08 Sep Spend Wisely and Maximize Your PPP Forgiveness
With many moving parts and shifting timelines, the Paycheck Protection Program has been tough for small and midsize businesses to navigate. This is true whether they’re going through the application process or getting ready to apply for forgiveness. Careful planning, smart spending, and good records of how the funds are used can help to make meeting the requirements for PPP forgiveness as smoothly as possible.
As it stands, companies have until August 8 to apply for a PPP loan, the small business/COVID-19 relief lending program. So far, companies nationwide have borrowed more than $500 billion of these forgivable loans, including at least 152,000 Georgia businesses. The SBA funds can help pay for payroll, mortgage interest, rent, and utilities over an 8-week or 24-week period (depending on when the loan was taken out).
Following the requirements to make sure the loan is 100% forgivable can be quite involved, according to “The Path to Forgiveness,” a recent webinar hosted by APN Group that featured CEO Ginger Mathews, Director of Accounting Elizabeth Black, and Director of Operations Jaime Gordon. Here are a few takeaways for ensuring your company makes the right moves if you are applying for or going through the PPP loan process.
The loan covers up to 2.5 times your “average monthly payroll” costs, capped at $10 million. These include cash compensation, payments for leave or separation, state and local payroll taxes paid by employers, and employer contributions for health insurance and retirement plans. What it doesn’t include is employee contributions for those items.
For non-payroll costs, like utilities and rent or lease payments, the costs should have been in force before February 15 (in other words, you couldn’t start renting a new office building now and try to claim that expense should be paid by PPP funds). Similarly, when it comes time to seek forgiveness, you’ll need to show that your company’s full-time wages are in line with pre-COVID times.
If wages were reduced by more than 25% during the covered period and not restored by December 31, your loan may not be 100% forgiven, although there are exceptions such as if your company could not return to normal operations because of government restrictions.
The best advice? Keep detailed records during the entire process! Everything’s that spent should be documented and so should how you pay for it all. That may mean having a separate bank account exclusive to the PPP loan funds, with payouts made directly from the account or clearly recorded as transferred from other accounts. Both financial and HR records—particularly the timing of when people were hired, let go, asked to return, or given wage cuts or bonuses—matter here.
Read the PPP loan application even if you have an accountant, banker, or attorney helping you (which is highly recommended). Understand the risks involved.
Maximize PPP Forgiveness
Companies should wait until the loan period is over to apply for forgiveness (the new PPP forgiveness application is available on the SBA website). So, remember, to maximize forgiveness, small businesses should:
- Fully restore the workforce to pre-COVID levels by December 31, 2020
- Spend 60% or more of the loan on payroll-related costs
- Spend up to 40% of funds on other allowable expenses (rent, mortgage interest, utilities)
- Keep detailed records of how the money was spent and how thresholds were calculated
With so many fast-moving changes to the PPP loan structure, timeline, and rules for forgiveness, small businesses understandably need a helping hand to make sense of it all. Rely on the expertise of finance, accounting, and HR services experts who can quickly help you navigate the program, spend wisely, and get over the forgiveness finish line.