Month: July 2020

The Paycheck Protection Program (PPP) is a loan program worth nearly $670 billion.

It was enacted by the U.S. Federal Government under the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

With a PPP loan, small business owners could have access to the funds required to keep their operation afloat throughout the COVID-19 pandemic. To achieve PPP loan forgiveness and avoid repayment, there are several important steps that these business owners must follow.

Today, we’re taking a closer look at those steps, sharing insight into how you can get PPP loan forgiveness.

What Is a PPP Loan?

A PPP loan is a monetary incentive given to U.S. business owners by the U.S. Small Business Administration (SBA) 7(a) small business lending program.

The goal of a PPP loan is to allow those business owners to keep their employees on payroll funding while navigating the operational setbacks associated with COVID-19.

Under the program, qualifying borrowers could apply for a loan amount up to 2.5 times their average monthly payroll. With a per-borrower cap of $10 million, the funds could be used to cover multiple business expenses, including:

• Payroll
• Rent
• Mortgage interest
• Utilities

Applicants were encouraged to apply by the loan deadline of June 30, 2020. The final cutoff date to use the loan for eligible expenses is December 31, 2020.

For the SBA to extend forgiveness on a PPP loan, business owners must be able to prove that they have met certain employee retention criteria. In addition, they must be able to demonstrate that they have used the allocated funds to cover appropriate, approved expenses.

On June 5, President Trump signed the Paycheck Protection Flexibility Act.

This extended the coverage period of PPP loans, as well as the eligibility period for PPP loan forgiveness. Now, business owners can choose to take 24 weeks to maintain coverage and seek PPP loan forgiveness, up from the previously allowed eight weeks.

If you do not apply for PPP loan forgiveness or are not approved for it, your PPP loan will function similarly to a business loan. So, if your loan was issued prior to June 5, it has a maturity of two years. If it was issued after June 5, your loan has a maturity of five years.

All PPP loans carry an interest rate of one percent.

Applying For PPP Loan Forgiveness on a PPP Loan

The SBA’s instructions on how to apply for PPP loan forgiveness were updated on June 16, 2020.

To apply for PPP loan forgiveness, borrowers have two options:

• Complete the Form 3508EZ Application
• Complete the Paycheck Protection Program Loan Forgiveness Application

The most challenging part of completing your application is calculating the numbers required under the payroll section.

Next, let’s take a look at all of the sections you’ll navigate. Note that these are general guidelines and it’s best to work through these sections with your business accountant or financial advisor.

The 8-Week vs. 24-Week Coverage Period

Not sure if you should take the eight-week period or the new 24-week option? As long as you received your PPP loan on or before the new rule came into effect on June 5, you can choose.

The advantages of the shorter time period include:

• Quicker PPP loan forgiveness
• Easier to maintain employee staffing requirements

On the other hand, extending your loan period gives you more time to plan. You can also take advantage of the new payroll cost calculations.

There’s no right or wrong option, but you’ll need to weigh which one works best for your needs.

If you opt for 24-week coverage under the new rule, this period began on the date that your lender issued your first payment. Any payroll expenses that your workforce incurs over those 24 weeks are eligible for PPP loan forgiveness.

Note that due to the December 31 deadline, if your loan is dispersed on or beyond July 16, you will not be able to take full advantage of the 24-week eligibility period.

The 60/40 Payroll Rule

Before the rule was modified, borrowers had to spend at least 75 percent of their loan amount on payroll costs.

Now, that number is reduced to only 60 percent.

This means that you must use 60 percent of your funds to maintain staffing levels, while the remaining 40 percent can be used on miscellaneous qualified expenses. Payments made to independent contractors do not qualify.

Your forgivable amount will scale to meet the amount you spend on payroll. For some business owners, this will equal 100 percent of the loan amount.

Staffing Calculations for PPP Loan Forgiveness

Throughout your lending period, you must keep the same number of full-time equivalent (FTE) employees on your payroll.

To make sure you meet this requirement, you can perform a few simple calculations.

Calculating FTE Employees

First, calculate the number of FTE employees you had on payroll during the initial 8-week period following your loan disbursement. This is known as Period A.

Then, calculate the number of FTE employees you had from February 15, 2019, to June 30, 2019. This is Period B1.

Finally, calculate the number of employees you had from January 1, 2020, to February 29, 2020. This is Period B2.

Determining Staffing Eligibility

Divide Period A by Period B1. Then, divide Period A by Period B2.

Take the larger of those two answers. Note that if you’re a seasonal employer only, you’re required to divide by Period B1 only.

Is the answer equal to or more than one? If so, you meet this SBA requirement for PPP loan forgiveness, as you have maintained your headcount during the eligibility period.

If your answer is less than one, it reveals that you did not maintain your headcount. As such, the SBA will reduce your forgivable expenses.

Navigating Rehiring Refusals for PPP Loan Forgiveness

There’s one important factor to understand when performing the above calculations.

