For those of you that got in the PPP loan program prior to it running out of funds, here’s what you need to know!
Loan proceeds must be used for payroll, utilities and mortgage or lease during the eight week period beginning the day after the loan origination date.
Payroll
- Salary, wage, commission, or similar compensation;
- Payment of cash tip or equivalent;
- Payment for vacation, parental, family, medical, or sick leave;
- Allowance for dismissal or separation;
- Payment required for the provisions of group health care benefits, including insurance premiums;
- Payment of any retirement benefit;
- Payment of state or local tax assessed on the compensation of employees; or
- Compensation to or income of a sole proprietor or independent contractor that is a wage, commission, income, net earnings from self-employment, or similar compensation.
Note: Income of a sole-proprietorship is also eligible to be treated as “payroll costs.” This means that individuals that own a business, but have no payroll costs, may be eligible for a PPP loan.
Utilities
- Electricity
- Gas
- Water
- Telephone
- Internet Access
Note: Services must have began before February 15, 2020.
Rent, Lease or Mortgage Interest
- Rent and lease costs are defined as rent obligations obtained under an agreement in force before February 15, 2020.
- Mortgage interest paid on mortgages incurred before February 15, 2020.
Required Documentation
- Documentation to support payroll costs will include payroll tax filings and state income and unemployment insurance filings.
- Documentation to support mortgage and utility costs will include canceled checks, payment receipts, transcripts of accounts, or other documentation providing verification of payment.
Don’t Be Surprised!
MONITOR USE OF PROCEEDS CLOSELY
Reduction of Amount Forgiven
The PPP is designed to help businesses maintain employment during this economic downturn. With that intent in mind, it is not surprising that there is a catch to the complete forgiveness of a loan under the PPP. If the company experiences a reduction of its workforce or a reduction of salaries and wages during a certain defined period, the amount of the loan forgiveness is reduced.
The amount of the loan forgiveness is reduced by the quotient of the following: Monthly average full time equivalent (FTE) employees during the Covered Period divided by the monthly average FTE employees of either February 15, 2019 – June 30, 2019 [or] January 1, 2020 – February 29, 2020.
A Salary reduction may also cause a reduction in the loan amount forgiven. The amount of loan forgiveness is reduced by any reduction in the salary of certain employees (only employees that earned less than an annualized rate of $100,000 a year during 2019 are counted) that is in excess of 25% of the total salary of the employee during the most recent full quarter during which the employee was employed.
Example: AAA Company receives a PPP loan. After the Covered Period, AAA Company determines that its potential loan forgiveness amount is $100,000. Employee #1 worked for AAA Company last year. Employee #1 has a salary of $80,000. During the first quarter of 2020, Employee #1’s salary was $20,000. If AAA Company reduces Employee #1’s salary by more than $5,000 a quarter (more than 25% based on most recent full quarter salary, calculated), the amount in excess of $5,000 must reduce the loan forgiveness.