PPP Process: The Latest & GreatestApril 22, 2020
It should come as no surprise to anyone familiar with the PPP process that final or definitive guidance from the SBA has not yet been issued as it relates to the loan forgiveness process. This should not, however, preclude recipients of PPP loans from beginning the initial planning for the uses of funds. Here are a few steps you should begin today if you were a lucky recipient of a PPP loan:
- Contact your lender and request their guidance pertaining to the loan forgiveness calculation and supporting documentation. As we experienced during the initial PPP application process, each lender had their own application process, requirements and even calculations. We expect this will be the same for the loan forgiveness.
- Begin planning your use of the loan proceeds. For purposes of forgiveness, you have an eight (8) week period beginning on the date your loan proceeds were received. We understand the use of funds will be measured on a cash basis versus and accrual basis. Said differently, the cash must be spent within the eight-week period. Of course, this interpretation is subject to change based on comments from the SBA.
- Remember, the PPP loans can only be used for allowable purposes:
- Payroll costs (which has the same meaning as payroll costs for purposes of determining the amount of the loan)
- Interest on mortgages securing real or personal property (incurred before February 15, 2020)
- Rent (for leases in force February 15, 2020), and
- Utilities (for services began before February 15, 2020).
- The 75% rule: …At least 75% of the loan amount should be used for payroll costs regardless of timing. Treasury also limited the amount forgiven for non-payroll costs to 25% of the amount forgiven.
- For example, if the PPP loan was $1,000,000 and during the 8 week period the recipient paid $700,000 in payroll costs and $250,000 in non-payroll costs, the total portion of the loan eligible for forgiveness would be $950,000. However, since payroll costs must represent at least 75% of the forgivable amount, the total forgivable portion of the loan is reduced to $933,333 ($700,000/.75 = $933,333). In other words only $233,333 of the $250,000 spent on non-payroll disbursements is forgivable. This is based on present U.S. Treasury guidance.
- Be aware of your full-time equivalents (“FTEs”) during the eight-week period. If your average FTEs during the eight-week period is less than your average FTE count during either the period from February 15, 2019, to June 30, 2019, or January 1, 2020, to February 29, 2020 (at the business’s choice), the forgivable portion of the loan (per above) is reduced by the % reduction in FTEs.
- The same is true for wages for employees earning less than $100,000. If the wages for these employees decreased by more than 25% during the eight-week period, the forgivable loan amount is again reduced.
- Finally, begin to accumulate documentation in support of your allowable disbursements. Be prepared to provide payroll registers, copies of invoices/checks, and bank statements. Save these documents as you go along so that at the end of the eight-week period you are prepared to petition your bank for forgiveness.
For those of you who were not as fortunate to receive funding in Round 1 but are fingers crossed with the imminent unrolling of Round 2, some words of guidance:
- Confirm with your bank that the loan application as initially submitted in Round 1 is good to go “as is” for Round 2. We have heard over the last week that most lenders are telling their clients that no changes to the initially submitted application will be required (and thus no further work effort required from the Borrower), but confirm with your specific bank contact as again each lender is running its own application process.
- We do not and will not know how lenders are formally prioritizing efforts on their end (and we fully recognize that they are doing their best amongst an unprecedented and potentially overwhelming season) but we do know of companies that had their application fully submitted on Day 1 of the window opening in Round 1 only to be told that their application was never subsequently submitted by the lender. That said…
- Again, after confirming in the aforementioned Step 1 that no changes are required to your initially submitted application, ask for clarity/confirmation from your bank contact that upon a next round of funding officially availing itself that the lender has a process in place on their end that will hopefully ensure a better outcome for you in Round 2. If you can’t get great clarity or comfort on that request, it would be good to have a couple other lending institutions lined up that you could turn to in the near-term.
As always, feel free to reach out to your primary Inflammo account manager with any questions or comments. Get to tracking on your forgiving!