The Small Business Administration's (SBA) Paycheck Protection Program (PPP) has been seen as a lifeline for small businesses impacted by the COVID-19 pandemic, with the most significant benefit being that up to 100% of the loan is eligible for forgiveness.
However, achieving loan forgiveness involves a complex application process, extensive documentation and calculations, and specific criteria in regard to use of loan proceeds and employee headcount and wages.
Below are a few key steps to take to best position your business for maximum forgiveness:
- Familiarize yourself with the loan forgiveness criteria.
PPP guidance is complex and ever-evolving. To ensure that you are using loan proceeds in the best way possible to maximize loan forgiveness, it is imperative to stay on top of any important program updates.
- Carefully track the use of funds during the covered period.
Create and implement a system to track the use of loan funds for expenses incurred and paid during the covered period (or alternative payroll covered period). Loan funds should not be used to make advance payments, or to pay invoices that were incurred prior to your loan issue date. Keep copies of all supporting documents, including payroll records; invoices and proof of payment for health insurance and retirement plan contributions; lease records and proof of payment for rent; invoices and proof of payment for utilities; and any loan agreements and copies of debt payments made.
- Reconsider any reduction in employee headcount.
Prior to reducing your employee headcount, carefully consider how this will impact your loan forgiveness calculation and weigh the cost vs. benefit before making any decisions. If you have already reduced your number of FTEEs, consider rehiring some or all of these employees prior to filing your forgiveness application or December 31, 2020, whichever is sooner. Timing is relevant here. If you do not restore 100% of your FTEEs by this date, then your average number of FTEEs during the covered period will be used. This average needs to be as high as you can get it, so rehiring as soon as you can is imperative.
- Reconsider any reductions in employee wages.
During the covered period, on an employee-by-employee basis, track the payroll costs and limit them to an annualized salary of $100,000 per employee. You do not have to reduce an employee's wages to $100,000, but you cannot count the excess wages in the qualified use of funds. For employees making less than $100,000, carefully consider how a reduction in salary will impact your loan forgiveness calculation and with the cost vs. benefit before making any decisions. If you have already made pay reductions that result in employee wages being more than 25% lower than the prior quarter, consider reinstating wages to a level that will ensure eligibility, prior to filing your forgiveness application or December 31, 2020, whichever is sooner.
- Ask for help.
With new guidance being released weekly, keeping up with the latest program updates can be confusing—and several areas still remain unclear. Submitting the forgiveness application that requires extensive documentation and complex calculations can seem daunting. Your CPA can help! CRR has been closely following and analyzing all PPP guidance as it is released, in order to best assist our clients in achieving maximum loan forgiveness. We're ready to help, so please don't hesitate to ask.
If you have questions about obtaining a PPP loan or maximizing your loan forgiveness, leave a comment below, or contact us directly at firstname.lastname@example.org. You can also visit our COVID-19 Resource Center for all of the latest PPP updates, alerts and impacts.