any discussion on that? I imagine that applies to large franchisees who have multiple companies that are intertwined with one another.

Yeah, the question is as it relates to the $2 million audit number, Rick? I think that's where you're headed.

Yes, sir.

So the prevailing thought is, it's all affiliates get combined together for purpose of determining that $2 million audit number. That's the prevailing thought in dialogue right now.

See any other on here Derek, that you can handle real quickly?

Is the 75% payroll at least 75%, or no more than 75%? It's at least 75%. I think the government would rather you pay 100% payroll. That's the whole purpose of it. So it's at least, not no more than.

Workers comp count as payroll costs?

My understanding is workers comp and related insurance costs are not payroll expenses. It's heavily oriented to the employee and the wages you pay them, as opposed to employer paid items. Like FICA is excluded, I'd say work comp gets excluded as well.

Well, we can keep going. Do you see anything that you want to bite off for the next couple of minutes? Or this a good stopping point? What do you all think?

No. There's a lot more questions here. I think we could probably talk for another two hours on them. We received about 200 questions at this point. So we're trying to scroll through and answer them all. I think the best course here would be if you have a question that did not get answered, please email us on the call. And we'll respond to you. And if it's better to talk through it, as opposed to giving it to you in writing, we'll maybe set up a call and talk as well. We want to answer everything we can. But we could probably go for hours and hours and hours.

Let me do one more before while we're still on here. Why don't we talk about retirement plans? I know that's one that came up right here by somebody. But I think it's something that'll come up with plenty of other people. You want to address that real quickly before we get off? We'll make that the last question, if that's okay. Like Derek said, thank you guys for joining. Appreciate the expertise from both these gentlemen and follow up with us individually or collectively afterwards and whether it's scheduled time to talk with you or just answer your questions over email, we're honored to do it.

Under the CARES Act literally says any retirement benefit, very broad. So the employer portion constitutes a wage, not the employee portion. So any retirement benefit, 401k defined con type plans, defined contribution type plans, all covered as a payroll cost.

Right. Thank you guys so much. Hey, Tim, Derek, appreciate your all's expertise. It's an honor chatting with you all. To everyone who listened today thanks for joining in man. We'll see you in a couple of weeks. We'll keep this thing rolling and look forward to hearing from you and watch out for an email from us with an update and a replay of the audio and presentation. Thank you guys so much.


Thank you, everybody.

Y'all take care. Thanks so much for entering The Boiler Room today. You can find our podcasts on iTunes, Google Play, Stitcher TuneIn and Spotify. If you like these podcasts, please listen, rate and review. Also encourage you to visit our website at for the best franchise M&A, and financial resources in the industry. Our website includes podcasts, videos, white papers, webinars and a list of our M&A transactions. Please note that neither Rick Ormsby nor unbridled capital LLC give legal financial or tax advice. These podcasts represent opinions that have been prepared for informational purposes only. We expressly disclaim any and all liabilities that may be based on such information errors or omissions there from