Paycheck Protection Program (PPP) Forgiveness Guidance
You’ve received a Paycheck Protection Program (PPP) Loan. Now what?
The Paycheck Protection Program (PPP) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis.
The loan amounts will be forgiven as long as:
- The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
- Employee and compensation levels are maintained.
Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
While the PPP loan application process may have been daunting, the forgiveness process is proving to be much more complicated and confusing. Borrowers should be planning ahead and tracking their spending to maximize the amount forgiven.
If you need guidance with the Paycheck Protection Program, we are here for you as a resource.
Understanding PPP Loans
The CARES Act expands the eligibility criteria for borrowers to qualify for loans that are available through the U.S. Small Business Administration (SBA) by adding the Paycheck Protection Program to the SBA’s gamut of loan programs. The Paycheck Protection Program provides federally-guaranteed loans up to a maximum amount of $10 million to eligible businesses, which can be partially forgivable (as elaborated below), to encourage businesses to retain employees through the COVID-19 crisis by assisting in the payment of certain operational costs. To accommodate for this SBA expansion, the CARES Act has authorized commitments to the SBA 7(a) loan program, as modified by the CARES Act, in the amount of $349 billion. The Paycheck Protection Program covers the period beginning February 15, 2020 and ending on June 30, 2020 (the Covered Period).
During the 8-week period beginning on the date a PPP Loan is funded (the Forgiveness Period), a borrower will be eligible for forgiveness and cancellation of indebtedness for up to the full principal amount of such loan. The amount eligible for forgiveness (the Total Eligible Forgiveness Amount) is equal to the total costs incurred and payments made during the Forgiveness Period for (1) payroll, (2) mortgage interest, (3) rent and (4) utilities.
The loan forgiveness amount available to a borrower is subject to reduction if the borrower terminates employees or reduces employee salary and wages during the Forgiveness Period. There is, however, relief from the forgiveness reduction if the borrower rehires employees or makes up for wage reductions by June 30, 2020.
BiggsKofford Supports You Through The Paycheck Protection Program Process
The key processes of the PPP Loan Program are:
- Loan Amount Calculation and Supporting Documentation: BiggsKofford has assisted many clients with analysis of the qualified Payroll Costs used to determine the loan amount. We have also assisted clients with gathering the documentation to submit the loan application. Per policy set forth for the loan, we cannot and will not be responsible for submitting the application or signing any necessary documents requested by banks or the SBA. And, we will not act as an agent but will act as an advisor and guide through the process.
- Forecast the Forgiveness: Once the application is submitted for the loan, we can prepare an estimate of the amount that may be forgiven per the rules laid out in the program using our “Loan Forgiveness Calculator”. This forecast will determine if you should expect a shortfall in the eligible spending that will result in a remaining, unforgiven, portion of the loan. The results of this forecast will help ensure that the unforgiven amounts are identified ahead of time and potentially allow you to adjust eligible spending to maximize the forgiveness amount. This process will also provide an 8-week budget to compare against actual spending during the covered period to assist in optimizing forgiveness.
- Forgiveness Calculations: Upon completion of the 8-week Eligible Expense covered period we can assist in preparing all necessary calculations and supporting analysis to be used completing the forgiveness claim. In preparing this analysis we will compare actual spending against the plan and identify any shortfalls or additional spending that was not originally expected so we can reconcile the actual forgiveness claim to the expected amounts.
- Forgiveness Documentation / Receipts: In order to apply for forgiveness, there will be required documentation and records to support the Eligible Expenses claimed over the 8-week period. We can create a shared portal to store this information as it becomes available so that we can match up documents at the end of the Covered Period.
Paycheck Protection Program Support
If you are looking for guidance in optimizing your loan forgiveness and fully utilizing the Paycheck Protection Program to best benefit your small business, contact the experts at BiggsKofford. Our experienced staff is here to help you get the most back from the Forgivable Paycheck Protection Program and create a strategy for utilizing this aid to weather the current climate in the world. Call us today at (719) 579-9090 or fill our our easy-to-use contact form.