COVID-19
What do I do now that I have applied for or been approved for the Paycheck Protection Program “PPP” Loan?
If you have applied and been approved for a PPP loan, you should get the funding from your bank within 10 days. Once the funds are disbursed to you, you will have eight weeks from the date you receive the loan to spend the funds on payroll, utilities, and rent. At the end of the eight weeks, you will have to document and prove your expenditures to the lender to have them process and approve the forgiven amount with the SBA.
The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rents, and utilities (at least 75% of the forgiven amount must have been used for payroll). The term “Payroll Costs” includes salaries, wages, tips, and commissions (reported on W-2), up to $100k per employee per year (for eight weeks, a maximum of $15,385 per individual.) Also added to payroll costs are sick pay, group health insurance, retirement benefits, and state or local taxes on employee compensation. Utilities are business expenses comprised of rent, electric, gas, telephone, internet, and water. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease over the eight-week covered period. For example, you received a loan of $100,000, you must spend at least $75,000 on payroll costs over the eight weeks following the loan disbursement, with the remaining 25% being used for the other previously mentioned overhead expenses and/or to get your employee headcount up to the same as the previous year.
YOU NEED A GOOD PAYROLL AND ACCOUNTING SYSTEM
We highly recommend engaging a professional payroll processor, such as Paychex, ADP, Gusto, Paysoft (QuickPay). Just trying to save a couple of dollars is not a good reason for not using a professional payroll processor. You don’t want to jeopardize the loan forgiveness, something that cannot be undone. Our office can assist with payroll processing or provide direct contacts to some of the leading payroll processors in your area.
While it may seem easier to open a separate checking account to track the allowed expenditures, it is not required. Should you choose to keep your existing accounts, we recommend utilizing the special reporting features of your accounting software. QuickBooks does a great job of allowing you to add classes. A special class, such as “COVID-19,” can be set up to track specific expenses over the eight weeks. A special report can then be printed and used as a guide to gathering any additional supporting documents your bank will ask for.
DOCUMENT ALL OF YOUR DISBURSEMENTS
Payroll costs should document the dollar amount and the payment date with actual copies of the payroll checks or electronic payment receipts. This is where having a professional payroll processor will save you a lot of time and effort in gathering the documentation of payroll costs. You will also need to collect all invoices paid for group health along with the corresponding canceled checks. Same for the retirement benefits paid, you will need to obtain reports/statements from the pension administrator or trustee showing the retirement benefits going into the plan.
For overhead costs like rents, interest on mortgages and loans, and utility services, use the actual checks or electronic payment receipts to document the amounts and dates of payments. Then, collect copies of the actual rental lease, mortgage or bank loan agreements, and utility service contracts. The legal agreements for the rent, mortgages, loans, or utility services need to have been in effect before February 15, 2020. Note, that only the interest on a mortgage or business loan qualifies for forgiveness. As a result, you will want to have a monthly statement or bill from the lender that breaks the payment into interest and principal.
Please let us know if have any questions or need any assistance with getting on the right path in this process.
FINAL THOUGHTS
Timing may be key here, so verify your payroll runs with check dates within the 8 weeks to ensure that you are getting the maximum payroll credited for loan forgiveness. If you have furloughed or laid off any employees, you will need to hire them back. If they don’t come back, you will have to hire additional workers to satisfy the same employee headcount by June 30. Loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019. You will submit the loan forgiveness request with the lender that supplied you with the loan. You will need to include documentation that verifies the number of full-time (or full-time equivalent) employees and pay rates, and payments on an eligible mortgage, lease, and utilities. The lender must decide on forgiveness within 60 days.
For any portion of the loan that is not forgiven the terms are 1% interest, up to 2-year repayment, 6 months no payments.
Keep checking the SBA and Treasury website as the program and requirements are changing frequently. There are sure to be adjustments to the program that might affect your planning. You can read all of the documents on the CARES Act provided on the Treasury’s COVID-19 loans web page here.