You Got Your PPP Loan – Now What About Forgiveness? Many Questions Remain.
SBA LOAN UPDATE: On April 24, 2020, the federal government passed legislation to provide additional funding for the SBA’s Paycheck Protection Program (PPP). If you qualify and believe you might benefit from the PPP, we encourage you to consider applying as soon as possible.
What is the PPP? (Payroll Protection Program)
If you have been paying attention over the past few weeks, The Paycheck Protection Program (PPP), a provision of the CARES Act, offers forgivable low-interest loans to small businesses facing uncertainty during the COVID-19 emergency. The loans were made extra attractive due to the fact that the low interest loans are also forgivable. Although intended to provide assistance to small business owners during this crisis, many loan applicants quickly became overwhelmed by the application process.
The rollout was littered with confusion and unclear guidelines, creating a bottleneck of applications that left many business owners not qualifying for the first round of loans. Payroll companies like Liberty Payroll have played a significant role in helping small businesses and their owners gather the information needed for the banks to approve these loans.
Now that millions of small business owners are receiving loans, and more loans and funding on the way due to recent legislation, it is now important to turn the attention to the loan forgiveness portion of the loan. However, it must be noted that there are still many unanswered questions regarding forgiveness. We are all awaiting further guidance from the SBA. Hopefully this guidance will come fast as questions are mounting. Please proceed with caution, and understand that the below four steps are based on information available at this time and could be subject to change.
4 Steps to PPP Loan Forgiveness (In General):
- What Part of the Loan Can be Forgiven?
The good news is that the entire loan can be forgiven if you spend 100 % of the loan monies on payroll, mortgage interest, rent and utilities in the 8 weeks of the loan, as long as:
- You must spend 75% of the money on payroll
- The other 25% can be used for rent, utilities, mortgage interest and utilities.
You can also use the loan for debt obligations such as credit card payments, but you will NOT receive forgiveness on these costs. The main purpose of the loan is to keep the workers employed and the lights turned on during the hardest part of the crisis.
- Understanding How Your Loan Forgiveness Can be Reduced
Depending on how you spend the loan monies, there are two main actions that can reduce your loan forgiveness:
- Using more than, 25% on non-payroll costs.
- Reducing employees or material salary.
To maintain 100% loan forgiveness, you will either need to keep your payroll as it was before February 15th or hire back and undo wage reductions by the end of the PPP covered period before June 30th, 2020.
If you laid off employees and reduced wages and then received a PPP Loan, it is time to hire them back on and re-instate their salary. Every dollar you spend doing that will be part of the forgiveness.
Liberty Payroll & HR makes it easier than ever to track and document your payroll, including the details required as part of loan forgiveness.
- Documenting All of Your Loan Expenses
From the moment your bank loan hits your account, you will need to track and prove the funds were allocated during the entire loan period:
- Payroll documents verifying salary/wages for the period you used the loan
- Payroll reports from a qualified payroll provider, payroll tax filings, income, unemployment insurance, state employment insurance filings and health insurance contributions
- Documents showing payments of mortgage interest, rent, utilities which can include cancelled checks, payment receipts and account statements.
Sole proprietorships and self-employed people can use up to $100,000 annualized, but the payments must be used for no payroll costs in order to qualify for full forgiveness.
- Following the Lender’s Guidelines
Remember your PPP Loan comes from your lender and they are well within their rights to ask for additional back up and paperwork for the approval through the forgiveness stages of the loan. The lender will have to notify you of your loan forgiveness with-in 60 days of asking for it.
During this pandemic, every dollar counts so don’t let simple mistakes or misunderstanding stop you from loan forgiveness.
Some the nation’s largest banks have faced criticism for processing millions in PPP loans for large businesses earlier this month, while a large percentage of their small business clients were shut out of the program.
At Liberty Payroll & HR – we are here for you, your employees and will help guide you through the PPP loan process and guide you in making the choices that will greatly increase the likelihood of loan forgiveness.
For more information on loan forgiveness, or on how we can assist you in applying for a PPP loan feel free to contact us by filling out a form on our website or giving us a call at (973) 690-5200.