Now that many companies have received an SBA loan under the Paycheck Protection Program (PPP), there are many questions about how to qualify for the potential loan forgiveness.
Recipients have eight weeks from the date PPP funds are received to spend on qualified expenses. Qualified expenses are:
1. Payroll costs – At least 75% of the total loan must be used for payroll costs. Some additional limitations apply for what qualifies under this portion.
a) Any employees that were laid off or furloughed as a result of the pandemic must be offered a job at the same wages they were making prior to the layoff.
b) If previous employees decline the offer, employers will need to show that a good faith effort was made to rehire. Biggest takeaway – documentation is key here to ensure loan forgiveness is not jeopardized.
c) The headcount of the workforce must not be reduced. Any reduction in workforce will result in a reduction in the loan forgiveness.
d) Eligible payroll costs:
i) Salaries, wages, commissions and tips up to $100,000 of annual pay per employee;
ii) Covered benefits for employees only – owners are excluded.
2. Interest only (no principal payments) on mortgage obligations uncured before February 5, 2020.
3. Rent on leases dated before February 5, 2020.
4. Utilities (electricity, gas, water, transportation, telephone, internet) on agreements dated before February 5, 2020.
If there is any portion of the loan that is not forgiven, interest will be charged at a 1% rate. Payments on the loans will be deferred for six months, and there will be a two-year repayment period.
Currently, there is proposed legislation in Congress that may change some of the rules above, especially regarding the payroll portion.
The American Institute of CPAs and other key stakeholders have released broad recommendations for the PPP application and forgiveness processes. They are not meant to be comprehensive, but to help minimize confusion and complexity for applicants and help drive consistency with lenders. Most importantly – to quickly get relief funds into the hands of small business owners and their employees.
Here are links to the AICPA documents and loan forgiveness calculator, as well as the PPP Loan Forgiveness Application provided by the SBA: