October 2, 2020

Restaurant Recovery: An Update on PPP Loan Forgiveness during COVID-19

Restaurant Recovery: An Update on PPP Loan Forgiveness during COVID-19 Food & Beverage

As the coronavirus has swept across the country, collateral damage has been far and wide, with the restaurant industry sustaining one of the heaviest blows. The food and beverage industry as a whole has been shaken to the core, impacting businesses all along the supply chain, including restaurant owner-operators, farmers, food distributors, restaurant staff, and more.

The federal Paycheck Protection Program (PPP), created under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, offered a potential lifeline to restaurants and other F&B businesses in the form of forgivable loans.

In late August, the Marcum SBA Task Force partnered with Fourth in a virtual roundtable, to give restaurant owners an understanding of the loan forgiveness program. We covered all of the dirty details including look back periods, the forgiveness application process, and a whole lot more. If you missed this informative event you can click here to access the recording.

During this informative roundtable session, we received a lot of questions that, due to time constraints, we were unable to address. Below is a summary of these issues along with our answers, as well as several updates since the event.

Loan Application

Where do we access Form EZ?

You can download the Form EZ directly from the U.S. Treasury by clicking here.

What are the requirements for Form EZ?

You must meet one of the following three criteria: 1) self-employed with no employees; 2) you did not reduce wages of any employee earning less than $100,000/year by more than 25% during the covered period as compared to Q1 2020 and you did not reduce your FTE during the period 1/1/20 through the end of the covered period (except for the allowable exceptions; or 3) you did not reduce wages of any employee earning less than $100,000/year by more than 25% during the covered period as compared to Q1 2020 and you were unable to operate during the covered period at the same level of business activity as before 2/15/20 due to requirements established by the Secretary of Health and Human Services, CDC or OSHA.

Can you explain the loan size in order to use the Form EZ for filing?

EZ filing is not based on the loan dollar amount. It is based on safe harbors and exemptions. See the answer above for the full requirements to use Form EZ.

When we submitted our PPP loan application, it asked total number of employees. Now on the PPP Loan forgiveness it is asking for FT employees. Total employees vs FT employees is greatly different, what are my options?

Number of employees is reported in the top section of the application, but FTE is used for the forgiveness reduction calculations. You must report both.

The original application advised us to use 2 1/2 months of payroll, but the forgiveness application advised 8 weeks instead. Why is it different?

The additional 1/2 month was to cover some of the non-payroll expenses like rent and utilities.

Safe Harbor

Is there safe harbor for an inability to open due to mandate closures for public safety applicable to all PPP loan sizes? Is it as simple as just checking that box at the end of the forgiveness application form? What sections or schedules on the application do we still have to fill out if we check that safe harbor?

The safe harbor applies to all loan sizes. If you meet this safe harbor and have not reduced wages more than 25% you can use the EZ Form and must complete all sections of that form.

Can you address the Safe Harbor rule as it pertains to mitigating the need to achieve FTE’s due to Government orders impacting closure and/or diminished operations? Specifically these orders may have only impacted a specific time period and not necessarily the entirety of eligible expense qualifying period.

We believe the safe harbor rule would apply if the orders affected any part of your covered period and the orders were issued by one of the agencies indicated in the application instructions.

Do you have to wait on the forgiveness application to have wage data for full 24 weeks to determine if there was a wage reduction? (We are full-service and had to layoff entire service staff before CARES Act.)

No, you would elect the 24 week period but can apply at any time before that 24 week period end if you use all of the funds. However, if you did have a wage reduction during the covered period and apply before the end of the covered period it will be assumed the wage reduction existed for the full 24 weeks.

Is the wage safe harbor based on base wage rates, or total wage rate which can be variable, including tips and tip pool?

The wage safe harbor is based on wage rates.

In terms of the safe harbor, it appears that if you are unable to open your dining room due to governmental orders, you are not required to get back to full employment. Is this consistent with your understanding?


My bar has been forced to shut down by the local government a second time without exhausting our PPP loan. When we are allowed to reopen, I will have a skeleton crew, but still plan to pay from the remaining funds. This will cause our FTE to be reduced by more than half. Will we still qualify for safe harbor?

You should qualify under the reduced business capacity safe harbor.


When can I submit for forgiveness?

