After many emails, texts, phone calls, and submitting documents many of our clients finally received the funds from the Pay Protection Program (PPP). We suffered in the first round but we got the funds in the second round of PPP. We had a tremendous experience dealing with different banks and now the next step is to plan for the forgiveness part of this program.
These are the most frequent questions I received from my clients regarding this program:
1) How does loan forgiveness work?
The amount of loan forgiveness is generally calculated as payroll cost incurred 8 weeks after disbursement of the loan (excluding compensation over $100,000), as well as payment of mortgage interest, rent, or utilities during that time. You must use as a minimum of 75% of the borrowed loan amount for payroll costs.
2) What is considered payroll costs?
- Salary, Wages, Commission, or tips (capped at $100,000 on an annualized basis for each employee).
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; an allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit.
- State and Local taxes assessed on compensation.
3) Are there costs that are not forgivable?
The answer is a big YES. You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Per SBA program rules, payroll must be 75% of the forgiven amount and the remaining 25% must be spent on allowable expenses under the PPP Final Rule.
- You will also owe money if you do not maintain your staff and payroll.
- Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
- Rehiring: You have until June 30, 2020, to restore full-time employment and salary levels for any changes made between February 15, 2020, and April 26, 2020.
4) What happens to a portion of a PPP loan that is not forgiven?
You will be required to pay back the portion not forgiven on the original terms. The interest rate is 1% with no payments for the initial six months of the term and a maturity date of 2 years from the date of disbursement.
5) What is the timing for determining how much of the PPP loan has been forgiven?
After the eight weeks, you will need to submit a request to the lender who is servicing the loan. The request will include all documents supporting the spending of the funds, the number of full-time employees, and compensation levels. The lender will have 60 days to decide on forgiveness.
We highly recommend contacting the bank early on to determine the appropriate loan forgiveness document. In conversation with the lender I expect the required documentation to be a bit of a moving target in the near-term, so we encourage you to over-document and track everything.
Jiron & Company is here to provide you support on the advising and calculations of the forgiven portion of these loans. Please contact us if you need any assistance regarding this loan.
We are here for you!!
Julio & Staff Members
Jiron & Company, CPA, PA