Getting ready for SBA PPP Loan Forgiveness
On Friday May 15, the SBA released their PPP Loan Forgiveness application. While the application helped define a few items, we are still awaiting further guidance from the SBA on loan forgiveness as there are quite a few questions that still need to be answered.
We expect there to be significant changes to the loan forgiveness application and terms of the programs. Congress will be voting on a bill next week that will do the following:
- Extension of the time to spend the funds from 8 weeks to 16 weeks
- Removal of the 75/25 provision of usage on payroll funds
- Extension of the time on when you can hire employees back and reach the safe harbor for the FTE component of the forgiveness calculation from June 30 to likely August 31.
The SBA has noted that it will also work to provide guidance that will help simplify the forgiveness provisions.
We recommend that while Congress and the SBA work on streamlining and making the forgiveness terms more beneficial to businesses, you continue to track your applicable expenses as you will need to provide documented support for any expense that counts towards forgiveness.
The PPP forgiveness application did provide some clarity and further information on three items.
- Owners cannot increase their compensation to use up the funds quicker. This was a open question based on how the law was written, however, the application states that an owners compensation is limited to average eight weeks of compensation in 2019 up to $100,000 in compensation per owner.
- The application defined what incurred and paid meant as far as your forgivable expenses. Expenses are paid and count towards forgiveness if they were paid in the eight week covered period. Expenses that count also include expenses that were incurred during the 8 week period but were paid outside the 8 week period. What this means is let say your 8 weeks runs out on June 15, but your June 1-15 payroll gets paid on June 30. You would be able to count that costs as being incurred during the 8 week period. The effect of this means you could conceivably have 10 to 11 weeks of payroll counted toward in the 8 week period depending on if your pay people in arrears and when your payroll runs with respect to when your loan closed.
- The SBA loan application introduced an alternative covered period for companies that pay payroll on a biweekly fashion. This alternative period allows you to have the start date of your loan be on the first day of the next pay period and not the date the loan is distributed to you.
To help you calculate out your forgiveness we have created a simple PPP forgiveness calculator that you can use here: PPP Forgiveness Calculator
We do expect that payroll providers like Gusto or ADP will be able to provide you reports on the payroll side of things that will give you all the detailed information that you need for this in the near future, which will simplify the process even further.
Please reach out if you have any questions. We will provide more information as we get it.