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Ask an Attorney: Navigating the Payroll Protection Program

My business needs assistance navigating the logistics of the PPP Loan. Can you help us with the forgiveness process?

You scratched, clawed, spent hours staring at your computer and gathering records. All that effort was worth it because you received your PPP loan.  You know that PPP Loans are designed to encourage employers to keep paying employees in exchange for entirely forgiving those qualified amounts, rather than further stressing the unemployment systems in each state.  But did you know that with careful planning, attentive business owners can maximize their PPP loan forgiveness under the CARES Act?  While this is just a quick overview and should not substitute for particularized professional accounting advice, this post explains some of the key points of PPP Loan forgiveness opportunity and highlights the need for planning and recordkeeping. Here are some of the basics and strategies to further maximize the results of your efforts:

-PPP loans have been parceled out in two rounds of funding authorized by Congress and when your loan funds (your PPP Loan Disbursement Date) starts the 8-week period that you have to spend that loan money on payroll (75% of the total loan amount) and payments on eligible mortgage, lease, and utility obligations (25%) to qualify for forgiveness. This period is known as the Covered Period or the Alternative Payroll Covered Period.

-Your bank (Lender) will determine the loan forgiveness amount and they need to make that decision within 60 days of your submitting the 4 part application. Also, your bank will review and collect the proof (likely payroll records and/or 941s and your payment records, mortgage statements, leases and bills for the other qualifying obligations) for your calculations on forgiveness for your Covered Period and the comparison period most beneficial to you.

-Many accountants and payroll services offer PPP Loan forgiveness estimators or spreadsheets that can calculate and maximize your loan forgiveness. The sooner you gather your records and run your calculations the better chance you’ll be able to maximize the amount forgiven. To correctly maximize your forgiveness amounts, you’ll need to access your existing payroll records for two periods: 1/1/20 through 2/29/20 OR 2/15/19 through 6/30/19. Your accountant should ensure your exact figures are correctly calculated and should review your forgiveness application based on the most current guidance.

-Your eligible payroll/wage forgiveness amount is calculated by comparison with the most favorable of 2 periods (1/1/20 through 2/29/20 OR 2/15/19 through 6/30/19) for Full-Time Equivalent employees (FTEs). Maximizing the amount that can be forgiven means planning your employee’s pays and work time to try to ensure you pay out payroll during your Covered Period that matches the wages paid during the most beneficial period according to your prior payroll records.

-We are recommending to our clients that you put your PPP loan proceeds in a separate account so each payment or transaction is easily tracked.

-If you do have to repay the loan, interest does accrue on the unforgiven amount at 1% and there is a 6-month grace period for repayment.

-While some other factors may reduce or affect the forgiveness amount, your loan forgiveness amount will be reduced if you (1) fail to maintain the same number of FTEs during the Covered Period when compared to your lookback and/or if you (2) decrease wages for employees earning less than $100,000 (annualized) by more than 25% when compared to the employee’s average weekly wages during the 1st Quarter of 2020.

In sum, like virtually any federal law, there are many details, permutations and factual scenarios that impact the PPP Loan forgiveness process. Plus, with any program being administered of this scale, there’s a fairly confusing set of instructions and schedules that might dissuade you from trying to recover the most forgiveness possible. Since you’ve already collected much of what you’ll need to plan out the best possible use of your PPP Loan money, you should also maximize your loan forgiveness.  It makes business sense to put a little more time into choosing your “look back period” correctly and planning out your employees’ schedules.  These steps can distribute more dollars along to your employees when they desperately need them, and you can successfully avoid having to repay any significant portion of the PPP loan you worked so hard to attain.  Translate that effort into goodwill for your business by planning correctly to help your employees.

Did you know that a 2nd round of PPP funds have now been approved?

Eligibility requirements for Second Draw PPP Loans include that your business:

  • Employs no more than 300 employees in any single location
  • Experienced at least a 25% reduction in gross receipts in any quarter of 2020 compared to the same quarter in 2019—new and seasonal businesses will have additional requirements
  • Received a First Draw PPP Loan* and have used, or will use, the full amount before receiving the Second Draw PPP Loan disbursement
  • Is an eligible entity type, including businesses, certain non-profit organizations, housing cooperatives, veterans’ organizations, tribal businesses, self-employed individuals, sole proprietors, independent contractors, and small agricultural co-operatives

If you think you’re eligible for—and interested in—a Second Draw PPP Loan, it could be worth looking into for your business. And one of our Annapolis attorneys can help you navigate this process, from start to finish, today. Our offices are open and we are available to help you with your legal needs during this unprecedented time.