PPP Loan Forgiveness Guidelines: 5 Facts You Should Know

Whether you’ve already received your funds from the Small Business Association’s (SBA) Paycheck Protection Program (PPP), or you’re still waiting for approval, there are several important rules you must know about. Comply, and your entire loan could be forgiven. Fail to comply, and you could end up on the hook for repaying some—or all—of that loan

Reminder: PPP funding was made available to help you keep on the payroll—instead of laying them off or furloughing them. Loan amounts are calculated based on a maximum of 2.5 times your average monthly payroll (up to $10 million). The loans must be paid back within two years at a 1% interest rate. However, the loan can be entirely forgiven if you meet specific criteria.

The SBA has strict rules for loan forgiveness, and experts anticipate that lenders will be extremely diligent about following up to make sure the funds you receive through this program are spent only as intended. Below you’ll find a Q&A of the top facts you need to know in order to maximize your loan forgiveness.

Q: Is Any Special Documentation or Planning Required for Optimal Loan Forgiveness?

A: While your entire PPP loan may be forgiven, you may need to pay it back with a 1% interest charge if you don’t spend it all on the allowed expenses within eight weeks. If you restore normal payroll in the eight-week period, you should be able to get the loan forgiven. But ideally, you’d begin planning for forgiveness as soon as you receive your loan. To do that, follow these basic steps:

Set up a new bank account where only the PPP money will be deposited. Since it won’t be comingled with other business funds, it will be much easier is easier to track. Pay all PPP expenses out of this account.
Pay the principal and interest separately for this period, if you are using part of the loan for mortgage interest.
Begin keeping documentation for all expenses paid out of the PPP loan. In addition to payroll records, this incudes utility bills, copies of canceled checks, bank statements with ACH transfers, signed and dated lease agreements, etc.

Q: When Does Your Eight Week Reporting Deadline Begin?

A: The eight-week (56-day) period begins the day that PPP funds are deposited into your account. That’s day one. This should be no more than 10 days after your loan is approved.

Q: What Expenses Can You Pay with Your PPP Loan?

A: Technically, anything. But if you want maximum loan forgiveness, you must use at least 75 percent of your PPP loan for payroll costs. Luckily, payroll costs have a wider definition than you might think, they include the following items:

Salaries and wages
Employee benefits including parental, family, medical, and sick leave, vacation time, severance pay, group health insurance premiums, and retirement benefits
State and local taxes assessed on compensation.

You may also use up to 25 percent of your PPP loan for certain expenses other than payroll, and still have the funds forgiven. However, guidance in this area is still unclear, so aim to be as conservative as possible when spending PPP money on non-payroll costs. Currently, eligible non-payroll expenses have been reported as :

Rent—as long as your lease was in force before February 15, 2020. Some experts advise to not spend PPP money on expenses incurred prior to receiving your funds, even if those expenses cover the 8-week period. For example, if you paid rent on April 1^st, and received your funds on April 9^th, you wouldn’t count April rent as an eligible expense.
Mortgage interest you incurred before February 15, 2020. Keep in mind that if your practice owns its building under a separate entity (one other than the entity receiving the loan), interest on that mortgage would not qualify.
Utilities necessary to run your business, as long as they were in place before February 15, 2020. The SBA describes utilities as electricity, gas, water, phone, internet, and other similar services.

Q: What Exactly Is the $100,000 Payroll Cap?

A: The salaries/wages you can use to determine your maximum PPP loan amount are capped at $100,000 for each employee. If an employee earns over $100,000 annually, you may not include any amount over $100,000 when calculating your payroll costs to determine your eligible funding amount.

The amount you can be forgiven is also based on a cap of $100,000. For employees earning over $100,000, you will need to pay part of their salary out of your PPP funds, and the remainder out of your usual funds. For example, a provider at your practice earns an annual salary of $187,000. Here’s how to calculate how much you’d pay this provider out of your PPP funds.

Calculate the provider’s regular salary for 8 weeks: ($187,000 / 52) X 8 = $28,763.23
Calculate their salary using the PPP cap: ($100,000 / 52 weeks) X 8 = $15,384.62
Pay the provider $15.384 62 from your PPP funds. This is also the amount eligible for loan forgiveness.
Calculate the difference between PPP payroll cost and regular payroll cost: ($28,763.23 – $15,384.62) = $13,384.31.
Pay $13,384.31 from your regular funds.

For more answers to your essential COVID-19 employment questions, there is more expert advice available by attending healthcare attorney Kelly Holden’s online training “New COVID-19 Employment Rules: Head Off Legal Nightmares.” Her expert session will walk you through each of the new COVID-19-related employer regulations and how you can use them to help your employees, AND protect your practice.