Key topics covered in this post:
- How to ensure you are compliant with PPP guidelines
- Spending your PPP funds properly
- Not approved yet? What are next steps?
PPP Loan Compliance
First, it is important to mention that If any portion of the loan amount is not forgiven, the repayment is based on 1% interest, 2-year term with the first payment deferred for 6 months. To say it is hard to know how to achieve that forgiveness, would be an understatement. As of this writing, most lenders are not responding to messages from customers regarding their PPP loan and the guidelines from the SBA are a constant moving target. What we do know is that the spirit of the loan is to allow employers to use the funds for employee retention. Suffice it to say, most PPP borrowers are living in a state of spending confusion right now. To date, the SBA has not published complete guidelines, but follow these eight general requirements for PPP loan forgiveness and you will be on the right track:
- The end goal of PPP is employee retention. PPP provides small business owners with access to a forgivable loan product equal to 2 ½ months of payroll.
- PPP loan proceeds can be used for payroll cost (including benefits), interest on business mortgage, rent and utilities (“covered costs”).
- To qualify for loan forgiveness, covered costs disbursement must be made within eight weeks of lender loan funding date.
- PPP loan will be forgiven, provided that at least 75% of the loan amount is used for payroll costs and not more than 25% is used for non-payroll costs.
- To achieve full PPP loan forgiveness, the business owner must rehire or replace furloughed employees before June 30, 2020.
- CARES Act ties full loan forgiveness to the business owner’s (1) FTE (full-time equivalent) employee headcount and (2) payroll costs during the eight-week loan disbursement period to historical averages.
- Reductions in headcount or payroll costs during the eight-week loan disbursement period may impact PPP loan forgiveness.
- The business owner must maintain their FTE headcount and payroll costs during the eight-week loan disbursement period with historical averages from either February 15, 2019 through June 30, 2019 or January 1, 2020 to February 29, 2020.
Even still, it can be vague on how exactly how to follow the above general requirements. Every reader of this blog will have a different situation that will affect how they are able to spend those funds. But here are eleven of best tips and practices to follow:
- Submit written request to your lender for complete loan forgiveness guidelines (even if they don't respond, at least it is on record that you did).
- Consider whether rehiring to pre COVID-19 levels is feasible.
- SBA guidelines require loan funding within ten days of loan approval; consider syncing loan funding with your payroll cycle.
- Consider disbursing covered expenses through a separate bank account.
- Compile and analyze historical FTE levels between February 15, 2019 to June 30, 2019 and January 1, 2020 to February 29, 2020 in relationship with FTE counts during the eight-week covered period.
- Remember, loan forgiveness reduces, if your FTE count is lower during the “covered period”.
- Monitor and forecast weekly payroll costs, business rent/mortgage interest and utilities during the covered period.
- Consult with your accountant and payroll service provider for any additional tips on tracking expenses.
- Good record keeping and expense documentation is critical, including bank statements, canceled checks, payroll summaries and FTE reports, payroll tax filings (941 and related state forms), retirement benefits, health insurance and utility invoices, lease agreements, mortgage interest statements and other supporting documentation.
- Stay informed by reviewing lender, SBA and Treasury website content, as well as other documents (including, Interim Final Rulings, FAQ and business publications).
- Lender PPP loan forgiveness package requires borrower’s true and accuracy statement of certification.
Where is my EIDL loan?
As of this writing, many applicants have received their full PPP loan, but not their EIDL loan. The SBA is moving through all applications in order of application date. If you have not already applied, you are most likely out of luck (unless the SBA changes their mind) as only agricultural businesses are eligible to apply. The spending requirements for the EIDL loan are far more flexible than the PPP loan, as the EIDL loan was created to act as working capital for most business related expenses from debts to accounts payable.
But I also have yet to be approved for the PPP loan:
Finally, while the SBA seems to be approving the PPP loans quickly, there are still many of you stuck in the queue waiting for the next response. The entire application process from submit to "approved" took us a month. We chronicled all the communication with Bank of America (our lender) and put it in this five minute video. Hopefully, this gives you some guidance on what to expect next from your application. Check it out here:
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