PPP stands for the Paycheck Protection Program.  Enacted by the CARES Act and modified more recently by congress, the PPP provides for two (2) year, 1% APR loans that are intended to be forgivable if used for the appropriate payroll and other acceptable purposes including utilities, rent and/or interest on the mortgage for the place of business.

Designed to guarantee businesses the loans they need to cover eight weeks of payroll, along with some utility and rent costs, businesses are able to request 2.5 times their average monthly payroll costs (from 2019) for the PPP loan.  Any small business with less than 500 employees is eligible to apply so long as they were operational as of  February 15, 2020, and to demonstrate that the economic fallout from the coronavirus has impacted them.

So the PPP is a loan?  How do I make it a grant? 

At a minimum, 75% of your PPP funds should be used toward payroll and 25% of the funds may be used for other acceptable and previously declared purposes including utilities, rent, and debt service, and the cost of health benefits but not be more than $100,000 for any individual employee.

In order to get your PPP loan forgiven, maintain the same number of employees or restore employment to the same level it was prior to Feb. 15, 2020. If you’ve already laid off or furloughed employees, technically you have until June 30 to restore them. A business does not have to rehire the same employee, but it has to have the same number of employees it had prior to Feb. 15, 2020.  Nevertheless, most guidance indicates that you will need to invest toward at least 8 weeks worth of payroll in order to satisfy the 75% requirement.  So be careful!

Pay salaries and or wages that are at least 75% of what employees were making before the pandemic hit. Again, businesses that have cut hours or pay have until June 30 to restore the pay levels.

If a business lays off workers and does not rehire them, a portion of the loan will not be forgiven. If a business reduces the wages it pays out to a worker by more than 25 percent during the time it is using the loan, part of the loan will not be forgiven. For further information on reductions calculations, please refer to your lender and/or accountant / bookkeeper.

Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. However, if the loan is used for not approved costs, those portions will also not be forgiven and will have specific repayment terms. Seventy-five percent of the loan must be used to cover payroll costs for the loan to be fully forgiven.

What you need to do when applying for forgiveness after eight weeks?

As has been the case with the PPP in general, guidance related to applying and qualifying for forgiveness of your PPP loan has not yet been fully fleshed out by the SBA or Treasury department. Moreover, the SBA and Treasury department have delegated the responsibility of developing the process for determining who does and does not qualify for forgiveness to the banks and lenders that processed and disbursed your PPP funds.

Therefore, applications for loan forgiveness will be processed by the lender you submitted your PPP application with. They’ll provide you with additional instructions on where to apply.

After you submit your application for forgiveness, your lender is required by law to provide you with a response within 60 days.

Depending on the bank or institution that you worked with to process your PPP application, some will be more hands on than other in terms of guiding you through the forgiveness application. 

For those of you that worked with a small, local, or regional bank that provided some level of human interaction and guidance, you will likely have the same level of service on the back end when establishing your usage of the funds to prove eligibility for forgiveness. However, for those of you that worked with a BIG bank or FinTech company, you are likely going to have little, if any, personalized attention, so prepare yourself accordingly. 

What can I do to help myself deal with the uncertainty?

 

Good record-keeping and book-keeping will be critical for getting your loan forgiven – prepare your books in advance and be on top of your numbers. 

You’ll need to keep track of eligible expenses and their accompanying documentation over the eight-week period. Your lender will likely require these documents in digital format, so take the time to scan any paper documents and keep backups of your digital records.  

These are the generally required documents you will need to collect and provide with your PPP forgiveness application. Keep in mind, your lender may have additional requirements.

Here are some extra steps we feel may help: 

• Create a paper trail to cover your bases and if you can have someone else create it for you such as using a third party payroll company. 
• If you do not have a third party payroll company, consider opening a second account housing and disbursing the funds you received into your payroll.
• Keep copies of any documents related to payroll or eligible expenses such as eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements).
• Additionally, anyone that you laid of should be offered to come back to work.  If they do not, then they will not be eligible for unemployment.   Alternatively, if they do come back, or you hire a replacement, have them sign a document showing when they started back and that their pay was not reduced.
• For those of you that are sole proprietors (used a Schedule C or Bank Statements to secure your PPP loan amount). You may need to establish that the PPP took the place of lost profits. Moreover, in addition to the eight weeks of payroll (which should exhaust at least 75% of your PPP), the remaining funds need to be spent on utilities, payroll, and other approved expenses, such as the ones listed above. Having a seperate account and paying with checks or ACH/Wire with Memos is going to be your best bet for establishing appropriate usage.

What if I’m not approved for forgiveness?

Your lender may allow you to provide additional documentation so they can reevaluate your request.

Otherwise, your outstanding balance will continue to accrue interest at 1%, for the remainder of the 2-year period. There is no prepayment penalty; you can pay off the outstanding balance at any time with no additional fees.

What if I didn’t get enough to cover my lost wages and business? 

 

You can still apply for an EIDL, which stands for  Economic Injury Disaster Loan Program (EIDL), or any number of private and state programs that are avialable.  Many people believe that these funds have been exhausted because they applied for the EIDL Advance of 7(b) and received funds from the government (about $1000 per employee stated).  However, this program is significantly more robust. Although it is not forgivable, it is a 30 year loan at 3.75% and it can be more flexible than PPP in the types of expenses it covers. 

Currently, the EIDL application is accessible here, and can be submitted directly on the SBA website. For more information, feel free to reach out to our team and will we be more than happy to assist you. 

 We hope you found this helpful.  Please check back in with us over the next few days and weeks as we update this and other articles related to the options for your businesses financing during this time. Also, please comment any questions or concerns you might have so that we can get a conversation started.  The more engagement we have the better armed you will be to fight back. 

Sources:

https://www.vox.com/2020/4/3/21196191/cares-act-apply-small-business-loans-grants-ppp-eidl

https://home.treasury.gov/system/files/136/PPP%20–%20Overview.pdf

https://bench.co/blog/operations/ppp-loan-forgiveness/