|Over the last two weeks, many employers across the US have applied for Paycheck Protection Program (“PPP”) Loans, and some have even started to receive the funds. Below are important items for employers to remember to ensure that they qualify for the maximum level of loan forgiveness.|
Timing: 8 Weeks
The amount of forgiveness of a PPP Loan depends on the borrower’s qualifying expenditures over an eight-week period beginning on the date the lender makes the first disbursement of the PPP Loan to the borrower.
Qualifying Expenditures for Loan Forgiveness
The following are qualifying expenditures for loan forgiveness:
(1) Payroll costs. Payroll expenses must make up at least 75% of all expenditures.
(2) Any payment of interest on any covered mortgage obligation existing on February 15, 2020. This includes personal property debt (equipment, etc.).
(3) Any payment on any covered rent obligation existing on February 15, 2020.
(4) Utility payments which includes electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.
Prepayments are not a qualifying expenditure.
Tracking and Substantiation of Expenditures
Tracking expenditures will be very important in order to qualify for PPP Loan forgiveness. Please feel free to email Gary Fortier (Gfortier@largeandgilbert.com) for a sample expenditure tracking spreadsheet. The spreadsheet will help track loan expenditures, 75% payroll cost requirement, and remaining loan balance to spend.
Employee Retention and Maintaining Salary Levels
Of course, employee retention and maintaining salary levels also play an important part in determining loan forgiveness. Any reduction in employee count or a decrease in more than 25% in an individual employee’s wage will reduce the total amount of PPP Loan that is eligible to be forgiven.
The average number of full-time equivalent employees over the 8-week period will be compared to either (i) January 1, 2020 through February 29, 2020 or (ii) the period of February 15, 2019 through June 30, 2019. To assist with this calculation, an employee calculation tool is included in the spreadsheet referenced above.
Additionally, we are awaiting additional guidance from the SBA/Treasury Department on how ‘rehires’ should be classified and the impact they may have on loan forgiveness.
Of course, the above information is based on information from the Treasury Department and we recommend consulting with your banking institution regarding loan forgiveness as they will be coordinating with the SBA to authorize loan forgiveness. We will continue to keep you updated as new information becomes available.