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I received my PPP Loan, what do I do now?

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Here are some frequently asked questions regarding the Paycheck Protection Program (PPP) loans:

1.) What can I use these loans for?

• Payroll costs;
• Interest on mortgage obligations, incurred before February 15, 2020; Rent, under lease agreements in force before February 15, 2020; and
• Utilities, for which service began before February 15, 2020.

2.) What counts as payroll costs?

• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
• Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
• State and local taxes assessed on compensation; and
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

3.) Does the PPP cover paid sick leave?

• Yes, the PPP covers payroll costs, which include employee benefits such as costs for parental, family, medical, or sick leave. However, it is worth noting that the CARES Act expressly excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116–127).

4.) How much of my loan will be forgiven?

• You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Not more than 25% of the forgiven amount may be for non-payroll costs.
• You will also owe money if you do not maintain your staff and payroll.
• Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
• Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
• Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

5.) How can I request loan 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 eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.

6.) What are the loan forgiveness factors?

In addition to the requirement that at least 75% of the loan proceeds must be used for payroll costs, two other factors may reduce your total PPP loan forgiveness – reduced employee headcount and reduced salaries and wages.

Headcount Calculation:

To determine the impact of headcount changes on PPP loan forgiveness, use this formula:

• Multiply the total dollars used for specific expenses identified in the CARES Act incurred and spent during the eight weeks following receipt of your PPP loan by the average number of full-time equivalent (FTE) employees per month during the eight-week period. (Calculate average FTEs by averaging the number of FTE employees for each pay period within a month).
• Divide that product by the average number of FTEs per month from February 15, 2019, to June 30, 2019.

Alternatively, the borrower may elect to use this formula:

• As above, multiply the total dollars used for specific expenses identified in the CARES Act incurred and spent during the eight weeks following receipt of your PPP loan by the average number of full-time equivalent (FTE) employees per month during the eight-week period.
• Divide that figure by the average number of FTEs per month from January 1, 2020, to February 29, 2020.

For seasonal employers, use the average number of FTEs per month for the period beginning February 15, 2019, and ending June 30, 2019.

Salaries and Wages Calculation:

The PPP loan forgiveness amount will be decreased by any reduction in total salary or wages of any employee during the eight-week period that exceeds 25% of the total salary or wages of that employee during the most recent full quarter you employed the worker before the eight-week PPP loan period.

Note that this reduction is for salaries and wages and not overall payroll; which is a much broader range of compensation.

This calculation does not include any reduction of salary or wages for one or more employees whose annualized wages for 2019 exceeded $100,000. For example, an employee whose wages or salary is reduced from $160,000 to $110,000, will not impact the forgiveness calculation, although the $50,000 decrease is greater than 25%.

7.) What if I bring back employees or restore wages?

• Reductions in employment or wages that occur during the period beginning on February 15, 2020 and ending April 26, 2020 shall not reduce the amount of the forgiveness if by June 30, 2020 the borrower eliminates the reduction in employees or reduction in wages.

8.) What about if I had employees who left for their own reasons or were terminated due to performance issues? Is the loan forgiveness still reduced for those employees?

• More guidance is needed on this issue. As the statute is written in the CARES Act, the forgiveness is tied to employee count comparisons and also specific employees and whether their pay was substantially reduced.

9.) Are the expenses when determining forgiveness on a cash or an accrual basis?

• More guidance is needed on this issue. The guidance provided discusses “payments”, but further clarification is needed.

10.) Is the forgiveness of the loan taxable income?

• No, the forgiveness of the loan does not constitute taxable income.

11.) Are the expenses tax deductible if the loan is ultimately forgiven?

• More guidance is needed on the treatment of the expenses related to the forgiveness portion of the loans. Based on what is known at this time, there is no specific provision in the CARES Act that makes these expenses nondeductible. However, IRC Section 265 may apply which states that no deduction is allowed for expenses attributable to tax-exempt income.

12.) What is my interest rate?

• 1.00% fixed rate.

13.) When do I need to start paying interest on my loan?

• All payments are deferred for 6 months; however, interest will continue to accrue over this period.

14.) When is my loan due?

• In 2 years.

15.) Can I pay my loan earlier than 2 years?

• Yes. There are no prepayment penalties or fees.

16.) Do I need to pledge any collateral for these loans?

• No. No collateral is required.

17.) Do I need to personally guarantee this loan?

• No. There is no personal guarantee requirement. However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.

18.) What do I need to certify?

As part of your application, you need to certify in good faith that:

• Current economic uncertainty makes the loan necessary to support your ongoing operations.
• The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments.
• You have not and will not receive another loan under this program.
• You will provide to the lender documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.
• Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities.
• All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law.
• You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

19.) What happens if a business applies for PPP and also receives the up to $10,000 grant from an EIDL?

• The amount of grant received (up to $10,000) will reduce the forgiveness amount of the PPP.

Our firm is here to help you navigate through the complexities of the PPP program, please contact us with any questions you have.