To maintain staffing requirements, you might reach out to former employees who you furloughed or laid off due to the COVID-19 pandemic.

However, those employees are not obligated to continue working for your company and may reject your rehiring offer.

If this happens, you can exclude this employee from your calculations when you are determining PPP loan forgiveness eligibility. To qualify for this exemption, these employees must have been on your payroll at least until February 15, 2020.

The SBA will grant this exemption if your circumstance meets the following qualifications:

• You submitted a written rehiring request in good faith
• If you offered to rehire at the same rate and hours as they had before the layoff
• You have documentation of the employee’s written rejection

Other reasons the SBA will allow you to exempt an employee from your payroll calculations include:

• If you fire an employee with just cause
• If an employee voluntarily resigns
• When an employee voluntarily requested and received a reduction in hours worked

If you have any unfilled positions, the SBA may require evidence that you attempted to fill them with similar talent but were unable to do so. You may also be able to demonstrate that your operating levels had to minimize for safety reasons.

Salary Requirements

The SBA requires that borrowers maintain at least 75 percent of total salaries during the loan period. This applies to every employee who received $100,000 or less in annualized pay in 2019.

What happens if an employee’s pay dips beyond that level?

If their compensation over the initial eight-week loan period is less than 75 percent of what they received over their most recent employment quarter, the eligible PPP loan forgiveness amount is adjusted. In this case, it would be reduced by the difference between the employee’s current pay rate and the required 75 percent salary threshold.

Documents to Assemble Prior to Applying for PPP Loan Forgiveness

When you’re ready to submit your application for PPP loan forgiveness, it helps to have all of the required documentation right in front of you.

The key forms to assemble include:

• Staffing documents revealing FTE employees on the payroll, including pay rates
• Payroll reports
• Insurance filings (income, payroll, and unemployment)
• Payroll tax filings
• Documents verifying contributions to retirement and health insurance plans
• Documents verifying active interest, rent, and utility payments for February 2020 and beyond

Keep in mind that over the course of your PPP loan, you’ll be required to take excellent notes and keep neat records. The SBA will require details and documentation on all eligible expenses.

In most cases, your lender will request these papers in digital format. If you have hard copies, scan them into your computer so you’ll be ready when the time comes. If you have an automated bookkeeping solution, this platform can help with the overall organizational process.

Understanding and Optimizing Your PPP Loan Forgiveness Plan

The SBA 7(a) PPP loan was designed to help U.S. business owners navigate the challenges and hurdles they might face in the wake of the COVID-19 coronavirus pandemic.

With shutdowns in place across the country, many businesses are operating under limited hours. Many have shut their doors altogether while they weather the storm. Meanwhile, they can continue paying salaries, administer benefits, and keep their office spaces functional thanks to this incentive.

As you apply for PPP loan forgiveness, remember to take it one step at a time. Your accountant can help you gather the necessary documents, so you don’t miss a line.

If you need more finance-related advice and assistance, we encourage you to check out the rest of our site. We provide many professional services to help business owners, from e-commerce solutions to credit card processing.

Check out our full suite of options and let’s connect!

The global economy is in peril due to the coronavirus pandemic. Across the United States, businesses are closing their doors at the government’s request. How can American businesses expect to survive without revenue?

There is a sliver of hope during these distressing times. The United States government authorized the Paycheck Protection Program (PPP) to bailout business owners and their employees. While the program has been ongoing, there is currently $130 billion in remaining funds.

Read on to learn how you can apply for a PPP loan. Explore everything you need to know about the PPP and how it can save your business.

What Is the PPP?

The PPP is a loan from the United States federal government. It provides businesses across the country with an incentive to keep their employees on the payroll.

What makes PPP different than ordinary government loans is that every business is eligible for forgiveness. Loan forgiveness is awarded to each business that meets the employee retention criteria.

The loan is forgiven if a company uses at least 60% of it on payroll costs. Collateral is not required and loan payments do not begin until six months after the funds are received.

Funds can also be used on non-payroll expenses. Examples include utilities and interest on the mortgage or rent.

However, the percentage of the loan forgiven depends on how the company handles payroll expenses. If a business reduces salary or cuts hours, partial loan forgiveness is calculated.

There are a few exemptions from the loan forgiveness reduction. One such example would be if you make a good faith attempt to rehire workers and they decline.

Why Is the PPP Necessary?

American businesses did not close on their own accord. The United States government declared a public health emergency.

In order to keep the general public safe, state governments issued stay-at-home orders. These executive orders issued by a state’s Governor mandated that non-essential businesses close their doors.

At the same time, the government recognized the severe impact that stay-at-home orders would have on the American worker.

Under normal circumstances, a business that is not earning revenue would look to trim payroll. These businesses would have no choice but to lay off or furlough their employees.

Therefore, Congress passed the PPP to keep businesses afloat and employees on the payroll. The PPP is intended to be a temporary measure until the coronavirus pandemic is under control.

Does the PPP Work?

