How Small Businesses Can Get Their SBA PPP Loans Forgiven During the COVID-19 Crisis

June 5th proved to be a crucial day for business owners as President Trump signed new regulations into law changing several key components of the SBA PPP loan. Changes include:

• The extension of the 8-week period to 24-weeks

• The rehiring of employees can now be done until December 31st

• The 75/25 rule has now been changed to 60/40

• The loan now has a 5-year maturity

If you are one of the millions of small business owners concerned about their business and its financial health through COVID-19, don’t worry, you are not alone. With unsteady revenue streams and bills to pay, business owners across the country are looking for a safety net to support them. With the recent release of the PPP Loan forgiveness application, the government has proven their commitment to preserving the many small businesses around the country, while business owners breathe sighs of relief knowing that they can have their PPP loans forgiven. These small business owners and their employees have had to make significant changes in order to mitigate damage during this unprecedented period. The government’s recent introduction of the CARES Act, and most notably the PPP Loan, has proven essential to small business around the country, but one question remains- How can businesses get their PPP loan forgiven?

How Can Businesses Get Their SBA PPP Loans Forgiven?

The application published May 15th has confused business owners, but with the right guidance, forgiving your loan is a relatively simple process. The government has laid out the rules for PPP loan forgiveness, which include proper employee compensation and calculation for both full-time and part-time, and balancing your business’s non-payroll expenses using PPP funds.

How to Use the SBA PPP Loan for Payroll

The PPP loan is intended for the protection of employee payroll in your business and should be spent according to either the 8-week period or the now optional 24-week period outlined by the SBA. A lingering question in regard to the period is payroll schedule, and whether using the loan for payroll going forward or using it on an accrual basis is allowed (covered period vs. alternative covered period). With the recent release of the forgiveness application, this has been clarified, now allowing business owners to cover their previously accrued payroll expenses or for payroll expenses in the coming period. It should be noted however that worker’s compensation is not to be included and the cap for payroll is the 8-week equivalent of $100,000 or $15,385. As previously mentioned, the 8-week period has now been extended to 24-weeks, per recent updates to the PPP regulations signed into law by President Trump on June 5th. Extending your period to 24-weeks is up to you, although you should consider any potential implications of extending the period before you make a decision for your business. The payroll cap still remains unchanged at $100,000.

What is Reduction in FTE Headcount for PPP Loan Forgiveness?

In calculating your reduction in FTE headcount, consider the hours worked of each of your employees during the period of February 15th 2019 to June 30th 2019, and compare that to January 1st 2020 to February 29th 2020. For loan forgiveness purposes, the Feds will look at the lower score of these two periods and then use the lower number to compare to your employee count during the PPP period. This will determine the percentage of your loan that will not be forgiven. Remember that in calculating your FTE, employees who work less than 40 hours are “.5” and those who worked over 40 are “1”.

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How Else Can Businesses Use the PPP Funds?

In order to maximize your potential loan forgiveness, the Feds want to ensure you are continuing to pay your employees the same wages they were being paid previously. In order to ensure you receive loan forgiveness, keep any employee pay decreases or allocations to non-payroll expenses under 40% as anything over that will not be forgivable. This was updated on June 5th from the previously 25% limit on forgivable non-payroll expenses.

PPP Loan Forgiveness Rules for Rent and Utilities

A common question we have been receiving is regarding non-payroll expenses for forgiveness and what specifically qualifies. As long as they were in place before February 15th, 2020, rent payments, mortgage interest payments, utility payments, and transportation/fleet costs all qualify for forgiveness. As a business owner you should also consider the 60/40 rule; 60% of your loan should go to payroll and 40% to non-payroll to maximize potential forgiveness. This was updated on June 5th from the previous 75/25 rule.

How Else Can Businesses Use the PPP Funds?

Although having your loan forgiven can make a considerable difference for your business, we recommend using your allocated funds in a way that is right for your business. Focus on your business’s financial health in the present and keeping it alive and well. The loan is 1% for 5 years, so take advantage of the stability opportunity and allocate funds where you need them, not deciding based only on what is forgivable.