You have 10 months from the end of your covered period to submit for forgiveness but you can submit at any time prior to that once the funds have been spent and assuming your bank has opened its’ application process.

Do unused PPP funds that turn into a loan need to be used for payroll and utility only or can they be used to support the business in other ways?

As stated, unused PPP funds turn into a loan. The restrictions on use still apply to funds not forgiven. Funds must be used for payroll costs, rent, utilities and mortgage interest only.

How long will it take for the PPP loan to be forgiven once submitted (if over $2MM)?

The lender has 60 days from the receipt of the application to submit it to the Small Business Administration (SBA). The SBA then has 90 days to review and accept or reject the application. The maximum time should be 150 days from application date.

If you received a PPP loan but the business does not reopen, what are the penalties?

There are no penalties. You will just have a loan that needs to be spent on the allowable uses at some point or be repaid if the business does not reopen.

If you received a PPP loan and the business does not reopen but you transfer or rehire employees to work at another location, how will this affect the loan?

It depends on if both locations were included in the original loan application.

If through the covered period, you become profitable and do not necessarily need the cash, will they deem the PPP funds used forgivable?

Profitability is not a consideration in PPP loan forgiveness, it focuses on use of the funds.

Do insurance proceeds affect forgiveness?

We have seen nothing in the guidance which indicates forgiveness will be reduced by insurance proceeds.

The PTO or vacation expense that you request forgiveness on, is that PTO that is actually paid from something that was previously expensed or PTO that is recorded as an expense and accrued on the balance sheet?

PTO must actually have been paid during the covered period to be eligible for forgiveness.

My understanding is that the forgiveness period is either 8 or 24 weeks. Suppose it would be advantageous if we used a 10 week period. We spent our money in 10 weeks and our FTEs would be higher at 10 weeks than at the end of 24 weeks. Can we use any period between 8 and 24 weeks?

Yes, you can apply before the end of the 24 week period if the funds are depleted.

If you are a franchisor and also have your own corporate locations, do your franchise locations count for the total number of stores in terms of PPP forgiveness?

It depends on what locations were included in the original PPP loan application.

Forgiveness Calculation

Is FTE for PPP loan forgiveness based on 40 hours or 30 hours like the Affordable Care Act (ACA)?

FTE is based on 40 hours per the guidance issued by the Small Business Administration (SBA) / Treasury.

Can a sole proprietor take a draw and use that as PPP forgiveness?

Yes, but a sole proprietor is limited to $20,833 or 2.5X their 2019 Schedule C net income, whichever is lower. And they should wait at least 11 weeks before applying for forgiveness to have the maximum amount forgiven for their payroll costs.

Please clarify the wage reduction. Did you say that any employee that was paid $1,923.08 for any week during 2019 can be removed from the wage reduction calculation? An employee earning a $50,000 annual salary that was paid a bonus of $2,000 at any time during 2019 can be excluded from the wage reduction comparison?

Yes, you are correct, assuming you pay the person weekly. This can greatly reduce the amount of people to perform the calculation on.

If we use funds in 12 weeks can we alter the 24 week timeframe?

Yes, you have 10 months from the end of the covered period to apply for forgiveness but can apply any time before then.

Does the 25% reduction mean in wages per hour or overall pay?

The 25% reduction refers to wages per hour.

When comparing “wages” to former levels in a look-back period, are tips included in that calculation?

When calculating in a look-back period do not include tips, instead use the hourly rate.

How do you calculate weekly wages for a server? Is it an average of their wages and tips? What happens if they take a vacation and are off for a week? Do we count that week in making the calculations?

Yes, average of wages and tips during the period. Do not include in the calculation any unpaid time off.

On the PPP Schedule A Worksheet, should the Cash Compensation include tips received from guests, even though they are not costs incurred by the company?

No. Similar to the question above, do not include cash tips/compensation that are not paid by the employer in schedule A.

What do we do if our FTE number is lower due to many of our employees not returning to work or finding jobs elsewhere?

If you made a good faith written offer to rehire and it was declined and you were unable to find suitable replacements you do not have to include these employees in your calculations so you will not be penalized.

Do bonus wages from look back period count when determining 25% wage reduction when comparing your 2020 post PPP pay?

If they were paid during the lookback period possibly.

By the “end of your loan period”, used for measuring whether labor has been returned to former levels, are we evaluated on the last day, week or pay period?

