You received a Paycheck Protection Program (PPP) loan, kept your business open and your employees on payroll, now it is time to make sure you maximize the government forgiveness essentially turning the loan into a grant. How do you make sure that happens? Here is a guide to help you sort through it! (For the purposes of this post the rest of the article is assuming you are trying to maximize the forgiveness of the loan)
To understand and make sense of how PPP forgiveness works it is important to understand the purpose of the PPP, which is to keep workers employed at their full pay. It is not directly meant to help businesses stay afloat which is why there are restraints on how the money can be spent. Hence the name, Paycheck Protection. The idea being workers do not have to go on unemployment and that when things hopefully open back up businesses still have their employees and can scale back to “normal” operations. So, the goal is to pay your employees even if there is no work at all for them to do whether the lack of work is due to slow business or workers not being able to leave the house as a result of state or local mandates.
Here are five important highlights regarding PPP forgiveness with the new 24-week covered period (assumption is that everyone will switch since it is more favorable):
To achieve full forgiveness there is no incentive to reduce any employee’s salary (at least not by more than 25%). There is incentive to make sure that you do not lower employees’ hours and pay by more than 25% as you will then be eligible to use the new Form 3508 EZ, which is much simpler to fill out. Quick aside, it is a cheap loan where if full forgiveness does not happen it is not terribly penalizing since the APR is only 1%.
To help you calculate the forgiveness and see where you will stand at the end of the 24 weeks here are the steps to take.
Banks are now initiating forgiveness applications for some of their clients and here are some notes from what we’ve seen. It appears most banks will have an online portal to input details which will auto populate the actual form. They are then reviewing the application in detail and asking clarifying questions which should prevent any issues when they submit the application to the SBA. There are many specifics the banks are wanting to see from the supporting documents.