Changes to the PPP Forgiveness Requirements
Recently the Small Business Administration issued new rules and procedures to have Paycheck Protection Program loans forgiven. Key changes are as follows:
- Businesses have 24 weeks (or until December 31, 2020) to use loan proceeds on authorized expenditures (primarily payroll).
- For the loan forgiven to be forgiven, 60% of the proceeds must be used for payroll expenses.
- 40% of loan proceeds can be used for rent, lease payments, utilities and interest on long-term business debt.
- Payroll costs are defined differently depending on the type of business. Subchapter S company owners can’t deduct the cost of insurance paid for principals.
- A penalty will be imposed if you reduced the number of hours worked by team members compared to the average before the crisis, otherwise known as the full-time equivalent rule.
- A penalty will be imposed if you reduced team members’ salaries by more than 25 percent.
- If you received the EIDL grant of up to $10,000, it reduces the amount that will be forgiven by the amount of the grant you received.
If you have PPP funds left over that were not used for authorized expenditures, funds must be paid back at 1% interest in the next two years. If your loan was made after June 5, you can extend the period for five years. Loans received before June 5 can be extended if both the recipient and the bank agree to the longer timeframe.
The amount of the loan that can be used for payroll costs if you use the eight-week timeframe is $15,385 per employee. If you elect the 24-week covered period, that amount increases to $46,154 per employee.
If you are ready to apply for forgiveness, please make sure you obtain qualified guidance from an experienced accountant or financial services professional.