Over the past couple of weeks, our team has helped many clients apply for the Paycheck Protection Program and some have started to receive funding. On April 16, the SBA announced it is no longer accepting applications because all of the approved $349 billion had been distributed. But as of today, April 24, President Donald Trump has signed the fourth coronavirus relief bill into law, allocating an additional $320 billion for the PPP.
While we await additional guidance from the SBA, questions are still looming around what to do once funding is received. In our blog last week, we talked about best practices to ensure loan forgiveness after receiving funding.
For those that have received funding, the clock starts ticking once the lender makes the first disbursement of the loan and now is the time to develop a plan for what the next eight weeks looks like. It’s important to proceed cautiously, ensuring that you use the funds appropriately and maximize your forgiveness eligibility.
What can I use the funds for?
First and foremost, it’s critical that funds are used for approved expenses; payroll costs, health care benefits, mortgage interest payments, rent, utility, interest payments on debt incurred prior to February 15, 2020, and/or refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020.
Should I bring my employees back? What if my employees can’t come back?
Funds received should be used to help businesses retain talent and get back to business as usual as quickly as possible. If businesses that have previously laid off employees, the PPP can help to re-hire staff. There does come a time when businesses will need to assess what is ultimately better for the business and for the employees, unemployment benefits or the PPP?
Some businesses will unfortunately not be able to resume operations under current state orders unless they are considered essential. In this situation, companies may consider using loan proceeds to provide employees with paid leave benefits.
What do I need to do to ensure forgiveness?
While we are still waiting for additional guidance regarding forgiveness, as businesses begin to receive funding, it’s important to implement a dependable tracking system that can demonstrate that funding was used for appropriate expenses. Business need to be sure that at least 75% of the loan proceeds are used for payroll costs to maximize forgiveness. We have worked with our clients to develop templates within QuickBooks to help with this reporting.
Additionally, the forgiveness amount will be reduced if salaries decrease by more than 25% or if the number of FTEs decreases.
What’s new for self-employed individuals?
On April 14, the SBA provided additional guidance for self-employed individuals and independent contractors. For self-employed individuals and independent contractors with no employees, the loan amount will be determined based on 2019 Form 1040 Schedule C line 31 net profit amount, up to $100,000. If the Schedule C shows a net loss, the allowed loan amount is zero. For self-employed individuals and independent contractors with employees, the loan amount will be determined by the sum of the following:
- 2019 Form 1040 Schedule C line 31 net profit amount, limited to $100,000. If the Schedule C shows a net loss, then this amount is 0
- Payroll costs as calculated above
For self-employed individuals who have received funding, acceptable uses include:
- Owner compensation replacement (calculated based on 8/52 of 2019 net profit from Form 1040 Schedule C)
- Employee payroll costs (as defined by the interim rule)
- Business mortgage interest payments on real/personal property
- Business rent payments
- Business utility payments
- Interest payments on debt obligations incurred before February 15, 2020
- Refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020
As we continue to receive updates and advise our clients, we cannot stress enough the importance of thorough tracking and reporting of spending of funds received. Please continue to reach out to our crisis team with any questions.