PPP Update: Your Guide to the Paycheck Protection Program

One of the largest topics of conversation recently has been the Paycheck Protection Program- navigating applications, who have (or will) receive funding, and how does the forgiveness component work? We’ve compiled some updates and relevant items to keep in mind as you decide how to utilize this program to your best benefit! Funding for the PPP: Many businesses report still receiving notice of approval and receiving funding, despite the news that the program’s funds have “run out”. There is also an additional funding bill working its way through Congress this week..so if you are still applying, continue to work with your lender to provide everything that they request and put yourself in line for the next round of funding!


    • What can be forgiven?
      • In the 8-week period that starts the day that PPP funds are put into your bank, you can spend the funds on payroll costs, as well as *rent, *utilities, or *mortgage interest
        • *for obligations you had prior to Feb 15th, 2020
      • You must then apply for forgiveness and furnish your lender with all documentation they request. Granting forgiveness will likely be at the discretion of your lender.
      • Payroll costs are defined to include: salary, wage, commission or similar compensation, payment of cash tip or equivalent, payment for vacation, parental, family**, medical, or sick leave**, allowance for dismissal or separation, payment required for provisions of group healthcare benefits (including insurance premiums), payment of retirement benefits, State or local tax assessed on the compensation of employees
      • AND the sum of payments of any compensation or income of a sole proprietor that is a wage, commission, income, net earnings from self-employment, or similar compensation, that is not more than $100,000 in 1 year as prorated for the covered period
    • What are the limits on forgiveness?
      • Any funds that you are requesting be forgiven during your 8-week covered period must be a mix of at least 75% payroll expenses, and no more than 25% “other approved expenses”
      • To be eligible for forgiveness, you must return to your employment levels, designated by the number of Full-Time Equivalent employees, based on 3 available calculations for the FTE average (check with your lender for your applicable FTE number), by June 30th, 2020
      • You can not have decreased the average pay for any employee making under $100,000 a year by more than 25% (average pay calculated by total wages during the most recent full quarter before the covered period)
    • What can NOT be forgiven?
      • The original CARES Act legislation SEC 1102 (a)(2)(36)(F)(i) “ALLOWED USE OF COVERED FUNDS” Stated that during the covered period, an eligible recipient may use the proceeds of the covered loan for: Subsection (VII) “ interest on any other debt obligations that were incurred before the covered period.”

        HOWEVER, later sections of the CARES Act providing more detail on forgiveness did NOT include this use, and further guidance from the SBA also does not include this use as eligible for forgiveness. Only interest on a mortgage obligation from prior to Feb 15, 2020, is eligible.

      • Compensation for any individual in excess of $100,000 a year, as prorated for the covered period, is NOT eligible for forgiveness
      • Guidance from the SBA clarifies the federal tax provision of the bill by stating that gross employee pay is eligible for forgiveness (not reduced by federal withholding for the employee’s tax liabilities), but the employer’s portion of federal tax liability is not eligible for forgiveness
      • **Qualified sick and family leave for which a credit is already allowed under other sections (i.e., 7001 and 7003) of the Family First Coronavirus Response Act is not eligible for forgiveness
      • Loans used for duplicate purposes of another SBA loan program already claimed by the applicant (Like EIDL Loans or Grants under the EIDL program) reduce your eligible forgiveness
      • Use of the PPP or EIDL program makes you ineligible to take advantage of the Employee Retention Tax Credit

Documentation Requirements:

    • The initial legislation did not provide explicit guidance on documentation requirements for forgiveness, and most lenders are waiting for additional guidance before informing participants of the forgiveness application requirements.
    • It may be advised to locate the loan funds in their own bank account. If you do, you can:
      • Route billing for approved expenses (especially payroll) through this account to help keep a clear paper trail. However, this is imperfect since many portions of certain expenses (such as tax withholdings from payroll, or principal payments on a mortgage) would be debited with a payment, but are not “forgivable”.
      • Make a habit of continuously transferring exact expense amounts from the loan fund account into the operating expense accounts, based on actual amounts spent on the forgivable expenses. You will need to write detailed memos for each transfer, for example, “electric utility to City of Tucson, $84.72 paid on 04/26”, while also compiling the documentation that relates to these expenses. Each transfer should be for an individual expense. Payroll elated transfers should differentiate between wages, and state and local taxes (employer FICA taxes are NOT eligible for forgiveness)
    • Be very diligent with retaining copies (including digital, when possible) of all “approved” expenses from your covered period. This would include:
      • Detailed reports of payroll expenses debited from the bank account, including any withholdings (which may or not have been debited, depending on your payroll provider)
      • Original utility bills, including documentation that this was an ongoing obligation from prior to Feb 15th, 2020
      • Original rent receipts, including documentation (such as a lease) demonstrating an ongoing obligation to make these payments from prior to Feb 15th, 2020
      • Mortgage payment statements, showing a detailed split out of interest vs principal amounts, as well as proof of this obligation dating prior to Feb 15th, 2020

Please stay posted for continued updates!

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