PPP Loan Forgiveness 

 

If you and your small business (undoubtedly with the help of your banker) have been fortunate enough to navigate the Paycheck Protection Program (PPP), congratulations!  We’ve heard of many success stories of Main Street businesses receiving their funding.

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One of the pillars of the program is the potential for loan forgiveness, if you spend these particular dollars on certain costs and expenses.  Therefore, the meticulous record-keeping and penny-counting begins! 

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You have 8 weeks to spend the proceeds on certain expenses.  That clock starts when you receive the proceeds. 

• Keep in mind that the manner in which your PPP proceeds are spent may be closely scrutinized at the end of this 8-week period. Put methods in place now to safeguard these amounts to be able to accurately document the uses of the funds for authorized and forgivable costs.  

• While the forgiveness protocol is still being developed, there will likely be an additional loan forgiveness application at the end of the 8-week period which will require verification.

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Remember that at least 75% of the loan proceeds must be used for “payroll costs.” 

• The Small Business Administration (SBA) requires that at least 75% of the loan proceeds be used for “payroll costs.” Further, at least 75% of the forgiven amount must be attributable to “payroll costs,” and no more than 25% of the forgiven amount may be attributable to eligible expenses other than “payroll costs.”

 

Maintain proper documentation to substantiate “payroll costs” and other authorized costs paid during the 8-week period.  PPP loan funds should only be used for:

• Compensation (salary, wages, commissions, cash tips, etc.) of individuals up to $100,000 per year ($8,333 per month)

• Payment for vacation, family, medical, and sick leave

• Severance pay

• Payment for group health-care benefits, including insurance premiums

• Payment of employee retirement benefits

• Payments of interest on existing mortgage obligations as of February 15, 2020

• Rent payments on existing leases dated before February 15, 2020

• Utility payments 

 

It’s important to note that for purposes of PPP Loan Forgiveness, payroll costs DO NOT include:

• Payroll costs do not include Federal employment taxes.

• Payroll costs do not include compensation for employees whose principal place of residence is outside of the United States.

• Payroll costs do not include sick leave wages or family leave wages for which The Families First Coronavirus Response Act allows a payroll tax credit.

• Payroll costs do not include employer payments to independent contractors.

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While the specific documentation required to apply for loan forgiveness has not yet been published, and may vary from lender to lender, reasonable documentation is likely to include:

• Payroll tax filings and other appropriate documentation (i.e., cancelled checks, payment receipts, and transcripts of accounts) will be necessary to document that the proceeds were spent on authorized expenses during the 8-week period.

• Invoices from insurance providers for health and medical benefits during the 8-week period.  

• Invoices for monthly rent and utility payments, or loan statements for mortgage payments, during the 8-week period.

• You might consider a segregated bank account to track spending of the proceeds.  There are also ways to set up separate accounts in your general ledger system to track the uses of your PPP proceeds.

• The SBA has indicated that it will be issuing additional guidance regarding loan forgiveness. However, you should contact your lender directly to confirm what its loan forgiveness process will be, and what documentation it will be requiring.     

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The amount of loan forgiveness will be reduced if you do not maintain your staff and payroll.

• If you are still forced to reduce your workforce, remember that your loan forgiveness will be reduced if you decrease your full-time employee headcount or if you decrease compensation by more than 25% (compared to their most recent full quarter) for any employee that made less than $100,000 annualized in 2019.

• However, reductions in employment or wages that occur between February 15, 2020 and April 26, 2020 (as compared to February 15, 2020) will not reduce your amount of loan forgiveness if you eliminate such reductions by June 30, 2020.

All of this will require fastidious record-keeping but will be a small investment in paper-pushing if the result is loan forgiveness.  Contact NexTier if you need assistance in applying for the PPP Loan or with aspects regarding documentation of authorized costs under the program.