After a rocky start, it appears that more small businesses have been able to take advantage of the government’s Paycheck Protection Program (PPP), an Small Business Administration loan program first announced in early April. The program is open to a variety of businesses, nonprofits, self-employed individuals and independent contractors, enabling them to pay up to eight weeks of payroll costs, as well as rent, utilities, and interest on mortgages. If eligible businesses and individuals meet certain requirements, the loans will be forgiven; otherwise it must be paid back over two years at 1% interest.Here is some of the most relevant information we've determined will help you navigate the seemingly complex PPP rules:
- Develop a plan and a timeline for how you will spend the money. The clock starts ticking as soon as your PPP funds land in your account, so don’t wait until the money arrives to decide how and when you will use the funds. The SBA will forgive your loan if all employees stay on the payroll for eight weeks (some exclusions apply), and your PPP funds are used for payroll, rent, mortgage interest or utilities.
- The SBA has adopted an exemption to the reduction of forgiveness for employees who have been offered their positions to full restoration but have not accepted. There are limits and further rules, if you have this situation, seek additional guidance.
- PPP Borrower will not be penalized for firing an employee for a cause, if employee voluntarily resigns, or if employee voluntarily requests a schedule reduction. Documentation may be requested by the SBA for proof of these events.
- Create a spreadsheet to track PPP-related expenses. This will help you understand how much you’ve spent and how much more you need to spend to qualify for loan forgiveness. Up to 25% of the funds can be used for rent, utilities, and mortgage interest.
- Keep paper/electronic copies of everything. This includes checks, invoices and any other documents that support your legitimate use of the PPP funds.
- Timing of Costs Eligible for Forgiveness. The SBA's most recent guidance has clarified some of the confusion regarding the guidance that expenses must be 'paid and incurred'. According to the latest guidance, payroll costs and utility costs may be either paid OR incurred during the covered period. Be aware, there are additional criteria to meet the Incurred criteria.
- Applying for Loan Forgiveness. On May 15, the SBA released a lengthy loan forgiveness application that borrowers must submit to their lenders, along with guidance on how to fill it out. Docket Number SBA-2020-0032 has further guidance on Loan Forgiveness.
- Keep monitoring the SBA website. Guidance on the PPP has evolved considerably since the first funds came available in April. One resource is the SBA’s frequently asked questions for lenders and borrowers, which was last updated May 27. Additionally, guidance has been released clarifying the use of PPP funds for bonuses stating that employees can get them as long as their total annual salaries do not exceed $100,000. Business owners do not qualify.
If you work with a CPA firm or an adviser, they may be able to help you determine how best to complete the application. At AMDG Financial and AMDG Business Advisory Services, we have been offering to work with clients who need assistance in this area. However, even some CPAs find the PPP rules confusing, so don’t expect any advice to be the last word!
Remember, loan forgiveness may not be the best option for everybody, particularly if your business had to close or is operating at a lower level than you were before the pandemic. If re-hiring employees doesn’t make sense at this time, or if getting a PPP check won’t help you stay in business long-term, you may want to consider other options, or treat the money as a loan you’ll pay back over two years.
As stay-at-home orders relax, and businesses slowly reopen, many aspects of the way we do business will likely change — and some aspects may change permanently. If you haven’t already done so, take time to anticipate what things might change for your business, and how to communicate those to your customers. If we can be of assistance, please let us know.