Achieving PPP Loan Forgiveness
Businesses that have managed to secure financing through the Paycheck Protection Program (PPP) are fortunate—but also saddled with a lot of red tape. Business owners and managers should be careful that they adhere strictly to the terms of the program in order to qualify for loan forgiveness.
In response to the coronavirus pandemic, Congress created the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The historic $2.2 trillion stimulus bills included $350 billion towards the PPP, a forgivable loan program targeted to aid small businesses dealing with losses resulting from the coronavirus pandemic. Unfortunately, the Small Business Administration (SBA) loan program, which was rapidly flooded with applications, quickly maxed out the money available for emergency loans. Congress is expected to authorize more funds for the program in the near future.
While business owners who did manage to secure a PPP loan are fortunate, they have a lot of work ahead of them. In order to qualify for loan forgiveness, the PPP funds must be used for certain allowable purposes, including:
- Salaries, wages, commissions, or similar compensations (up to $100,000 per year per employee, prorated);
- Cash tips or equivalent;
- Employee leave, including parental, family, medical, or sick (excluding family or sick leave under the Families First Coronavirus Response Act);
- Allowances for dismissal or separation;
- Group healthcare benefits, including insurance premiums;
- Retirement benefits;
- State or local taxes on employee compensation (not including the employer’s share of FICA payroll taxes, Railroad Retirement Act taxes, or other required U.S. income tax withholdings);
- Continuation of group healthcare benefits during employee leave and insurance premiums;
- Mortgage interest, rent, utility payments, and any other debt obligations incurred prior to February 15, 2020;
- Compensation and income of up to $100,000 per year (prorated) for sole proprietors and independent contractors.
Money used for any of the allowable purposes listed above will qualify for 100% forgiveness (subject to a 25% limitation on non-payroll expenditures); loan money used for non-allowable purposes must be repaid. This means that businesses who take on PPP loans must shoulder a big burden of new reporting requirements. Failure to keep thorough records of how the loan money is used could result in loss of forgiveness for some portions of the loan money. For more information, please see our article on loan forgiveness here.
In order to qualify for loan forgiveness, recipients will need to provide banks with specific information, including up-to-date financials. Organizations that have a controller or other such financial administrator on staff are more likely to be in a good position to meet the stringent reporting regulations. Businesses without such a team member would benefit greatly from securing outside help in order to adhere to the strict rules.
If your organization falls into the latter category, or if your financial administrator is not up to the task alone, you should seriously consider reaching out to Louis Plung & Company to discuss your options when it comes to outsourced accounting services. Our outsourcing team is prepared to help guide organizations in achieving successful PPP loan forgiveness and more. We have developed a Loan Forgiveness Calculator that can guide you as you calculate what portion of your PPP loan is eligible for forgiveness. We can assist you with:
Preparation of payroll cost calculations needed for the PPP application
Assistance with PPP and other loan applications related to the coronavirus pandemic
Help with performing real-time reporting in order to adhere to loan forgiveness regulations
Advice and guidance for post-pandemic success
Our team is here to offer sound advice, clear guidance, and knowledgeable input to help you achieve financial relief during this fraught time. Contact us today to discuss how we can accommodate your unique situation.