Covid-19 PPP Forgiveness

Loan Forgiveness Information and Help

Coronavirus (COVID-19): Payroll Payment Program


WHAT SHOULD MY COMPANY BE THINKING OF WHEN CONSIDERING A PPP LOAN?


I have gotten my PPP loan thinking it will all be forgiven. Well that is not necessaryily true. In fact it more than likely will all not be forgiven. When you applied for the loan you calculated the amount based on two and half months of your average monthly payroll costs for either the year 2019, the trailing twelve months, or a designated period if your business is seasonal. Payroll costs included wages including sick pay, parental absence pay, and termination pay of employees limited to a prorated $100,000 per year (this means that compensation for anyone employee cannot exceed $20,eight-33 for the 2.5 month period), Heath benefits paid for employees, retirement benefits paid for employees and unemployment taxes paid to state and local governments. It also includes a prorated $100,000 per year for each active partner of $20,833 so long as the earned at least $100,000 in the previous year of trailing twelve months.

But wait, the amount of forgiveness will be limited to only eight weeks of spending from the time you receive your PPP loan for the very same expenses. For instance, the amount you pay an employee cannot exceed $15,3eight-5 for the eight- week period in your calculation of forgiveness. As such, you will not be able to recover all of loan associated with payroll costs. You will be short approximately 2.3 weeks of payroll costs. Do not fret! Your forgiveness can also include your spending during the eight-week period for Rent and utilities. However, your rent and utilities cannot exceed 25% of your total forgiveness. Depending on the mix of payroll costs to Rent and utilities, the rent and utilities may not cover the difference between the loan received and the payroll costs paid during the eight- week period.

If you are like many borrowers outside of expensive rent areas, your lower cost rent and utilities will not cover the shortfall in the forgiveness.

    •    Understand when you believe your business will return and what personnel will be required for the next eight- weeks. Do you want to pay people even if they are not needed to meet customer demand?
    •    Unfortunately, money is running out of the PPP loan program. Therefore you do not have the option of applying for the loan as close to June 30, 2020 (the last day you can apply for a PPP loan) in order to maximize the use at a time when all those employees may be returning to service your business when recovery starts to turn around.
    •    Project out your spending for the eight- week period following receipt of the loan.
    •    Determine what you can do to maximize your spending during the eight-month period without creating over-spending?
    •    Determine the shortfall between your spending and forgiveness.
    •    Decide if you want to accept the difference as loan at 1% interest due after two years?
                o     If no, you have the option of paying it back.
    •    Create a system that easily tracks the eligible spending along with the documentation to support your spending. Be in position to know what you have spent so you may be able to further maximize your spending as you proceed to the end of the eight- week period.
    •    Find professional help to maximize your spending and strategize options.
    •    Go back and determine if the assumptions you made about the maximum size of the loan was calculated incorrectly given the guidance from the SBA that came out after your application was submitted. You may want to return the portion your company in good faith received in excess of the actual maximum to which it was entitled. See discussion below.

Companies are at a crossroad between survival, going out of business or redeveloping their business model. As the saying goes, “You do not want to throw good money after bad”.

The major, point you should be considering is how long it will take for my business to return to sustainable levels. For instance, if I have travel agency, what is your best estimate as to when people will be starting to travel again. It may not be until people begin to feel comfortable about traveling which may be at the time a vaccine is widely available to the public. Estimates are a year to year and half, if they can develop one at all. Other business may take less but still far more than eight- weeks from the time your company receives the PPP loan.

For companies that see a long horizon to a sustainable recovery, they will have to perform some major business planning to cope with survival. In actuality, no PPP loan amount will be large enough to cover you that far into the future.

Find the professional help to be able to do that planning?

Unfortunately, the SBA had been slow to release already existing guidance. In fact, given the pressure to apply almost immediately after the PPP program went live, left many questions unanswered leaving companies to interpret the existing law. If they did not act they ould have been shut out of the process. Many of those interpretations turned out to be incorrect and did not help maximize a company’s loan. In other cases, it turned out the loan was larger than it should have been.

The SBA has released guidance that if your loan exceeded the maximum allowed you can return the excess.

FOR MORE DETAIL ABOUT APPLYING FOR A PPP LOAN AND PPP LOAN FORGIVENESS SEE OUR PREVIOUS PUBLICATION OF THE FACTS ABOUT PPP LOANS.

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