The big selling point for the PPP loan we all heard about is the “loan forgiveness.” Use the funds to keep people working and the rent paid and it is free money.
Worst case scenario is you don’t use 75% for payroll and keep 75% of your team working then you will have to pay it back over two years at a whopping 1%. Still a pretty good deal.
Loan Forgiveness Application
12 days ago the SBA gave us Loan Forgiveness Application. You must complete this app and get it back to the bank you gave you the PPP loan. Their rules seem to change daily. Congress and the IRS still don’t agree on the taxation of forgiven PPP loans. Keeping it all in perspective, if you want PPP forgiveness:
What Did You Spend on Payroll?
To obtain total PPP forgiveness, 75 percent of the loan funds must be used for payroll expenses. So as much as you hate dealing with payroll, review your accounting and be sure you allocated enough funds to wages, salaries, workman's comp, payroll taxes, health insurance, retirement account funding, etc.
How Many of Your Team Members are Working?
Calculating how many employees you have is critical. To avoid reduction in forgiveness keep 75% or more working; and 75% of the Full-Time Equivalent (FTEE) workforce. So you can’t just pay yourself a big salary. You need to spread it around. Luckily the Forgiveness Application has a worksheet to calculate FTEEs.
Deadlines are Paramount
The funds issued should cover an 8 week-period beginning the day your loan funded. Money spent after the 8 weeks is not forgiven.
If your team schedule does not completely align with the 8 week period, the PPP will still cover payroll expenses paid outside that period under the Alternative Payroll Covered Period exception. But only for payroll.
If You Don’t Document it, it Didn't Happen
The Forgiveness Application states businesses must provide documentation showing eligible compensation and benefits paid during the 8 week period.
With the frequent passage of new legislation and the regular issuance of related guidance, navigating the relief options and requirements can be very complicated. It is important to have a professional law firm to support you. You don’t need to do it alone. Reach out and we are here to help.