COVID-19 Update: Maximizing the Benefit of the Paycheck Protection Program (PPP) Loan

COVID-19 Update: Maximizing the Benefit of the Paycheck Protection Program (PPP) Loan

Congratulations, you made it through the first wave of uncertainty and confusion and have received your PPP Loan Proceeds. Now what? How does your business maximize the benefits of this program?

We have listed a four-step process to follow below. Please reach out to your FMD Advisor for assistance as soon as possible. We have developed some very good tools to assist our clients with achieving the maximum benefits of these loans.

Step 1:  Put Employees Back on Payroll

To maximize the loan forgiveness, employers will need to have the same amount of Average Full Time Equivalent (FTE) Employees on Payroll by June 30, 2020 as they had in the “Base Measurement Period” prior to the COVID-19 Crisis.

This “Base Measurement Period” (at the election of the employer) can be either:

• February 15, 2019 – June 30, 2019 OR

• January 1, 2020 – February 29, 2020

The primary purpose of the PPP program is to provide employers with government assistance funds to keep their employees on the payroll. The amount of loan forgiveness is based substantially on the amount of payroll costs paid during the eight-week period after obtaining the loan proceeds. The Small Business Administration (SBA) has also provided guidance indicating that expectations are that at least 75% of the total loan proceeds must be spent on payroll costs. 

Putting employees back on the payroll might mean that you pay them even though they may be unwilling or unable to work due to a quarantine or government mandated Stay Home Order.

Employers may very likely have to coach employees through the process of evaluating the benefits of leaving Unemployment Compensation assistance and returning to the employer’s payroll for at least this eight-week measurement period. Some factors for employees to consider are the ability to retain health insurance benefits and access to other employee benefit programs. 

Employers should also consider alternative work their employees may be able to do, either at home or in small groups at their normal workplace, to maintain or make improvements to the business during this unusual time. 

Step 2:  Schedule the Payment of “Other Qualified Expenses”

In addition to employee salary and wage expenses, there are other costs that the loan proceeds can be used to pay.

These costs include:

• Employee Benefit Insurance Premiums (Health, Dental, Optical)

• Employer Retirement Benefit Plan Costs (401(K), SEP, Simple IRA Contributions)

• Business interest payments on debt related to/collateralized by real and personal property

• Rent payments

• Utility payments

For these costs to be considered for forgiveness, they must be both incurred and paid in the eight-week period that follows the receipt of the loan proceeds, so scheduling payment of these costs is critical. NOTE:  Some of these costs may not normally be paid by employers monthly so advance planning may be required with outside vendors and benefit plan administrators to ensure compliance.

Step 3:  Accumulate the Information Necessary to Verify the Qualified Debt Forgiveness Expenditures

Accumulate copies of the following documents that will be needed when you apply for loan forgiveness:

• Detailed Payroll Records for the eight-week measurement period

• Payroll tax returns filed for periods inclusive of the eight-week measurement period

• Employee Benefit Insurance Billing Invoices and proof of payments

• Employee Retirement Plan Documents and proof of funding

• Proof of payment of all Utility Bills (Electric/Gas/Water/Telephone/Internet)

• Original Mortgage notes and proof of payments

• Original Other Notes Payable and proof of payments

• Original Lease Documents (Real estate, Equipment, Software) and proof of payments

• Make sure related party notes and leases are up to date and executed prior to February 15, 2020

Step 4:  Complete the Application for Forgiveness:

PPP Loan recipients can have 100% of the loan proceeds, plus accrued interest, forgiven if they meet the spending criteria above. To add to the benefit, any of the forgiven debt is non-taxable to the borrower.

Specific details for making the application for loan forgiveness are vague currently however, the CARES Act states that applications for forgiveness will be submitted to the lender. The lender then has 60 days to review and approve the application. Given that the PPP program was delayed in getting loans funded and the appropriated funds have been committed very quickly, we are predicting some modifications and more guidance to the program in the very near future.

The list of required documents and planning opportunities above is significant, so it is a good idea to get started on this process sooner rather than later.

There are many other details that apply to effectively manage the Paycheck Protection Program Loan Forgiveness calculation that we are not able to cover here. Please reach out to your FMD professional advisor as soon as possible to discuss this process so that you can effectively plan to maximize the ultimate level of benefit for your company and your employees.

Please visit our website for continuing updates on all COVID-19 related matters. www.fmdcpas.com