PPP Loan, the Rules and Strategy, Top to Bottom (Revised 4/8/20)

Nate Williams COVID-19 Updates 49 Comments

Paycheck Protection Program (PPP) Loan

Updates (4/8/20):

Right now, the big question for small business owners is: “When should I apply for the PPP Loan?” For updates on our recommendations surrounding the timing of the PPP loan, see our blog post here: When to Apply for the PPP Loan

Full Text:

The format of the content below is broken into two categories:

  1. The “Rules” of the loan – before you can play a game, you need to know the rules;
  2. The “Strategy” of the loan – once you know the rules, having the right strategy will determine if you win or lose the game.

Also, the information below is accurate at the time of this writing (4/8/2020); we expect the rules of this loan program to change. As the rules change, we will post updates here.

 

EIDL 7(a) or PPP Loan
Amount Up to $2,000,000 2.5x average monthly payroll costs, including benefits
Rate 3.75% max 0.5%
Where to apply? Sba.gov/disaster SBA-qualified lender
Grant or Forgiveness? Grant of up to $10,000 8-weeks of qualified expenses
Max term: 30 years 2 years
Collateral required? On loans over $25,000 No
OK if you have access to credit elsewhere? Yes Yes
Uses of the funds? Business operating expenses Payroll, rent, utilities
Cost to apply? Free Free
Prepayment penalty? None None

 

The “Rules” of the PPP Loan

What is the Paycheck Protection Program (PPP)?

This was part of the CARES Act. The PPP program authorizes up to $349 billion (for the whole country) intended to provide American small businesses with eight weeks of cash-flow assistance through 100% federally guaranteed loans.

What are some highlights of the program?

  • No cost to apply
  • Funding is intended to help retain workers, maintain payroll, cover rent, mortgage and utilities expenses (mortgage is defined as building mortgage, equipment loans or practice purchase loans)
  • All or a portion of the loan can potentially be forgiven and essentially turn into a non-taxable grant.

Can I apply for the PPP loan and the EIDL loan?

Yes.

How do I apply for the PPP loan?

You will need to apply through an existing SBA 7(a) lender. Many lenders are already approved to issue 7(a) loans; we recommend you check with these banks first to inquire as to whether they are approved SBA 7(a) lenders:

  • The bank where you have your business checking account
  • A bank where you have existing loans or an existing relationship with a lender
  • A bank where you have borrowed money from in the past.
  • *You can also visit sba.gov for a list of SBA lender.

Where can I access the loan application?

You will need to check with your bank for an application. The Treasury Dept. put out this application (here), but each bank will have its own application process.

When is the deadline to apply for the PPP loan?

Per the Dept. of the Treasury, your banker needs to have the application processed by June 30, 2020.

What information will be needed to apply for this loan?

Your bank will likely ask for specific supporting documentation – the exact information may vary from bank to bank. However, some commonly requested documents are:

  • 2019 Payroll—use your 12/31/19 (or 12/20/19) MyPay “Payroll Report.”
  • Tax Form 941/W-3
  • 2019 1099 income paid to independent contractor doctors
  • Healthcare costs—all health insurance premiums paid by the business owner under a group health plan
  • Contribution summary – shows the amount contributed to retirement plans
  • *PFG will assist you in the collection of this information

How do I determine the loan amount I am eligible for?

If you are a PFG client, we have provided you with your loan amount. If you have any questions about this number, please reach out to your planning team. FYI, the maximum amount is 2.5 times your monthly “payroll costs” including the following:

  • Employee salaries, wages, commissions, etc. up to $100,000 per year ($8,333.33 per month) per employee
  • Payment for vacation, parental, family, medical or sick leave
  • Severance payments
  • Group health insurance
  • Retirement plan contributions
  • State and local taxes assessed on such compensation (i.e. Payroll Taxes)

What can the PPP loan proceeds be used for?

PPP funds are restricted in their use, regardless of forgiveness. You must acknowledge that the funds will be used for:

  • Payroll Costs, including benefits
  • Interest on mortgage obligations, incurred before February 15, 2020
  • Rent, under lease agreements in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020

What counts as payroll costs?

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
  • State and local taxes assessed on compensation; and
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

Will the doctor’s pay be included in payroll costs?

Yes, all employees of the business are included, capped at $100,000 per year per employee.

If I am in a partnership, owned by an S-Corp, can I apply for this loan twice under both entities?

No. Our recommendation is to apply for this loan at the partnership and to include the doctor’s salary, capped at $100,000 annually ($8,333.33 per month).

