Small businesses and other organizations that have received Paycheck Protection Program (PPP) funds are now looking for assistance with loan forgiveness. The most recent guidance from the SBA was issued on May 15 and we expect more changes and clarifications to come.
Here are our recommendations so far:
- Use a separate bank account if possible to track the funds
- Keep track of all expenses during the 8-week period, with detailed documentation for eligible expenses: payroll costs (75%), and utilities, rent, covered mortgage interest (25%)
- The amount forgiven may be reduced by cuts in wages and number of employees, as compared with a previous covered period - consider rehiring before June 30 to minimize those reductions
- Business owners receiving W-2s are also covered in payroll costs; and all staff salaries are capped at $100,000 annualized ($15,385 for the 8 weeks)
- Expenses may be paid or incurred during the 8-week period
- You cannot use the same expenses for more than one program, and if you received the $10,000 EIDL grant, that amount will be deducted from your forgiveness amount
- Submit the loan forgiveness application to your lender: banks may have their own portal and application process, but there will be a list of records that must be submitted with the application and a list that must be retained for 6 years, and lenders will have 60 days to reply to the application
- There is currently no deadline for submitting the loan forgiveness application, so there is no need to rush into it - take your time to receive maximum forgiveness and take advantage of possible changes yet to come!
- Funds not eligible for forgiveness will be converted into a regular loan with a 1% interest rate, payable in full over a two year maturity period, with an initial payment deferral of six months and with no pre-payment penalty (as long as it is spent on allowable expenses)
- DOCUMENT, DOCUMENT, DOCUMENT!
There are still some "gray areas" within the current regulations, and we will update you when more clarification becomes available.
More information on the PPP and other direct loan programs under the CARES Act are provided in the links below, and contact your Tax Manager if you need additional guidance!