PPP Loan Forgiveness is NOT automatic
Updated: May 6, 2020
Updates - April 21, 2020
Spending the Funds
Once the loan is funded, you have eight weeks to spend the money on authorized expenses.
Documentation Needed for PPP
Companies need to document every dollar spent with the proceeds of the loan and provide documentation to the lender at the end of the eight weeks.
NOTE: The government considers funds spent on anything other than the approved expenses to be fraudulent.
Monitoring Spending in the Next Eight Weeks
Per the most recent US Treasury SBA Interim Final rules, 75% of the loan proceeds need to be on payroll with only 25% allowed on the specific operational expenses.
Here is a direct link to the US Treasury SBA Interim Final Rules.
Proceeds of the PPP that qualify for loan forgiveness are to be used for:
Payroll costs as defined in the Act:
Continuation costs of group health care benefits (during periods of PTO for sick, medical, and FMLA) and insurance premiums
Rent and utilities
Mortgage interest payments (but not for prepayments or principal payments)
Interest payments on other debt incurred before February 15, 2020
Prior to receiving the funds, confirm with your financial institution what documentation they will require after eight weeks to guarantee the loan forgiveness.
All eligible expenses should be tagged to clearly state they are related to the PPP. Consider keeping a separate ledger or electronic folder by expense category.
Contact Partners HR when you need to gather the required payroll information.
Maintaining Employee Count and Compensation
For full loan forgiveness eligibility, a business must maintain employee headcount AND compensation levels.
If employee count or compensation level was reduced between February 15, 2020 and April 25, 2020 but is re-established by June 30, there will be no reduction in the loan forgiveness amount.
To determine employee count — compare average number Full-time Employees (FTEs) per month between February 15, 2019 and June 30, 2019
Full-time employees are defined as any employee, in a given month, who averages at least 30 hours of service per week.
For any part-time employee, this is calculated by taking all hours worked by part-time employees in a month and dividing by 120.
To determine compensation level — each employee’s wages compared with the most recent full quarter cannot have dropped more than 25%.
Employees with wages over $100K are not considered for this purpose.
Your workforce is not specific to an individual, so as long as you maintain overall employee count and total payroll costs, you can continue to make solid business decisions with respect to hiring/firing as usual.
What Happens if I Didn’t use all the Funds on Qualified Costs?
Our research has shown that, you may be required to pay back all or a portion of the loan, including interest. Interest will accrue on the PPP from day one, even though you will not have to make any payments for six months following the date of disbursement. The interest will only be forgiven on the amount related to the principal forgiven.
After the eight weeks, you will need to submit a request to the lender who is servicing the loan. The request will include all documents supporting the spending of the funds, number of full-time employees, and compensation levels. The lender will have 60 days to decide on forgiveness.
We highly recommend contacting the bank early on to determine the appropriate loan forgiveness documents