One of the “certifications” required to apply for the loan is that the applicant (the doctor) has not applied for another loan under the same program.

What portion of the loan will be forgiven?

The amount that will be forgiven is equal to the sum of the following incurred during the 8-week period that begins on the origination date of the loan:

  • Payroll costs (as broadly defined above)
  • Interest (not principal) on any business debts that were incurred prior to February 15, 2020
  • Rent
  • Utilities, including electricity, gas, water, transportation, telephone and internet access.
  • *Note: 75% of the forgiven amount must have been used for payroll costs.

Another way of saying this is that you will owe money when your loan is due if you use the loan amount for anything other than the costs mentioned above.

When will the 8-week period of forgiveness begin?

The 8-week forgiveness period will begin on the loan origination date, defined as the date the money lands in your account.

Can expenses for July and August be forgiven if the loan originates in June?

Yes, forgiveness will apply to the 8-week period starting on the origination date of the loan. The deadline for loan origination is June 30th, but the covered period for loan forgiveness may extend past that date.

I’ve heard that the amount to be forgiven will be reduced if I do not rehire and/or restore the salaries of my employees to the levels prior to this crisis. Is this true?

Yes, this is correct. You are not required to retain employees; however, the purpose of the “Paycheck Protection Program” is to do just that: protect paychecks. To receive the loan forgiveness, you must commit to maintain an average monthly number of full-time equivalent employees equal to or above the average during the previous 1-year period.

You will owe money on this loan if you do not maintain your payroll as follows:

  • Number of staff—your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of payroll—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.
  • Re-Hiring—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.

What do I need to do to receive loan forgiveness?

You will submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.

When will the determination be made for the amount of forgiveness?

The lender must decide within 60 days of your forgiveness application submission.

When do I need to start paying interest on the loan?

All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is the loan due?

In 2 years. Exact payback terms will be worked out with the SBA lender.

If I have laid off employees, when do I need to re-hire them in order to qualify for loan forgiveness under the PPP program?

Before the date of origination on the loan – at the latest that would be June 30, 2020.

Will the loan forgiveness under this program be taxable?

No, it is not taxable.

Do I need to personally guarantee this loan?

No. There is no personal guarantee requirement. ***However, if the proceeds are used for fraudulent purposes, the U.S. government will pursue criminal charges against you.*** (This is a direct quote from the Dept. of the Treasury).

Can I use the PPP loan to prepay rent?

You cannot be forgiven of any amount of rent that you prepay. Forgiveness only applies to the amount that you are obligated to pay in the 8-week period. Given that it’s not forgivable, we do not recommend borrowing money to pre-pay rent.

What if my business did not exist before June 30, 2019?

In this case, the SBA will look at your costs in January and February 2020.

When I apply, what will I be asked to verify?

Per the exact wording on the loan application, you will be asked to certify in good faith that (on the EIDL loan the verification was “under the penalty of perjury”):

  • The Applicant was in operation on February 15, 2020 and had employees for whom it paid salaries and payroll taxes or paid independent contractors, as reported on Form(s) 1099-MISC.
  • Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.
  • The funds will be used to retain workers and maintain payroll or make mortgage interest payments, lease payments, and utility payments, as specified under the Paycheck Protection Program Rule; I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.
  • The Applicant will provide to the Lender documentation verifying the number of full-time equivalent employees on the Applicant’s payroll as well as the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight-week period following this loan.
  • I understand that loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities, and not more than 25% of the forgiven amount may be for non-payroll costs.
  • During the period beginning on February 15, 2020 and ending on December 31, 2020, the Applicant has not and will not receive another loan under the Paycheck Protection Program
  • I further certify that the information provided in this application and the information provided in all supporting documents and forms is true and accurate in all material respects. I understand that knowingly making a false statement to obtain a guaranteed loan from SBA is punishable under the law, including under 18 USC 1001 and 3571 by imprisonment of not more than five years and/or a fine of up to $250,000; under 15 USC 645 by imprisonment of not more than two years and/or a fine of not more than $5,000; and, if submitted to a federally insured institution, under 18 USC 1014 by imprisonment of not more than thirty years and/or a fine of not more than $1,000,000.
  • I acknowledge that the lender will confirm the eligible loan amount using required documents submitted. I understand, acknowledge and agree that the Lender can share any tax information that I have provided with SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

Can I borrow the money now, then use it to reimburse payroll expenses incurred in March?