You are evaluated on the last pay period.

If an employee works from 9-5, but takes an hour lunch would that be considered 40 hours or 35 hours?

It depends if the employee is hourly or salary? If the employee is salaried and the normal work week is 35 hours, assume 1 FTE for these employees. If the employee is hourly, use 35 hours.

We have hit our FTE count at this point, but our business will slow now and the FTE will drop during the remainder of our covered period. Does it matter when in the 24 weeks we hit our FTE? Or do we have to maintain it?

End the covered period and apply for forgiveness once the funds have been exhausted and then there is not currently a requirement to maintain FTE levels after that point.


Will there be a second draw for PPP?

Uncertain until Congress reconvenes. We don’t expect much communication on this topic until after the election in November.

In your opinion, will $2m (or less) PPP loans be automatically forgiven? Articles from the US Small Business Administration suggests this may be coming.

In the midst of an election season there is a lot of uncertainty in Congress. Uncertain until Congress reconvenes we will not have any answers here. It is doubtful loans less than $2MM will be automatically forgiven but there is speculation that loans less than $150,000 may be.

Can you please update us as to the status of the Restaurants Act of 2020 as well as additional rounds of PPP funding?

Similar to the above two questions, there is still uncertainty with congress based on the upcoming election. Upon Congress reconvening we will be short of answers.

How many PPP loans were over $2MM?

There are approximately 29,000 PPP loans that were issued over $2MM for the federal government.

Can I hire employees back by 12/31/20 and lay them off in early 2021 and still be covered on the FTE for forgiveness?

There is nothing in the guidance that requires you to maintain your FTE levels after the covered period or 12/31/20, whichever comes first.

We are having problems reaching the 60% mark for payroll forgiveness on the SBA loan we received. Can we fill the gap on that using bonuses to employees?

Yes, however the $100,000 annual salary cap per employee applies.

What is the related party rent limitation?

If the lessor and lessee of the property are related, only the mortgage interest, not the rent paid, is an eligible expense for forgiveness. The lessee or the lessor can claim the interest but not both. If there is no mortgage then there is no eligible expense.

What are the dates for the FTE reduction?

You can select either 1/1/20-2/29/20 or 2/15/19-6/30/19. If you are a seasonal employer you have a third option of any consecutive 12 week period between 5/1/19-9/15/19.

I understand that transportation costs may be included. We are a wholesaler – would our costs of diesel fuel for our delivery fleet qualify?

We have seen some guidance that indicates they may be, but this has not been confirmed as of this date. Per the Treasury FAQs, A service for the distribution of transportation refers to transportation utility fees assessed by state and local governments. Payment of these fees by the borrower is eligible for loan forgiveness.

If you were unable to open during covered period and/or do not use all your PPP funds during the covered period can you use funds after the covered period? Do those funds used automatically become a loan?

Yes you can use the funds after the covered period but they would not be forgivable and would turn into a loan. Only funds used during the covered period will be forgiven.

Does the payroll forgiveness amount include the taxes and employer liability or just the payroll?

Just gross wages, no employer federal taxes are eligible. State or local taxes assessed on wages are eligible such as state unemployment paid by the employer.

Can you use payroll for the EIDL loan if it covers a different payroll period?

Yes, you can use payroll for the EIDL loan if you use it outside of the PPP covered period.

Can you use PPP funds for any other business expense outside of payroll?

At least 60% of PPP funds must be used for payroll purposes only. The remaining 40% may be used for rent, utilities and mortgage interest. Other business expenses are not allowable uses of the funds.

What is the impact of EIDL loans and PPP? Where can we find guidance on these loans?

We recommend not using the EIDL and PPP funds for the same purpose during the covered period. Otherwise there would be no impact, unless you received the EIDL advance which will reduce the forgiveness on the PPP loan.

If you do not use all of your PPP loan can you simply return the unused portion?

The unused funds turn into a loan that you can pay off, but interest has accrued from the beginning of the covered period so you will need to pay the accrued interest as well.

Many business owners have applied for Paycheck Protection Program loans, created under the CARES Act, as an incentive for employers to maintain payroll during the COVID-19 pandemic. In accordance with the Act, the SBA will fully forgive all loans under the Paycheck Protection Program, provided that all borrower requirements and documentation are met. Marcum can guide your company through the applicable regulations, as they continue to evolve.