Paycheck Protection Program: What You Need to Know

Paycheck Protection Program: What you Need to Know

Back in March, just when the world was beginning to shut down, $349 billion was federally approved for the Paycheck Protection Program (PPP). The U.S. Small Business Administration (SBA) defines the PPP as being a means for small businesses to keep employees on the payroll during these economically troubled times. This loan is unique in that it can be forgiven if certain criteria are met. 

Be Prepared for the Paycheck Protection Program Before Applying

When the program opened, applications came in fast and furious, and within two weeks, that $349 billion was spoken for. If you missed out, there is another chance coming up. Recently, another $310 billion has been approved for the PPP. Applications will start being accepted soon, so it will pay to be ready. Different kinds of businesses will require different kinds of paperwork to apply. A 13 page document of frequently asked questions has been posted to help with understanding the process. You might avoid headaches later by looking over those FAQs now.

How to Have Your Loan Forgiven

Here are a few ways the Paycheck Protection Program loan can be forgiven:

  • The money must be used for payroll and employee benefits. (SBA requires that 75% of the loan forgiveness amount must be used for payroll.)
  • The money must be used on mortgage interest obligations.
  • The money must be used for rent.
  • The money must be used for utilities.
  • Your company must retain the same headcount and salaries that were in place prior to 2/15/2020. (If your headcount lessens, it must return to the 2/15 number before June 30.)
  • You must use the loan funds within eight weeks of receiving them.

Employer Flexible has provided some excellent examples on how to calculate how much of your loan will not be forgiven if the requirements listed above are not properly met:

If you must reduce the number of your full-time employees during the eight weeks you have to use your Paycheck Protection Program loan, not all of your loan will be forgiven. 

Divide the average number of full-time employees during the eight-week loan period by the average number of employees during the base period. The base period can be February 15, 2019 through June 30, 2019, or January 1, 2020 through February 29, 2020. 

For example, say your loan amount is $100,000, and you spent all of the funds on qualifying expenses. The average number of FTEs that you had from February 15, 2019 to June 30, 2019 was 10. The average number of FTEs during the eight-week covered period was 5. Calculation: 5/10 = 50%

Maximum loan forgiveness: $100,000 * 50% = $50,000

This means that you will need to repay the remaining $50,000 of the loan.

Remember, you can always use the alternate base period of January 1, 2020 through February 29, 2020 if that is more favorable.

Loan forgiveness will also be compromised for each employee’s salary that is reduced by 25% using the same dates as above. This applies to all employees who earn $100,000 per year or less. Here is how that math would look:

Say your loan amount is $100,000, and you spent all of the funds on qualifying expenses. You reduced the annual salary for one full-time employee from $80,000 to $40,000 (i.e., in Q1 2020 the employee was making $80,000 and during the eight-week covered period the employee was making $40,000). 

Calculation: ($80,000 – $40,000) – ($80,000 * 25%) = $20,000 

Maximum loan forgiveness: $100,000 – $20,000 = $80,000 

This means that you will need to repay the remaining $20,000 of the loan.

Always Read the Fine Print on Program Applications

According to Forbes, it is important to be mindful of which loans and programs you apply for along with your application for the Paycheck Protection Program. Applying for or accepting some of these other programs might make your business ineligible for the PPP. Also, when applying for more than one program or loan, be sure not to overlap the expenses being claimed. For example, don’t claim payroll on more than one program application. You may end up ineligible for both.

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