No. The loan forgiveness period for payroll expenses spans an 8-week period beginning on the loan origination date.

 

The “Strategy” for the 7(a) PPP loan

Please note: rarely do we publish strategy in an open, public forum. The reason is simple: your strategy depend on where you are in the game. So this information will vary from case to case. Having said that, the majority of our clients are in the same boat here: practice closed with everyone on unemployment. This strategy is geared towards you.

Who is an ideal candidate for this loan program? Meaning, for whom is this loan intended?

The purpose of this loan is to, as the name suggests, “Protect Paychecks,” meaning to keep people who are still working, working and getting a paycheck.

This loan is clearly intended for businesses that are still open but suffering a lack of revenue due to the COVID-19 crisis, and therefore are struggling to retain workers. Rather than experience even more wide-spread layoffs, the government is trying to curb sending people to unemployment by offering to pay for payroll wages for 8 weeks, starting on the date of the loan origination (the date you sign for the loan and get the money).

Consequently, this loan is not designed to benefit with “free money” offices that are closed (whether closed voluntarily or by government mandate) and who have sent their employees to collect unemployment. More details on this below.

Finally, as part of the loan the borrower is required to certify that the loan is “necessary to support the ongoing operations of the applicant.”

When should I apply for this loan?

SBA approved lenders will begin accepting applications on April 3, 2020. The Dept. of the Treasury wrote this, “We encourage you to apply as quickly as you can because there is a funding cap.”

However, the timing for our clients is not that easy. The loan forgiveness period—the part that is getting everyone so excited—runs for 8 weeks starting the date of the loan origination. Additionally, in order to be qualified for forgiveness, 75% of the loan proceeds must be used for payroll expenses. And, if you have reduced payroll costs or headcount, the forgiveness is drastically reduced (see more below).

Furthermore, if you apply for the EIDL loan and receive the $10,000 grant, your “forgiveness amount” will be reduced by the same amount.

Therefore, dentists have a difficult decision to make: apply for the loan early and secure the money but risk getting little or no loan forgiveness, or wait to get a higher amount of loan forgiveness.

What is the ideal strategy for this loan?

The ideal strategy is this, assuming your office is closed: You wait to apply for the loan until right before you open your doors; you open your doors on “Monday,” and the loan “originates” (funds land in your account) on Tuesday, the next day, thus starting the 8-week clock when you have “free payroll” (assuming everyone is rehired).

What is the conflict with following the “ideal strategy?”

There were $349 billion allocated to this program. They will loan out the money until it is gone (assuming they don’t allocate more). As previously mentioned, in the Treasury’s own words: “We encourage you to apply as quickly as you can because there is a funding cap.”

Will the government allocate more funds to this program in addition to the $349 billion?

We don’t know. However, in a press release (watch video here), President Trump mentions that this bill authorizes up to $6.2 trillion of spending. Our interpretation of that is that currently, all these $100s of billions have been allocated to these programs (unemployment, loans, payments to citizens); but if the money runs out and the economy is still shut down, they will simply allocate more funds without needing another bill.

This thinking further emphasizes our recommendation: wait to apply for this loan until you’re ready to go back to work.

Can I apply for the loan now, but defer receiving the funds?

On 4/8/20, the Treasury Department clarified that you cannot defer funding for more than 10 days. Per the Q&A released by the Treasury, “The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement of the loan no later than ten calendar days from the date of loan approval.”

Can’t I take this loan and pay my employees as normal for the next 8 weeks?

Yes, you can. But should you? If your office is still open and everyone is still employed, but you’re facing economic uncertainty, this is the exact intention of the loan program and perhaps you should borrow the money now.

However, if your office is closed and your employees are currently collecting unemployment benefits, why would you go through the hassle of bringing them back, cutting their unemployment benefits, and then hoping the loan gets forgiven later? Or risking that the 8-week forgiveness period isn’t long enough? In this case (office is closed, employees collecting unemployment), we do not recommend putting them back on payroll until your office reopens.

 

 

Note: The guidelines provided below are based on text from the official 880-page bill (here) and information released by the US Treasury (here). We expect over the coming months that the SBA will issue further guidance regarding loan forgiveness. We will share new information with you as soon as we know it.

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Nate WilliamsPPP Loan, the Rules and Strategy, Top to Bottom (Revised 4/8/20)

Comments 49

  1. Judi

    I understand that there can’t be a reduction in staff but do the guidelines speak to putting additional staff on payroll during the 8 week period? I’m considering hiring a part time associate once I reopen. This is in the event that my children are still home from school and I can’t return to my practice full time.

