Cavitch Familo & Durkin, Co., L.P.A.
 

So you got your PPP loan … Now what?

Michael Rasor

Half the battle was getting your piece of the $349 billion package of forgivable small-business loans, known as the Paycheck Protection Program (PPP). Now that you have the funds, what’s next?

 

First of all – If you’re an eligible employer who is reading this, and has NOT yet applied through your banker for a PPP loan, please read my earlier post on the CARES Act.

Start the Clock – Mark the date on your calendar when you received your loan. That date begins an eight-week measurement period, which (in part) dictates how much of your loan gets forgiven. For example, if your funds arrived April 6, then your measurement period is April 6 to June 1.

Fill the Bucket – During the measurement period, you will want to accumulate credits toward forgiveness. These credits are obtained by paying payroll costs (up to an annualized $100K, but potentially limited for owners), mortgage interest (whether secured by real estate or a vehicle), real estate rent, utilities, and refinancing an EIDL loan.

Think of it this way: If you have a $50,000 loan, then you can fill a bucket with up to $50,000 in credits. That’s the optimal result.

At least 75% of the bucket needs to be filled with payroll costs. Any payments for interest, rent, or utilities must be toward obligations that were in place prior to February 15, 2020 (i.e., you can’t sign a new lease and use these payments toward forgiveness).

For greater detail about calculating the forgiveness credits, read my earlier post on the CARES Act.

Avoid the Dings – The first stage of the forgiveness analysis is what I call “filling the bucket.” But even if your bucket is full, you can miss out on 100% forgiveness under two different provisions of the CARES Act.

  1. The CARES Act will ding you, on a dollar-for-dollar basis, for any employee whose pay is diminished during the measurement period by more than 25%, when compared to pre-crisis levels.
  2. You will be dinged if your employee headcount during the measurement period does not match your pre-crisis headcount. The headcount penalty is more severe, especially for small employers, because it is not done on a dollar-for-dollar basis. Rather, your headcount ratio will be multiplied by your forgiveness amount. If you bring back only 75% of the workers, then you lose 25% of your forgiveness.

**However, either of these “dings” will be overlooked if you have restored your employee salaries and headcount by June 30, 2020.**

For greater detail about calculating the “dings,” read my earlier post on the CARES Act.

Keep Your Records – Start thinking forward to the day when you apply for forgiveness. The CARES Act requires these items to be included in the application:

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