Questions have arisen in regard to using the PPP loan for expansion of your business, and whether this is allowed. As long as the loan is paid back you can use your funds as you deem necessary, bearing in mind that you should be honest with your spending and keep funds within your business only. Loans should not be taken out for personal use. We have found that it may be beneficial for business owners to open a second bank account specifically for the PPP funds to ensure that they are spent only on things they are intended to be spent on. If you find yourself not utilizing the PPP allocation, there is no penalty for returning it and it can be repaid at any time.

How Does the SBA PPP Loan Forgiveness Work?

Getting your loan forgiven has become relatively simple with the recent release of the application. Be aware of the 8-week/24-week period period that starts the day you receive your funds so you can adequately plan for where you wish to allocate funds in order to set yourself up for forgiveness. Again, be sure to consider whether switching to the 24-week period would be beneficial to your financial planning before doing so. As previously mentioned, the SBA PPP Loan is intended for supporting your employees and fulfilling payroll requirements during the period. In order to ensure you maximize your forgiveness, be sure you are putting the majority of your allocation towards payroll. The SBA is also requiring businesses to include supporting documents with their forgiveness application as evidence of payments during the 8-week/24-week period. If you have specific questions in regard to your allocation and its forgiveness we recommend talking to your lender as they will be overseeing and approving your documents.

Does EIDL Reduce SBA PPP?

If you decide to apply for both EIDL funds and the SBA PPP Loan, you must be cautious as to not mix the two. You may be wondering—can EIDL and PPP work together? No, they must remain separate from each other as they fund different parts of your business. Again, the banks will be asking for supporting documentation when you apply for forgiveness, so it is crucial that you keep both allocations (if you receive both) separate and with their respective supporting documentation and receipts.

AICPA Makes Requests to the Treasury About PPP Loan Forgiveness!

The American Institute of CPAs, or AICPA, has recently commented on the many questions still to be answered with the new forgiveness application, stating, “It’s clear the application form and instructions provided yesterday are not enough,” said Erik Asgeirsson, president and CEO of CPA.com, the AICPA’s business and technology arm. “Some of the most pressing issues are not addressed and in other areas it appears new questions have arisen.” (businesswire.com) These pressing issues that the Treasury Department has yet to address has created confusion among business owners, most notably the lack of consideration the 8-week period has for businesses struggling to perform regular business functions during the lockdown. They are pushing for the 8-week period to align with the beginning of payroll periods, not when the money is received, and additionally suggesting the period commences when the lockdown is lifted so businesses can begin to operate before deciding on spending allocations. The AICPA has also released their own version of the FTE calculator which is designed to help business owners better understand their current FTE status, and are suggesting that the payroll reduction calculations be based on average payroll as opposed to total compensation. We are hoping for more clarity in the coming days regarding PPP regulation updates.

As we see the situation continue to develop, keep in mind the possibility of the 8-week period extending to 16 based on congressional decisions, and how this could alter your PPP spending plan. YOCFO will be continually monitoring the situation to ensure we provide the most updated and professional service to you and your business. To stay updated on new developments, connect with us today.

What We’ve Learned

As you consider how you use your SBA PPP Loan, remember that the ultimate goal is to stay in business and survive this trivial time. The government introduced the PPP Loan because they recognize your business as being an integral component to the nation’s economy, and they wish to preserve it and all employees involved. With that said, focus on keeping your business in a healthy financial state, regardless of whether or not specific expenses qualify for forgiveness. By ensuring your PPP loan is used for intended payments, like payroll and general business expenses, you are already on track to maximize your forgiveness.

Please Note: As we see the situation continue to develop, keep in mind the possibility of the 8-week period extending to 16 based on congressional decision, and how this could alter your PPP spending plan. YOCFO will be continually monitoring the situation to ensure we provide the most updated and professional service to you and your business.

Join the FIGSCORE Network by YOCFO on Facebook!

Be a part of our Facebook community of small business owners and attend weekly webinars covering the ongoing SBA PPP Loan Forgiveness Application.

Additional PPP Resources

Here are some resources courtesy of the AICPA to assist you and your business in navigating loan forgiveness.

• AICPA PPP Loan forgiveness calculator

• AICPA PPP Loan forgiveness FAQ Page