How to Maximize Your PPP Loan Forgiveness
After an agonizing few weeks of waiting for your Paycheck Protection Program loan approval, you’ve finally received your money. Now the real fun begins: How should you spend it to take advantage of the program’s forgiveness feature?
First, let’s explore what the forgiveness feature actually entails. Forgiveness is based upon eight weeks of spending from the date the funds land in your bank account. Forgivable spending includes things like payroll and benefits, interest on mortgage obligations, rent, and utilities. Like many of the aspects of this program that we have learned about so far, there are nuances and ambiguity on how the forgiveness will actually work. This post offers some ideas on what you should do now to prepare your forgiveness application.
Next, download the PPP forgiveness application just released by the SBA. Follow its instructions as best you can. This is very much a fluid situation and new guidance may be released. Those who received their loans in mid-April are understandably frustrated by continued changes as their forgiveness period ends about a month away.
Step 1: Set Up Your Key Milestones
We recommend keeping a spreadsheet of your business transactions as a way to keep your forgiveness financing organized and easily decipherable. Begin by opening up a spreadsheet, and write down the amount of your loan, accompanied by the following dates:
The date your loan was deposited at your bank.
The date of the first payroll after the date the loan was deposited at your bank.
Eight weeks after the date the loan was deposited or the date of the first payroll. You can elect an "alternative covered payroll period" if you have a biweekly (or more frequent) payroll.
90 days after the conclusion of the eight-week period This is the deadline to submit your application to your bank.
60 days after the date of your forgiveness application. This is when the bank must inform you of your decision.
The eight-week period following your deposit is known as the “covered period,” and it is during this time that your eligible forgiveness expenses will be examined. You then have 90 days to submit your application to your bank, and within 60 days of submission of your application, the bank is required to inform you of your decision.
Step 2: Create a Checklist
If you’re unsure of exactly what types of information you should be tracking in your spreadsheet, you can use a checklist, like the one prepared by the American Institute of CPAs (AICPA), to help you gather your information. You can download that checklist here and then add it into your spreadsheet.
Step 3: Track Your Spending
Each time you complete a forgivable spending transaction, track those costs in your spreadsheet. Forgivable spending includes:
You may also want to note the following about tracking your expenses:
Cash compensation is capped at an annualized $100,000 per year. For example, an employee earning $90,000 per year who has already received a $15,000 bonus in 2020 will have a total cash compensation of $105,000,but only $100,000 is allowed. Use $15,385 for these individuals ($100,000 / 52 x 8).
At least 75% of your forgivable costs must be payroll.
You must maintain at least the same level of FTEs (Full Time Equivalents) during the eight-week period as you had during the period when you calculated your loan amount. For example, if you had 10 FTEs in 2019 and used that year to calculate the amount of your loan, then had nine FTEs during the covered period, your loan forgiveness will drop by 10% (1 lost FTE / 10 FTEs).
For any employee’s pay that was reduced by more than 25% during the covered period, your forgivable amount will also be reduced by 25%.
If you restore FTEs or wages reduced by 25% before June 30, those amounts will be forgivable.
Keep in mind, also, that forgiveness guidance is still being developed by the Small Business Administration. Be sure to check the SBA website or consult with your accounting advisor to ensure your application reflects the most recent guidance.
Step 4: Gather Support for Your Spending
When you submit your forgiveness application, you will need to prove to your bank that you actually spent the money – and how. Remember that mortgage interest, rent or lease payments and utilities must have been in place as of February 15, 2020.
Documentation required to be submitted with your PPP Forgiveness Application includes:
The PPP Loan Forgiveness Calculation Form
PPP Schedule A (it comes with the form).
Documentation verifying cash compensation, such as bank statements, third-party payroll provider reports or payroll tax filings
Documentation showing Full Time Equivalents (FTE) on payroll
For those claiming mortgage interest forgiveness, statements from the lender, cancelled checks or a lender amortization schedule
Business rent or lease payments require a copy of a current lease agreement and proof of payment. For lease payments an account statement from the lessor is needed.
Utility payments need copies of invoices from February, 2020 and proof of payment.
Step 5: Prepare Your Forgiveness Application
Download the forgiveness application and begin to complete it. Do this before the end of your forgiveness period so you have time to make modification to maximize your forgiveness. The best way to increase forgiveness is through increasing payroll - that is the point of the program.
There are some fintech firms have stepped up to offer software to help borrowers, including this one from Finsync. Check it out. It may help you through the process.
We leave you with one last piece of advice: Submit your application as soon after the eight-week period as you can. There will likely be a flood of forgiveness requests, but the law states you must be notified within 60 days of submission, so get the clock started early.
For additional guidance on maximizing your PPP loan forgiveness, contact Fintelligent, and one of our team members would be happy to assist you through the process.