Five Tips to Maximize Your PPP Loan Forgiveness

on April 23, 2020

Five Tips for PPP Forgiveness

Many of you have likely received your Payroll Protection Program (PPP) funds from the Small Business Administration. If you haven’t, the second round will hopefully be your opportunity. There is still a tremendous amount unknown about this grant, particularly about how forgiveness will work. New details and new questions emerge almost every day. Here is an informative Forbes article that delves into some of the complexities of this grant that haven’t yet been worked out.

Meanwhile, there are things you can do to help well-position your company for loan forgiveness. We make no guarantees that these will work or be required, but they are what many lawyers are recommending, and many manufacturers are currently doing. We appreciate that some of this advice might be overkill, but sometimes better safe than sorry:

1.  The covered period of potential forgiveness begins on the day you get your money and lasts for 8 weeks.  See below for more considerations regarding whether to hire everyone back during this 8-weeks.

  • You could hire everyone back immediately upon receiving your money (if they aren’t already working of course). This would maximize your loan forgiveness, assuming that you had the same or more full-time equivalent employees as the same time in the previous year (or Jan 1st through Feb 15th of 2020 at your discretion).
  • But, based on business conditions, maybe you won’t hire everyone back and then you will have to manage the 75/25 split of payroll and other expenses.  Subject to further SBA guidance and interpretation, during the eight week period, non-payroll expenses cannot exceed 25% of the total amount of PPP-paid expenses.  To be clear, this rule is very confusing.  There is debate and contradictions currently in the rules of whether this 75% applies to what is actually paid during the 8-weeks or just what is given in the loan.  To be conservative, if you don’t hire anyone back, you may not be able to benefit from forgiveness of the payment of mortgage, utilities, rent, etc.  However, it appears you may be able to ignore this rule IF you hire everyone back before June 30th, 2020 even if you didn’t hire them back during the 8 week period.  Obviously, you won’t get loan forgiveness for the payroll costs not paid during that 8-week period, but you potentially will get your mortgage, utilities, and rent paid for.  We will update you as the SBA issues its future guidance on these issues.
  • There is extra complication in bringing your employees back for the 8 weeks because you likely don’t want to hire them back and the let them go again, and some of them (the ones in Ohio making less than $50,000-60,000, depending on how many dependents are in their household) are making more money on unemployment.  You will need to consider this when you are ramping back up, at least until July 25th when the extra federal incentive ends for everyone on unemployment.

2.  Establish separate ledger accounts for expenses to track that you are using PPP dollars for the allowable payroll (up to a pro-rated $100k cash compensation per employee), mortgage interest, rent, benefits, and utilities.  Allowable payroll costs include the full amount of retirement benefits, healthcare benefits paid by the employer, and employer state and local (but not federal) payroll taxes.

3.  Some lawyers recommend even separating paychecks for those employees who make over $100K so that they get their >$100K portion of their salary separate from the under $100K portion – again so that it is tracked easily.  Discuss this further with your payroll service provider.

4.  Save all documentation regarding how the funds are expended including invoices, cancelled checks, payment receipts, payroll reports, transcripts of accounts, etc.

5.  There is a line in the bill that references that eligible forgiveness will come from “costs incurred and payment made during the covered period payroll costs.”  This presents a problem that may be fixed through further clarifications, but prepayments probably would not be allowed and neither would paying your bills after the period be allowed.  Prior to new SBA guidance being issued, this would mean that you will want to cut your last payroll checks, get your bills in and pay them all on the last day of the 8 weeks to maximize forgiveness.