The PPP has been successful and prevented a much deeper economic recession in the United States. Thus far, the United States has doled out more than $500 billion in loans via the PPP.

There is no question it has saved jobs.

Despite historic unemployment of nearly 15% in April, small businesses are rehiring their employees. The unemployment rate is now 11% in June and the PPP is credited with saving 16 million jobs in total.

The bottom line is that the PPP is an unquestioned success. For this reason, Congress recently extended the program out to August 8th.

Can My Business Apply for the PPP?

There are some eligibility requirements to apply for the PPP. This program was designed specifically for small businesses that were directly affected by the coronavirus pandemic.

For starters, your company needs to meet the size criteria defined by the U.S. Small Business Administration (SBA). Depending on what industry you are in, the SBA is going to verify that your company qualifies as a small business.

There are a few other entities that may qualify for a government loan. For example, accommodations and food services companies with more than one physical location may apply. This is true as long as they have less than 500 employees at each location.

Other entities that are eligible include 501(c)(3) non-profit organizations and Veterans organizations. Businesses with a Tribal designation under the Small Business Act may also be eligible.

Finally, the government recognizes the growing freelance and self-employment workforce. For this reason, independent contractors, sole proprietors, and self-employed workers may be eligible for the PPP.

How do you Apply for a PPP Loan?

Now that you understand the basics of the PPP, it is time to submit your application. The first thing you need to do is find a bank that processes SBA loans which can be accomplished by running a search using your zip code.

The PPP application is easy to fill out. There is a list of yes or no questions. You then have to initial next to a series of certifications.

In total, the application is only two pages long. Continue reading here for some guidance on the application.

Contact Information

The first section is going to ask for some contact information. In general, the SBA wants to know the name of your business and where it is located. They will also ask for information on any owner with more than a 20% stake in the company.

In addition, the SBA wants phone numbers and e-mail addresses where you can be reached. You will also have to identify your business type and tax identification number.

PPP Loan – Specific Information

Next, the application asks for some information about your business. For starters, how many employees do you have and what is your average monthly payroll?

The application is going to ask you to multiply your average monthly payroll by 2.5. The result of this simple calculation is your loan amount request.

You will also see a reference to adding EIDL to your average monthly payroll. This applies to businesses that have an outstanding balance from an Economic Injury Disaster Loan.

Finally, this section is going to ask for the purpose of your loan. This is verification that you are using the loan for payroll, mortgage/rent interest, or utilities.

Questions

Next, there is a serious of eight yes or no questions. The objective of these questions is primarily to ensure the government is not loaning to an undeserving person. They will ask questions about any criminal history or if the business has defaulted on a prior federal loan.

They also want to know if your employees work and reside in the United States. Another question asks whether you received an SBA EIDL between January and April 2020. Finally, the government also asks if your business is listed in the SBA Franchise Directory.

Certifications

The final section is a list of certifications and authorizations in which you need to add your initials. Here, you will certify that you have employees on payroll and reported on IRS Form 1099-MISC. The SBA also certifies that your business is in distress and needs financial support.

You will also have to indicate your understanding of liability in the event funds are used for unauthorized reasons. The government wants to make it abundantly clear that loan funds are to be used for payroll, utilities, and mortgage or rent interest. This includes the future provision of any supporting documentation for these expenses.

Another acknowledge is of the programs 60% to 40% split for payroll vs. non-payroll items. More than 40% of the loan cannot be used for non-payroll expenses.

It is important to indicate your understanding that you will not be eligible for additional PPP funds for the remainder of the calendar year. Lastly, you agree to share your company’s tax information with the SBA.

How to Submit a PPP Loan Forgiveness Application?

Once you are approved for PPP, the next step is applying for loan forgiveness. This application is actually longer than the loan version.

The reason for the additional length is that there are separate forms included as an appendix to the primary application. Some of the requested information is the same, but the emphasis is now on incurred costs.

On Schedule A, you are calculating any applicable reductions to the loan forgiveness amount. This occurs if your company reduced the number of full-time equivalents or cut salary during the covered period. The calculations on Schedule A are carried up to the primary application.

On the first page, you begin a forgiveness amount calculation. It will ask how much money your company spent on payroll, utilities, and mortgage/rent interest.

Next, the primary application will ask you to adjust your payroll values based on Schedule A. This leads you to a modified total for a potential forgiveness amount.

Lastly, you will select the loan forgiveness amount. This is the smallest of three potential forgiveness amounts. Of the three, there is a modified total described above.

The other two are the loan amount and the 60% payroll threshold. You get this by dividing your payroll expenses by 0.6.

A Recap of Applying for a PPP Loan

PPP is a means to save your company from financial ruin due to the coronavirus pandemic. It can also help retain your workforce and ensure they can continue to provide for their families.

The key takeaway is that funds must be used for authorized expenses, with the bulk going towards payroll. You will be asked to document this during the loan application and later for loan forgiveness.

If you are interested in applying for a PPP loan, contact us today for assistance or to submit an online application for other types of funding for your business.