    1. Post
      Author
      Nate Williams

      Judi, there is nothing in the guidance that alludes to adding staff. I think it would be welcome. The amount you can borrow, however, is limited to what your payroll has been historically. That’s something to keep in mind.
      -Nate

    2. Jim Tretter

      My business is a church/school with 88 employees that are paid twice monthly, we’ve made no headcount reductions yet. My loan origination date is 5/1/2020, 8 weeks = 6/25/2020. How do i calculate June (a partial month) payroll costs?
      We were already planning a headcount reduction of 3-8 after June so my FTE will be down. How do i calculate how much my loan forgiveness I’ll loose?
      thanks for all the great information.

  2. Matt Jacks

    A consideration- our priority within the business community and the respective banks where we apply may factor heavily here. Businesses that are moving a million dollars a month, have received and paid off multiple loans and hold assets in the millions are going to get priority attention. Also, larger banks with tested online platforms versus brick and mortar banks will process and move quicker regardless of priority.

    1. Post
      Author
      Nate Williams

      Matt,
      Very good point. To compound the matter, I gather that banks don’t want to do these loans. The interest rate is so low (.5%), and there are no fees, which means banks are being asked to give and service these loans out of the goodness of their hearts, basically. Many banks are also putting the stipulation that they will not let you apply unless you have an existing banking relationship (your checking accounts). See the revision I put in the post today about what Chase put on their website.
      -Nate

  3. Jordan Humbert

    Thanks for all the hard work and research you have done for all of us. I appreciate everything you guys have done. PFG rocks.

  4. Doug Corry

    What would be a plan of action If you have not let go of any employees but know that some have begun to apply for unemployment due the decreased workload. My office is technically still open seeing emergencies per the recommendation of the CDC and ADA. I see about two emergencies per day that takes up usually a maximum of three hours. Only two of my staff members come in during these times and then we all go home. Would I still want to wait to apply for this loan or look into applying now since our office is not technically closed?
    Thanks

    1. Post
      Author
      Nate Williams

      Doug,
      Great question. I think a conversation with your planner is appropriate, without question. As for guidance on staying open vs. shutting down, I would look to more local authorities on that. The ADA, although very helpful, isn’t an authoritative body on that issue. The CDC issues guidance and recommendations, but they don’t govern states. I would look to your state government and dental board as far as hours of operation.
      If your plan is to stay open indefinitely and keep your payroll levels the same as pre-COVID-19, then the PPP loan is exactly for you! Go ahead and apply.
      But my personal opinion is that we haven’t seen the eye of the social distancing storm; my guess is that your work will continue to slow. If it were me, and if I were going to stay open to see emergencies, I would select a very skeleton crew to do this. I would employ as few people as possible for just enough hours possible. And I would send everyone for unemployment (the ones who work limited hours can get partial unemployment). To get the PPP loan forgiven, you need to have the same payroll level you did prior to COVID-19; in your case you don’t. So borrowing the money to pay people would be just that – you going into debt (albeit at a low-interest rate) to pay employees. Again, I wouldn’t do that at this point.
      -nate

  5. Thom Akins

    I have read PFGs commentary twice. Thank you for your hard work. We are glad to be clients of PFG. The “spirit” of the legislation seems to want my staff to be paid their full wages now (rather than the appreciably less amount they get on unemployment). I anticipate that all of my staff will return. None have been “terminated” (not really sure what the precise definition of “terminated” is), and given the economic situation, I understand that the unemployment folks don’t qualify them as “terminated” even though they may receive unemployment. To me it would make sense to apply for the PPP loan, pay my staff full wages (even though we are not seeing patients) – have them do training from home, clean the office, etc. The rub possibly seems to be with this statement: “Current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Is the issue that we are not seeing patients and therefore don’t have typical “ongoing operations”? This seems like poor wording on the part of the legislators, and my suspicion is that the legislation would want my staff drawing a full paycheck, even though we are not seeing patients. Thoughts?

