How should I be using this money?
The proceeds from your Paycheck Protection Program (PPP) loan should be used only to cover the following items
- Salary / wages / commissions (capped at $100,000 on an annualized basis for each employee), including benefits
- Interest on mortgage obligations that is incurred before February 15, 2020
- Rent under lease agreements in force before February 15, 2020
- Utilities for which service began before February 15, 2020
It should be noted that segregating the funds in a different bank account is crucial (even though this is not considered as a requirement) as co-mingling the loan proceeds with other funds may prove difficult in tracking and documenting qualified usage which would be an important when it comes to calculating the forgiveness amount.
Estimate and calculate your forgiveness amount now!
The receipt of the PPP fund is the beginning of a complex journey of calculating how much can be forgiven and how much businesses have to pay back when the payments are due, which is just 6 months away. The government wants its money back pretty quickly!
Calculating how much will be forgiven is not a straight forward matter. Our local accounting firm highlights a couple of pitfalls to keep an eye out for:
- You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020
- Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019
- Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
The guidance on PPP funds continues to change and gets updated. With how quick the funds are being disbursed to small businesses throughout the country, one of the major downfall in the program is its lack of clear guidance and protocols. Just as recent as this week, borrower, together with its affiliates, that received PPP loans of less than $2 million will be deemed to have made the required certification in good faith. Borrowers with loans greater than $2 million will still have to provide an adequate basis for their certification. Surprise!