For many small businesses, successfully navigating the PPP application process and receiving funds feels like a huge win. And it is. But once the money hits your account, the real work begins. As everyone knows, gifts from family members often come with strings attached. PPP comes from your Uncle Sam, so this particular gift comes with ropes. To help untangle everything, we have compiled some information that will smooth your PPP Forgiveness Application process.
First things first
There are a few essential checks that are strongly recommended the first day you receive the funds.
· Be sure that the amount deposited exactly matches your loan documents.
· Remember the 75%/25% rule - at least 75% of PPP funds must be spent on eligible payroll costs, but no more than 25% can be spent on eligible non-payment expenses (like rent and utilities).
· Use your February utility bill to determine the "standard" charge for the pre-pandemic period,
· It is advisable to use a separate bank account to hold and disburse the PPP funds over the eight week period.
· Plan on scanning and saving all documents related to the disbursing of PPP funds (experts agree PPP forgiveness carries an audit risk).
· If you don't (or can't) spend the entire loan amount on eligible expenses, you can return it.
Keeping your PPP-funded payroll in compliance
PPP might as well stand for "Proactive Precise Payroll." There is no way for recipients to comply with the government's requirements after the eight-week payroll period is over, so you must be in proactive mode all the time so the numbers add up at the end. Things to keep in mind include:
· Your funds should be used for gross payroll - (we can help with this if you are unsure).
· The maximum you can pay any one person during the covered period is $15,384.
· You can use PPP funds for only the same number of full time equivalent employees (FTE) you had pre-pandemic.
· The government does allow the number of employees to increase as long as the FTE count remains the same during the covered period.
· If an employee declines to return to work, you can hire and pay someone to replace them with the PPP funds (even your spouse).
· The SBA will require bank account and/or third-party payroll service reports documenting compensation paid to employees.
· The SBA will require tax forms documentation for periods that overlap with the covered (or alternative) period.
· The SBA will also require payment receipts, cancelled checks or account statements documenting the amount of employer contributions to employee health insurance and retirement plans.
The pre-pandemic time period used to determine the number of full-time equivalent employees is either January 1, 2020 to February 29, 2020 or February 15, 2019 to June 30, 2019 (use whichever is more advantageous).
How to spend the other 25%
You can use up to 25% of PPP funds on utility expenses such as rent, gas, electric and internet. Interest on a business-related mortgage is also eligible, as are business vehicle and copier/equipment leases. However, some items are specifically not eligible, such as:
· Cloud storage fees
· New software subscriptions or upgrades
· Office furniture and supplies
· Business travel and related expenses
· Prepayment of future rent or mortgage payments
How to handle overlapping periods
There may be a time lag from when your eight-week period is up and when you file quarterly 941s, so you may have to wait for a month or two (after the eight-week period) before filing the forgiveness loan application. This is acceptable as long as you maintain proper documentation.
Government programs require precise recordkeeping
As you can see, there are a number of hoops to jump through before, during and after receiving your PPP loan. But for your employees who are all counting on you for their livelihood, the hoops are not insurmountable. Use these tips, keep careful records, and contact us if you have any questions.