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Maximize Your SBA Paycheck Protection Program Loan

Start Preparing Now for Loan Forgiveness

BUSINESS | MAY 07, 2020

For businesses that have successfully applied for and received a Paycheck Protection Program (PPP) loan, the reward is a cash inflow to cover payroll related expenses for the next 24 weeks. While this may sound relatively simple, there is great responsibility on the shoulders of the borrower to comply with intended uses and track all monies used.

Borrowers must use the funds predominately (at minimum 60%) for payroll and it is crucial to start tracking and recording at the start of the 24 weeks if they intend to apply for forgiveness. At the end of the 24-week period, your bank will ask for receipts, registers, reports, etc. to verify how funds were used.

Information below is to the best of our knowledge as of June 8, 2020 following the enactment of the PPP Flexibility Act but is subject to change at any time by the Small Business Administration (SBA).

What expenses can you pay for with the PPP loan funds?
  • Payroll costs
    • Salary, wages, commissions, cash tips (In all cases, wages or salary in excess of $100,000 per employee annualized are excluded. FICA, Medicare, and Social Security payments for employees should not be in the payroll costs.)
    • Vacation, parental, family, medical & sick leave
    • Allowance for dismissal or separation
    • Group health benefits, including premiums
    • Retirement benefits
    • State or local tax assessed on the compensation of employees
  • Interest payments on covered mortgage obligations
  • Payments on covered rent obligations
  • Covered utility payments
Any non-payroll expense must have been in place as of February 15, 2020 to be eligible. For example, you can’t pay for a rental agreement that was put into place on March 1, 2020. If you use the funds for something that is not considered a qualified expense, there will be a continuing liability that will carry the five-year duration of the note.

What is needed and when can I apply for loan forgiveness?

Upon completion of the 24-week covered period, you can apply for loan forgiveness. You’ll need:
  • Documentation verifying the number of employees on your company payroll and pay rates for the 24-week period
  • Documentation including checks images, payment receipts, transcripts of accounts, payroll registers or other documents verifying payments for covered purposes
  • Borrower attestation that the documentation is true and correct and that the amount for which forgiveness is requested was used to retain employees or other qualified expenses
  • Any other documentation the SBA deems necessary
What could cause a lesser amount to be forgiven?
  • Employee count – If the number of employees at December 31, 2020 is less than what was recorded on the application, forgiveness amounts may be impaired. The Department of Treasury FAQs (linked below) provide detail on how to document previously laid-off employees who were re-offered a position but declined to return to work. This will not be held against you.
  • Wage levels – Any wage reduction of an employee, by more than 25% when compared to the most recent full quarter during which the employee was employed, may impair forgiveness.
  • Misused funds – Any funds not used for eligible purposes will not be forgiven and could harm your overall forgiveness.
What are best practices for making the process as smooth as possible?
  • Use a separate account – While not a requirement by the SBA, we recommend keeping your PPP loans in a separate bank account to avoid co-mingling with other funds. This will help you track exactly how those funds are used and will make it easy to reconcile fund distribution to the records you have been retaining.
  • Communicate with your lender – Your commercial banker can help you, providing additional information and guidance during the process.
  • Documentation – Maintain very accurate and detailed documentation on all uses of your PPP funds.
  • Start Early – Don’t wait until after the 24-week period is complete before starting to prepare documentation.
  • Check headcount and compensation numbers – Carefully watch your employee counts, and the compensation amounts you pay to ensure that your forgiveness amount is not reduced unnecessarily. You have until December 31, 2020 to restore your business to headcount and salary levels for any changes made between February 15, 2020 and April 26, 2020.
The Small Business Administration (SBA) and Treasury Department on May 16 published the PPP Loan Forgiveness Application and instructions. The document informs borrowers how to apply for forgiveness of their PPP loans, consistent with the CARES Act. The form and instructions include:
  • Options for borrowers to calculate payrolls costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after borrowers received their PPP loan
  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
  • Statutory exemptions from loan forgiveness reduction based on rehiring by December 31, 2020
  • The new exemption for borrowers whose good faith, written offers to rehire workers were declined
There is more specific information expected to come from the SBA for borrowers on completing the application.

Information in this blog is current as of June 8, 2020 following enactment of the PPP Flexibility Act but is subject to change at any time by the Small Business Administration. The Treasury Department maintains a list of valuable documents pertaining to the program for borrowers. You can also find Interim Final Rules for the program, listed by date. You can also find information on the Small Business Administration website, and at the Wisconsin Bankers Association website.

Peoples State Bank is also providing additional tools to help customers document qualifying payments and calculate potential forgiveness. Check out our Business Resources page here.