You went through the process to complete the application, received approval, and the PPP funds hit your bank account. Now what? What should be done so this loan can be forgiven?
Over the next few weeks, we are confident we will receive official guidance on interpreting the verbiage from the CARES Act, but it is our understanding that if you spend 75% of the loan on payroll costs, then they will forgive the entire amount of the loan.
Under Sec. 1106 of the CARES Act, it states that the Borrower may apply to Lender for forgiveness of the amount due on this loan in an amount equal to the sum of the following costs incurred by Borrower during the eight-week period beginning on the date of the first disbursement of this loan:
- Payroll costs;
- Any payment of the interest on a covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation);
- Any payment on a covered rent obligation, and
- Any covered utility payment.
We are interpreting payroll costs as including your employees’ compensation (earned within the United States), cash tips, paid leave, the cost of the employees’ portion of health insurance costs and retirement contributions, and the federal, state, and local taxes.
You should not assume the compensation for employees working outside of the United States, 1099 employees, the employer portion of employment taxes, including FICA, Railroad Retirement Act taxes and income taxes, and any qualified leave wages related to Families First Coronavirus Response Act. The “payroll costs” should remain consistent with the costs you listed on the application for this loan.
We believe that businesses should open a new bank account for the funds received from this program and keep them separated from working capital accounts. Try not to commingle other company assets with these funds. If you have to commingle the funds—do not fear—just keep a paper trail. As you make payroll, rent or mortgage payments, and utility payments, transfer the amounts needed to cover the costs from the newly opened “PPP account” to the company’s working capital account. After eight weeks of keeping these transfers, it should be relatively easy to prove how the funds were used during this program.
It’s imperative you keep detailed records now to track how these funds are being used. Don’t wait eight weeks and then try to audit how the funds were put to use. By keeping a separate account for these funds, you can show how the money was used and easily prove the validity of the transactions. Be intentional about the money, how it is used, how you are tracking the money, and how you will show this to the auditors when they come asking!
If you have questions on using your PPP Loan funds, contact the Experts at Henssler Financial:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
- Join the Conversation in Our Coronavirus Facebook Group
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