    1. Post
      Author
      Nate Williams

      Thom,
      Thanks for the kind words. We appreciate the opportunity to be helpful.
      Insightful of you to identify the “spirit” of the legislation. I think the spirit of the legislation is to pause economic panic; they are taking care of unemployed people, and trying to take care of businesses who still employ workers. There aren’t many people in public leadership who want your office to be open right now for many reasons. And with “shelter in place” orders, they don’t want you gathering your employees at your office either. So I think you’ve done the right thing by closing your doors and sending people to unemployment.
      The “spirit” of the PPP loan, in my opinion, doesn’t apply to the business that is closed (yours) whose employees are all on unemployment. I think the loan applies to businesses that are still open and struggling to stay open, but lacking the revenue to pay people. I think the legislation intended to take care of unemployed people (you and your team), and people who are still trying to work.
      What to do? I still think you should wait to take the loan. Eventually, I can see all of our clients taking this loan; but if I were one of you, I wouldn’t pull the trigger yet. Am I right? Time will tell…
      As for that statement (and the other statements you need to verify), I think you can very easily certify that this is true; you have no patients, currently, and no ability to support your ongoing operations. My emphasis of the statement is to make sure you read it and don’t take it lightly.
      Does this help?
      -Nate

  6. Peter

    Excellent, thoughtful and very helpful advice. Thank you for going above and beyond to support us during this crazy time.

  7. STEVE NELSON

    Just want to give a shout out to PFG for being amazing and being on our team. It’s great to know we can trust you for reliable information that is looking out for our best interest–thank you.

  8. Kelly Robinson

    We are beyond grateful for your hard work and insight into this. You have helped take the fear and panic out and given us information to be able to simmer a while. My experience with simmering is that things always “taste” better after simmering rather than boiling. ? Thank you and our wonderful team for everything!

  9. Richard D'Addio

    I have a 75 year old employee who has been with me for 20 yrs and who has worked full time through 2019. On 1/6/20, she announced she wanted to work only 2 days per week and had been doing so in Jan , Feb and up to March 21st, 2020 (the day my office closed for everyone) She is presently on furlough, and wishes to resume her 2 day a week position when we all get back to work hopefully soon. Now since her weekly salary for 2020 will be more than 25% less than her full time salary in 2019, will this present a problem for me in forgiveness when getting a PPP loan

    1. Post
      Author
      Nate Williams

      Richard, technically yes. If you reduce salaries (amount or headcount), the forgiveness amount will be reduced. At this point in time, however, I would just get the funds, then worry about getting the loan forgiven later.

  10. Darlene Thornton

    If I do the PPP loan, do I still pay my employees that are out through the Sick Leave or Family Medical Leave? Does these Leaves still apply, I just can’t take the tax credit?

    1. Post
      Author
      Nate Williams

      Hi Darlene, if your employees are out, I would not pay them right now. If you get the PPP loan, make sure to use the money to pay employees when they come back. If you’re required to pay your employees per the HR 6201 law (paid sick leave and EFMLA), then yes, you can use the PPP funds to help pay them. This would only apply if your business is open as normal but they can’t work and are eligible for those payments through that bill.
      -Nate

  11. Mike Cleary

    If we have an employee who is paid more than $100K per year is the use of proceeds capped at $8,333.33 per month as it relates to paying their salary?

    1. Post
      Author
      Nate Williams

      Mike, the use of the funds are not capped at $100k (annualized); it is the “forgiveness” of the funds that is capped. As such, you could pay an employee $1M; but only the $100k rate will be forgiven.

  12. Sharon

    If I applied for the ppp loan, and my Business is open,and I’m wanting to work all my employees, would be 13 total, but two of my employees don’t want to come to work because they say they’re scared, do I still have to pay the employees that don’t want to work? And Can I hire two people temporarily to work until they come back and pay them instead.

    1. Post
      Author
      Nate Williams

      Hi Sharon,
      Great questions. My answers:
      1. No, you don’t have to pay people who don’t work.
      2. Yes, you can hire temp people in their place.
      This is an issue that employers are going to face, especially dentists–getting people to come back to work. Some people won’t want to because they’re happy on unemployment. Others will be afraid to come back. Others will have children to take care of. Navigating the employee landscape for business owners just got a lot harder; hopefully it will get back to “normal” within the next few months.
      I recommend hiring an HR firm like Bent Ericksen or HR for Health to help navigate through this.
      -Nate

  13. Bill w

    If I take the PPP loan and spend it in the 8 week period within the guidelines how long after that 8 week period, if the economy remains bad will I have to wait before I can lay off unneeded employees without having an affect on my forgiveness?

