Guidance on calculating the forgivable amount of Paycheck Protection Program (PPP) loans is still being developed by SBA and the Treasury Department. The permitted and forgivable expenditures and documentation relating to them should be closely coordinated with your lending bank. Dealers can estimate the forgivable amount by following a complicated two-step formula.The following generalization is a simplification and should be supplemented with the actual guidance once it is available.
Step One: Determine the "presumed forgiveness amount," which consists of "salary" expenses (in this case "salary" means some but not all of the employer's costs associated with maintaining their payroll), utilities, rent, and mortgage interest expenditures in the eight week period beginning on the date of loan distribution. The "salary" category must make up at least 75% of this amount.
Step Two: The "presumed forgiveness amount" calculated in step one will be reduced if there is a reduction in the number of employees and it will also be reduced by salary or wage reduction in excess of 25%. This is subject to the provision that the reductions in employees or wages during the time period of February 15, 2020 through April 26, 2020 are disregarded as long as the reductions are restored by June 30, 2020. Look to your lender and the coming guidance on the precise rules and processes to make that calculation.
It may be helpful to think of PPP using the following oversimplification: It is a loan in the amount equal to ten weeks of employer's "payroll costs" that can be used for two purposes.
- To provide eight weeks of payroll to keep employees working
- To provide the equivalent of two weeks of payroll for use on some of the fixed costs associated with keeping the business operational