Below is a mash up of the best articles we’ve found on how to get the PPP loan forgiven. We will be documenting your expenses and payroll in the normal course of bookkeeping and we do not recommend our clients need to open a second bank account to track the monies. If clients prefer to do this that’s fine too, just be in touch with your new account info so we know that we need to add it to your file.
So You Got The Paycheck Protection Program. Now what?
The intent of the PPP is to retain your employees and to get employees off State Unemployment. The loan itself follows the same SBA 7a guidelines with the Bank. Check with your SBA lender on questions you have regarding what is qualified for the PPP. The PPP is much more stringent in its requirements and guidelines than the Economic Injury Disaster Loan (EIDL). The PPP is designed to pay out 8 weeks of payroll expenses after loan origination. Payments are deferred for 6 months and you will have 24 months to pay back any unforgiven remainder. You will have to do additional documentation after you receive the loan to apply for the qualified forgivable expenses. Check with your bank.
Lenders will forgive your PPP loan if you spend 100 percent of the funds on payroll, mortgage interest, rent, and utilities in the eight weeks after receiving the loan. You can also use your loan to cover existing debt obligations, such as credit card payments, but you will not receive loan forgiveness on those costs.
The idea is that this loan will keep your workers employed and your lights on for the next two months after you receive the funds.
There are two main actions that will reduce your loan's forgiveness:
Using more than 25 percent of your loan on non-payroll costs: In this case, your maximum forgivable amount will be equal to payroll costs divided by 0.75.
Reducing head count or "material" salary: To maintain 100 percent forgiveness, you'll need to either keep your payroll as it was before February 15, 2020, or hire back and undo wage reductions by the end of the PPP "covered period" on June 30. The total amount forgiven will be reduced proportional to the reduction in head count or decreased by the total amount of reduced salary if you cut an employee's wages by more than 25 percent.
If you have laid off employees or reduced their wages & then received a PPP loan, it's time to hire them back or reinstate their salary. Every dollar that you don't spend on doing so is a dollar you will need to repay, plus interest.
REV ATX will document our client's expenses and we will need you to provide bills and leases to be sure we have all the paperwork we need. Other folks should keep meticulous records. A lender won't simply take your word for it if you tell them you spent your loan proceeds appropriately. From the moment your loan hits your bank account, you'll need to be diligent about how you appropriate your funds and document every expense you make with them.
When it's time to apply for loan forgiveness, bring the following documentation with you to the table, assuming you spent your loan proceeds on all eligible categories:
PAYROLL RELATED: Documents verifying the number of full-time equivalent employees on payroll, and their salary/wages for the period you used the loan to pay them. These could include payroll reports from a payroll provider, payroll tax filings, income/payroll/unemployment insurance filings from your state, and paperwork that verifies retirement and health insurance contributions.
OTHER COVERED EXPENSES UP TO 24% OF TOTAL LOAN: Documents showing payments of mortgage interest, rent, and utilities. These could include canceled checks, payment receipts, or account statements.
Sole proprietors and other self-employed workers can use loan proceeds to replace lost income (up to $100,000 annualized), but if you do this, the remainder of your loan must be used on non-payroll costs in order to qualify for full forgiveness.
Q. Is a 501c6 Non-profit company eligible?
A. Not at this time.
Q. Can the PPP loan be used for seasonal employees that will not be hired until mid-May? And if so, will that loan be forgiven?
A. If you are a seasonal business, you will have to prove that you have already been adversely affected by the disaster. If you are not currently affected, you will not qualify for this loan until you have evidence that you are. If the economic situation continues through your normal start up time and your business revenue is adversely affected, then at that point you could qualify. Stay in touch with your lender so they can monitor your situation.
Q. Do salaries include Social Security and Medicare taxes?
A. No, salaries include state and local taxes. You will still be required to pay Federal withholding on your employees and Medicare taxes, but these are not included in what will be calculated for forgiveness.
Q. Is there a minimum of employees I must keep on my payroll to be eligible for the PPP?
A. No, check with your bank to see if your needs make sense for this program. There may be better options for your business if you have a small number of employees.
Q. Do payroll-related costs include independent contractor costs?
A. No. 1099 contract employees AND Self-employed can apply to the PPP on their own
Q. If I have closed my business because of this virus, am I eligible for this loan?
A. Yes. The purpose of this loan is to retain your employees and allow you to pay them even while your business is closed. If you receive this loan, all costs for payroll (excluding federal taxes and withholding) will be forgiven.
Q. can I apply for both PPP and EIDL?
A. Yes, you can apply for both. If you receive both, you’ll have to roll the EIDL into the PPP, limiting your payback time to 6 months rather than 12. Check with your bank.
. When in operation, employee hours vary week to week, but always less than 40 hrs. How do I pay them? Do I average their hours out or just pay them 40 hrs a week?
A. You can do an average if you like, as long as you meet the rule: Employee and compensation levels are maintained, to qualify for loan forgiveness.
Q. My employees are already receiving unemployment benefits. What if they would rather continue collecting unemployment (because they are most likely making more money)? What do I do as an employer?
A. The point of the PPP is to get employees off of Unemployment. In normal situations unemployment does not pay as much as a full-time job. If you receive the PPP loan you will have two weeks to call back your employees whether you are open or not for business. If they refuse to come back to work, they will not be qualified for unemployment.
Q. So - only 8 weeks of payroll will be forgiven and then I will be responsible for the rest of the loan?
A. The loan proceeds are used to cover payroll costs and most mortgage interest, rent, and utility costs over the eight-week period after the loan is made. There is the expectation that 75% of the loan will be for payroll and related payroll expenses, excluding federal taxes and withholding, to be eligible for forgiveness.
Q. If you have just recently introduced hazard pay to maintain your work force, can the PPP used to fund it? Even though is something you normally don't provide. 2
A. Yes. Talk with your bank.
BUSINESS REALITIES. Many people these days are fixated on the forgiveness feature of the PPP loans. Forgiveness is certainly an important part of the CARES Act incentives for small businesses to retain as many employees as possible and to keep up their wage levels. However, the ultimate objective for those who own and operate such a company will be to protect the long-term health of the business. If business realities are such that you are unable to achieve 100% forgiveness, do remind yourself that, at worst, this is a 1% loan with a two-year payback period with no collateral and no personal guarantee. These are artificially favorable terms and offer a significant injection of cash to help support your company’s operations.
The loan forgiveness features of the Paycheck Protection Program are complex and will require detailed planning, precise execution, and meticulous documentation. REV ATX has got your back.
In good health,
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-Katie and the REVATX team
