When the CARES Act was signed into law, it created the Paycheck Protection Program (PPP), which is a new loan designed to help small businesses pay employee wages and other critical expenses.  Proceeds from this loan can be forgiven if certain criteria are met.

Once the PPP proceeds are deposited to your account, the original guidance stated that businesses must spend those funds within an eight-week period in order to be assured maximum loan forgiveness.

Loan proceeds must be used on payroll costs, mortgage interest incurred before February 15th, 2020, rent (lease agreement must be in force before February 15, 2020), and utilities (for which service began before February 15, 2020.)

Payroll costs are defined as:

  • Salary, wages, commissions, or tips (max of $100,000 per employee)
  • Employee benefits, including vacation, parental, family, medical, or sick leave
  • State and local taxes

Examples of Situations That Would Reduce Loan Forgiveness

  • Loan forgiveness will be reduced if an employer decreases their number of full-time employees
  • Salaries/wages must not be decreased by more than 25% for any employee earning less than $100,000 in 2019
  • Full-time employment and salary levels must be restored no later than June 30, 2020

Requesting Loan Forgiveness

Comprehensive recordkeeping is imperative!  To request loan forgiveness, the borrower must contact the lender that is servicing the loan and submit the completed SBA Form 3508.  The lender has 60 days to make a determination on whether or not the borrower qualifies for loan forgiveness.

Changing Rules and Lots of Gray Areas

 

Congress, the Treasury Department, the Small Business Administration, banks, and the IRS are all involved in this program, which has led to conflicting guidance and many unanswered questions.  The penalties are stiff for impropriety or fraud.

 

What Happens If My Loan Is Not Forgiven?

For any portion of the PPP loan that is not forgiven, interest is charged at a rate of 1%.  Payments are deferred for 6 months and full repayment of the loan is due in 2 years.

If you need help with calculations or interpretations, feel free to contact us so we can provide advisory services for this process.