3 minute read
The Paycheck Protection Program has served as a welcome lifeline for companies managing through the COVID-19 emergency. The stay at home orders, forced business closures, and general fear about transmission have created devasting conditions for many. Welcome news has come as governors’ have announced reopening plans. Changing regulations means many businesses will have the opportunity to begin generating revenue again and reduce the need for outside financing. However, for those who have already received a PPP loan, there are questions and concerns about loan forgiveness, including how to record expenses, the forgiveness application, the 8-week period, and more. Given the almost daily issuance of program updates and guidance, it can be challenging to stay current. To help clients, prospects, and others, JLK Rosenberger has provided insights into the most common questions below.
PPP Common Questions
When does the 8-week period begin?
According to guidance issued by the Small Business Administration (SBA), the 8-week period begins on the date the lender makes the first disbursement of the loan to the borrower. It is important to note that the lender is required to disburse funds no later than 10 calendar days from the date of loan approval.
How is loan forgiveness impacted if a laid-off worker declines to return to work?
There is no impact. The SBA and Treasury have excluded laid-off employees who have received an offer for rehire (same compensation and number of hours) from loan forgiveness calculations. To obtain the exemption, the borrower must have made a good faith, written offer of rehiring and the rejection of the offer must be documented. It is also important to note that any employee who rejects an offer of rehiring may lose eligibility for unemployment.
Has there been any information released on how to apply for loan forgiveness?
No formal guidance has been released on how to apply for loan forgiveness. The lack of information is confirmed by various bank websites.
How should the use of PPP funds be recorded?
No guidance has been issued that specifically addresses this topic. However, proper tracking of eligible expenses should begin as soon as the loan disbursement is received. Click here to see a sample spreadsheet that may assist you in the tracking of qualifying expenses eligible for loan forgiveness. In addition to using this tracking schedule, some borrowers may find it easier to facilitate this process and consider opening a separate bank account from which qualifying expenses will be paid.
Before making any payments, remember that only payroll costs (including benefits), interest on mortgage obligations (incurred prior to February 15, 2020), rent and lease agreements (in force before February 15, 2020) and utilities (when service began prior to February 15, 2020). The guidance requires that 75% of loan proceeds must be used on qualifying payroll costs. Remember, payroll costs not only include employee payroll up to $100K annualized but also include state unemployment, health insurance, and employer-sponsored retirement benefits paid during this 8-week period. Finally, there are other factors, such as employee terminations, layoffs, and compensation reductions that may impact loan forgiveness.
More information and guidance is needed to help borrowers navigate the loan forgiveness process. As the second round of loans is issued, it is expected more details on forgiveness will be made available. If you have questions about the information outlined above or need assistance with a COVID-19 tax issue, JLK Rosenberger can help. For additional information, call us at 949-860-9893 or click here to contact us. We look forward to speaking with you soon.