Navigating through the Paycheck Protection Program

August 10, 2020

By Kevin Schmitt, CPA, CFP®
Vice President

The rollout of the Paycheck Protection Program (PPP) intended for small- to medium-sized businesses has, by any account, been a tumultuous ride to date.

Business owners have been driven to the point of exhaustion due to the complexity of the program, an overload of information and ever-changing updates to the process.

If you're a small- to medium-sized business struggling to find your way out of financial dilemmas due to the pandemic, reviewing the circumstantial requirements for this loan forgiveness and recent updates to the loan forgiveness application is a great place to start.

The PPP and subsequent legislation combat the negative effects of the COVID-19 pandemic on small businesses' finances through the social distancing and quarantine period by setting aside $659 billion for these businesses to apply for.

This loan can be forgiven if used properly, and the forgiven loan is not taxable income. At the time of this writing, borrowers are not allowed to deduct expenses paid for with loan money. However, there is bipartisan Congressional support to pass a law to allow these deductions.

This program and all applications for forgiveness must go through your business lender.

Requirements for payroll costs:

  • The maximum loan is equivalent to 2.5 times the average monthly payroll costs for the prior year capped at $10 million.
  • To receive loan forgiveness, the borrower must expend at least 60% of the loan for payroll costs and the remaining 40% can be used for other eligible expenses.

Updates to the PPP Act
The PPP Flexibility Act did just that, created flexibility: 

  • Those looking for forgiveness were granted a 24-week period versus the original 8-week period to expend the money in order to qualify for forgiveness. Borrowers who applied before June 5, 2020, can elect the 8-week period if desired.
  • Business payroll cost expenditure requirements were reduced from 75% to 60%, meaning there is a lower minimum to spend of that amount to qualify for forgiveness. If the minimum isn't reached, full forgiveness is precluded, however partial forgiveness might be possible.
  • FTE reduction calculations were adjusted, allowing for COVID-19 related issues to be considered while applying.

The SBA and Treasury have released multiple interim final rules and answers to FAQs to assist borrowers and lenders with this application. They have also developed an EZ loan forgiveness application form that will assist borrowers in simplifying the forgiveness application process.

The scale of this pandemic is unparalleled, but there is a silver lining. Because of the PPP loan forgiveness changes and guidance, most borrowers should be able to qualify for forgiveness.

This article was previously published in the Tri-State bizTimes.

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