As many clients have received or will be receiving funds for the PPP we want to answer some questions regarding loan forgiveness and offer some advice on keeping track of PPP Loan funds.
Loan Forgiveness
We do have some information about loan forgiveness with the PPP but there are still unanswered questions on specifics. We are waiting on further guidance from the SBA on loan forgiveness.
The 8 week loan forgiveness period begins the date you receive the funds in your bank account. Please ensure you have the loan amount and date the PPP funds were deposited.
Forgivable portions of the loan can only be used for payroll and other qualified expenses (rent, interest, utilities).
The Loan forgiveness amount is weighted meaning 75% of the forgivable amount must be used for payroll expenses. Rent, utilities, and interest can only make up 25% of the forgivable amount.
Example: If you received a $75,000 PPP Loan and you spend $35,000 during the 8 week period on qualified payroll expenses, then you can spend up to $8,750 ($35,000*25%) for rent, utilities, or interest that would become forgivable. The remaining amount would be $31,250 ($75,000-$35,000-$8,750), which would be considered non-forgivable and that loan amount must be repaid. No payments are due for 6 months and it carries a 1% interest rate with a 2 year payback period.
Don’t make business decisions based solely on loan forgiveness. If a portion of your loan is not forgiven any remaining funds are at a 1% interest rate (that’s incredible). Some businesses may choose to pay back the remaining funds immediately, others may keep the excess cash for operations with a low interest rate.
The goal is to maximize loan forgiveness in a way that makes sense for your current operations.
If you are currently open for business:
Run your regular payroll for employees and pay them the same rates you were before COVID-19 (forgiveness is decreased if an employee’s wages dip by 25% or more from Q1 2020). Keep track of all expenses and ensure you run payroll for all employees through the exact date of the 8 week period.
If your operations are suspended and you have employees who are on unemployment:
The solution is less clear cut.
Re-hiring employees while you have suspended operations could be an answer
If you have more employees back on the payroll, you’d have more loan forgiveness and a greater portion to spend on non-payroll items (75%/ 25% rule).
Many employees are currently making more money on unemployment than they were employed due to the increase in unemployment benefits. Some employees will not want to come back until your operations resume.
You will need to have employees rehired by June 30th to maximize the PPP Loan forgiveness.
Our advice for those with suspended operations:
"Don’t make business decisions based solely on loan forgiveness.
Make the best business and people decisions and then maximize the loan forgiveness under that framework"
Some are advising to rehire all staff immediately upon receiving funds. We are advising a bit more caution as you do not know what the re-opening period will look like and how your business income could be affected over the coming months.
If business is slow for a while after re-opening, you could regret rehiring a full staff right away even if that would maximize your loan forgiveness right now. These are tough decisions with a lot of unknowns.
Calculate your total non-payroll qualified expenses for the 8 week period. (Video on that here) This can help inform staffing and timing decisions. You’ll know what amount you’ll need to run in payroll over the 8 week period to maximize loan forgiveness.
As soon as you receive PPP Loan funds- rehire employees who have not received unemployment benefits and pay them their normal wages during the 8 week period. As you look to re-open, re-hire the staff as needed.
Run regular payroll, pay yourself as you normally would (capped at $100K in gross wages per year) so $15,384.62 per 8 week period (($100,000 / 52 weeks) x 8 weeks). We are waiting on SBA guidance on how to best maximize forgiveness for owners and related family members (i.e. If the owner was paid $80,000 in the past, can you max them out at the $100,000 cap?).
Pay rent, utilities, interest, employer retirement contributions, employer health insurance during this period.
PPP Tracking
Keep detailed records of employee work hours during the 8 week period. Make sure you have hourly employee hours worked by day. If you are on Gusto for payroll, they do have a tracking report they are updating as new guidelines emerge. In Gusto, you can input the PPP Loan amount you received and the date you received funds to track in their system. Look for a notification on your dashboard or go to Reports/ PPP Tracking/ Input your loan information.
Reimburse qualified expenses for the portion of the month you received funds. For example, if you received funds on the 15th of April and you paid $5,000 for April for rent, $2,500 should be allocated to the loan forgiveness (April 15th-April 30th).
For our clients- we’ll be tracking potential forgivable expenses for you in QuickBooks, however, we recommend using a PPP Loan tracker spreadsheet attached below to ensure we verify the information.
Keep digital or scanned copies of rent payments (get an invoice from your landlord if possible), cleared check images of payments (from your bank), health insurance premiums, interest payments, etc. Keeping a folder in Google Drive, Dropbox, Sharefile, etc will help you stay organized in the process.
If you setup a separate bank account for the loan funds, we recommend transferring the funds used for payroll after running payroll from the PPP account to the operating account (no need to get separate checks or change your payroll bank account to the PPP account). If you pay rent, transfer the rent payment amount from the PPP account to the main operating account.
Resources
PPP Loan Tracking Spreadsheet (excel file)