    1. Post
      Author
      Nate Williams

      Bill,
      As of today, there is absolutely zero guidance on your specific question. PPP loan or not, our advice is to hire people as it makes sense for your business, and to pay people for work performed. With few exceptions, I would not recommend letting the PPP dictate my hiring decisions.
      -Nate

    1. Post
      Author
      Nate Williams

      Bradley,
      Good question. Although your specific question has not been answered authoritatively (by the SBA, IRS or Treasury), after 15 years as a CPA I would bet any sum of money that you will not get both loan forgiveness and a corresponding tax deduction. For example, if you incur $20k of payroll costs during the 8 weeks, and all of that is forgiven. I do not think you’ll be able to claim a deduction for $20k of payroll costs.

  14. Jim

    Best summary I have read on the subject! Thank you!
    Once I have the PPP money in my account, can any of my employees still collect partial unemployment benefits (work part time) or must all unemployment benefits end prior to loan origination date (ie when I sign the loan agreement)?

    1. Post
      Author
  15. Nilmini Hoyt

    I have 5 full-time employees and 6 part-time employees which count as 11 employees. When they count towards bringing back employees, will they count my 6 part time employees or will it be only 5 employees all total?

    1. Post
      Author
  16. ALVARO LOZANO

    Thank you for your wise guidance. My question is:
    I have 12 employees usually working 40 hours/week. Due to slow business I would like
    to have us all work 4 days a week, thus reducing the weekly hours worked to 32. This will enable us to get paid for about 10 weeks instead of 8 weeks. Will this move jeopardize
    my getting the PPP loan forgiven?

    Thank you!

    1. Post
      Author
      Nate Williams

      Alvaro,
      At this time the details on the PPP loan forgiveness have not been finalized. Based on what we know now (which is as much as any civilian in the country), I would say that yes, your loan forgiveness will be reduced. However, this may still be the right thing to do. There are two competing forces here: loan forgiveness and guarding cash. If you pay everyone for full time, you might get more forgiven; but if you pay everyone less, you have cash left over after the 8-week period.
      Anyways, we will be publishing more info on loan forgiveness as it becomes available in the next few weeks.

  17. Ali McMahon

    Hi! I have a brick and mortar business, and have received the PPP loan.
    I am obviously now working from home.
    Can I also pay my home utilities with the PPP since it is now my place of work?

    1. Post
      Author
      Nate Williams

      Sure. When you go to apply for forgiveness you’ll need to indicate to the bank how much you paid for utilities; throw that number in there.
      What I can’t say for sure is whether or not that will be included as part of the forgiveness calculation. But you need to pay the utilities, and you might as well include it in the forgiveness calc until you’re told you cannot.

  18. Karen Jenkins

    I have a question about the taxes on the Payroll, but cannot find an answer in reading all the guidelines.

    The PPP requirements state that the loan cannot be used to pay Federal Taxes. When I process the payroll, do I process it as usual, or do I need to do something special (i.e. only taking State and Local Tax from the employee). I fear if I do it incorrectly, it will jeopardize the loan forgiveness. Can you give me any guidance?

    1. Post
      Author
      Nate Williams

      Good question Karen,
      I hope this answer finds you (even though I’m slow to reply). You should withhold all taxes (federal, state, payroll, etc.) from your employees’ paychecks as normal, as per their withholding elections on form W-4. The taxes they pay are deducted from their gross wages, which is deductible for you and part of the loan forgiveness. I believe the statement that “federal taxes aren’t eligible for forgiveness” applies to the owner of the business. If you owe taxes for 2019, for example, the government doesn’t want to loan you money via this program to pay those taxes.

  19. Paul S Geisler

    Your write-up is great but includes this statement that confuses me:

    “If I have laid off employees, when do I need to re-hire them in order to qualify for loan forgiveness under the PPP program?

    Before the date of origination on the loan – at the latest that would be June 30, 2020.”

    Is your statement above correct? I see nothing in the official rules summary that states one must rehire BEFORE the loan origination date (in my case April 17 is the PPP deposit date). All I see is that one must be back to full head-count by June 30 to achieve full forgiveness.

    1. Post
      Author
  20. Dwayne L Clark

    Nate
    Thanks for all of the Information, you give. Just wanted you to know that the
    lenders do get paid.
    This is How will lenders be compensated? Processing fees will be based on the balance of the
    financing outstanding at the time of final disbursement. SBA will pay lenders fees for
    processing PPP loans in the following amounts:
    • Five (5) percent for loans of not more than $350,000;
    • Three (3) percent for loans of more than $350,000 and less than $2,000,000; and
    • One (1) percent for loans of at least $2,000,000.

    1. Post
      Author
      Nate Williams

      That’s a great point Dwayne. The SBA came out with that fee schedule to incentivize lenders to take on all the extra work. