Just because we are all forced to adapt to a new normal and put events on hold, it doesn't mean we should be at a loss as to how our small business can continue to move forward. With the birth of new information each day, we want to track our status and remain as organized as possible to ensure all dates and criteria are being met. It's a frustrating and scary time, but don't focus on that. Focus on the positives! There's money being allocated to save our economy... and we want to talk about it.
Tracking Your PPP Loans and Expenses
The Paycheck Protection Program (PPP) can be 100% forgiven--if you meet certain criteria. To ensure that your loan is forgiven it is extremely important to keep accurate records. We recommend opening a separate bank account so you can easily track your expenses. Applications for loan forgiveness will be processed by your lender. After you submit your application for forgiveness, your lender is required by law to provide you with a response within 60 days.
Documents Required for Forgiveness Checklist (The PPP Forgiveness Application)
You will need documents verifying the number of full-time equivalent employees on payroll and their pay rates for the period used to verify you met the staffing and pay requirements. Some of these documents include:
What can I use PPP for?
All of these expense categories are eligible for forgiveness:
- Payroll reports
- Payroll tax filings (Form 941)
- Income, payroll, and unemployment insurance filings from your state
- Documents verifying any retirement and health insurance contribution
- Documents verifying elibile interest, rent, and utility payments (cancelled checks, payment receipts, account statements)
- Documentation and proof of payment, bank statements, and cancelled checks
- Your lender may have additional requirements
Six Conditions for Forgiveness
1. Eight Consecutive Weeks of Coverage
- Payroll (salary, wage, vacation, parental, family, medical or sick leave, health benefits)
- Commercial Mortgage Interest (as long as the mortgage was signed before February 15, 2020)
- Commercial Rent (as long as the lease agreement was in effect before February 15, 2020)
- Commercial Utilities (as long as service began before February 15, 2020)
Eligible expenses are those that are incurred over eight weeks, starting from the day the first payment was made by your lender.
2. The 75/25 Rule
At least 75% of your loan must be used for payroll costs. Payments to independent contractors cannot be included in the payroll costs.
3. Staffing Requirements
You must maintain the number of employees on your payroll. To determine if you have met this requirement you can use the following calculation. First, determine the average number of full-time equivalent employees you had for the following three periods: the eight-week period following your initial loan disbursement (A), February 15, 2019-June 30, 2019 (B1), January 1, 2020-February 29, 2020 (B2).
Take A and divide that by B1. Do the same with B2. Take the largest number you obtain. If you are a season employer, you must divide by B1.
If you get a number equal to or larger than 1, you successfully maintained your headcount and meet this requirement. If you get a number smaller than 1, you did not maintain your headcount and your forgivable expenses will be reduce proportionately.
4. Pay Requirements
You must maintain at least 75% of total salary. This requirement is individually assessed for every employee that did not receive more than $100,000 in annualized pay in 2019. If the employee's pay over the eight week is less than 75% of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness will be reduced by the difference between their current pay and 75% of the original pay.
5. Rehiring Grace Period
You can rehire any staff that were laid off or put on furlough and reinstate any pay that was decreased by more than 25% to meet the requirements for forgiveness. You have until June 30th to do so.
The lender is required to have the borrower sign a certification that states all documents submitted for forgiveness are true and accurate. The SBA ruling states that following: if you knowingly use the funds for unauthorized purposes, you will subject to additional liability, such as charges for fraud. If one of your shareholders, members or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member or partner for the unauthorized use.
How to Initiate Forgiveness
You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligibile mortgage interest, rent, and utility payments. The lender must make a decision within 60 days.