Your Paycheck Protection Program Loan Has Been Funded – Now What?

May 5, 2020

If you were fortunate enough to be one of the businesses that received funding under the Paycheck Protection Program prior to monies being exhausted under the program, you are likely assessing what are the next steps you need to undertake with your business.  Some relevant measures may include:

Review the 13-Week Cash Flow Rolling Model

This model serves as a guide to project when and how much cash will be needed to operate a business on a weekly basis. This foundation for the model is built on known cash outflows (payroll, vendor payments, debt payments, rent, etc.) offset by expected cash inflows (customer payments, customer deposits, etc.). The assumptions in this model should be adjusted on a weekly basis as more relevant and better information becomes available, including changes in accounts receivable days sales outstanding, negotiated deferrals on cash outflows (changes to days payable outstanding), deferred payment terms on debts, etc. This model provides management a projected cash shortage/surplus on a weekly basis and affords management time to adjust or manage changes in those cycles.

Reduce Your Cash Burn Rate

An important component of liquidity management involves evaluating all measures under which executives can defer or eliminate non-essential cash payments. One frequently overlooked area that can produce cash savings relates to employee Health & Benefit programs.

For businesses that fully insured their healthcare insurance, there is an opportunity to manage their expense. By conducting a benefit analysis and comprehensive underwriting review, CBBC can identify areas of excess cost as well as hidden carrier profit and margin.

Actuarial estimates project the COVID-19 Pandemic may increase total claim costs by 4% which will likely lead to double digit healthcare trends. Carriers will use these new trend numbers as a base line for upcoming renewals on fully-insured programs. Alternative funding is one-way businesses can mitigate the increased trend numbers will have on your future medical premiums by recapturing the excess margins of the insurance carrier.

Carriers use underwriting techniques such as excessive reserving for ongoing claims, inflated trend and margin, as well as hidden administrative charges and profit to inflate a renewal projection. This leaves businesses paying premium for risk that never really gets transferred.

For businesses with over 100 employees that are still operating under a fully insured healthcare insurance model now, more than ever, is the time to consider alternative funding solutions. By evaluating alternative funding solutions and conducting a benefits’ analysis, businesses can reduce one of their most significant expense categories by as much as 15%.

Plan Now for Loan Forgiveness

Qualified expenses to be included in the forgiveness calculation will be those allowable expenses incurred during the 8 week period after PPP loan is originated.

To substantiate loan forgiveness, borrowers will be required to provide documentation supporting the use of PPP proceeds on allowable expenses. These include wages, bonuses, commissions, tips, and other compensation similar to what was used in the loan qualification phase. Also included are cash payments for employer portion of employee benefits, employer contributions to retirement plans, rent, utilities, and interest on mortgages for company facilities. Some employers are considering additional discretionary retirement plan contributions for employees as a way of helping workers deal with the declining stock market and having more of their loan forgiven. Retirement plan contributions are not part of the $100,000 wage cap.

Borrowers should begin accumulating documentation to support proofs of payment. These should include payroll reports from an internal or external payroll provider, proof of payroll payments, cancelled checks, ACH confirmations, wire confirmations, or other forms of receipt.

Four weeks after loan funding, borrowers should assess their level of expenditures and consider whether they will be able to achieve complete forgiveness. In undertaking this analysis, borrowers should remember at least 75% of the forgiven loan amount must have been used to cover “payroll costs” (wages, health benefits, retirement plan contributions and state taxes on compensation) as defined for the loan application process.

There are many planning strategies that can be utilized to maximize PPP loan forgiveness. To learn how Cherry Bekaert can assist you with forgiveness activities click here.

How Cherry Bekaert Benefits Consulting Can Help

CBBC unveils this opaque underwriting practices and helps clients mitigate the impact on cash flow.  Our Benefit Analysis and Underwriting Review will:

  • Evaluate charges and plan design to determine the most advantageous and financing mechanism
  • Calculate carrier’s historical profit earned and leverage this information optimize pricing
  • Verify insurer trend factors which can inflate projections well above the true risk of a plan
  • Review pooling charges and reserve charges of insurer expense components for reasonableness
  • Identifying revenue sources to the carrier from third party transactions (PBM and others)

CBBC can analyze the spectrum of funding alternatives and identify opportunities to reduce carrier profits, state premium taxes, and ACA fees related to fully insured programs. CBBC can also establish an appropriate funding level that will allow the business to implement a more proactive health management program.

By leveraging CBBC Alternative Funding Solutions, CFOs will have greater insight and certainty around expected costs which reduces the perception of increased risk with self-insured programs. HR Directors will also gain greater flexibility in plan designs with little to no impact on employees.

Actuarial analysis shows a very high likelihood that employers with at least 100 employees will beat fully insured costs over five years. Many employers are not aware that self-insured programs are a better solution to manage the costs associated with their health plans.

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