The Coronavirus Aid, Relief, and Economic Security (CARES) Act allocated $350 billion to help small businesses keep workers employed amid the pandemic and economic downturn. Known as the Paycheck Protection Program (PPP), the initiative provides 100% federally guaranteed loans to small businesses. Importantly, these PPP loans may be forgiven if borrowers maintain their payrolls during the crisis or restore their payrolls afterward. The first round of funding for the PPP loans ran out in 14 days. Congress recently approved an additional $310 billion in funding to restore the PPP Program, but the new funds are expected to run out even faster than the first round.
The administration’s PPP program guidelines and additional resources can be found at https://home.treasury.gov/policy-issues/cares/assistance-for-small-businesses
Loan Forgiveness Application:
The Small Business Administration released the Loan Forgiveness Application. The application provides clarification in several areas, but still leaves some questions unanswered. We expect further guidance will still be issued prior to accepting the applications. Items added along with the application include an alternative payroll covered period for weekly and bi-weekly payroll, an apparent exclusion of non-cash compensation (benefits) for self-employed owners and Partners, limitations on owner's compensation, and guidance on calculations of full time equivalent employees (FTE's).
Dickey and Tremper, LLP has put together a spreadsheet to help track the usage of PPP loan funds. Your PPP loan may be forgiven if you spend 100% of the funds on payroll, mortgage interest, rent, and utilities in the eight weeks after receiving the loan. You must spend at least 75% on payroll costs and the other 25% can be divided up between rent, utilities, and mortgage interest. If less than 75% is spent on payroll costs, than the forgivable amount of other costs will be reduced. Reducing your employee head count or material salary can also reduce the amount of loan forgiveness. To maintain 100% loan forgiveness on the monies spent, you will 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%.
Please see the US Chamber of Commerce Coronavirus Emergency Loans Checklist for more details on the program and forgiveness
Applying for a PPP loan and navigating how and when to spend the funds can be a complicated process. If you have questions or need help, please contact us, we are happy to help.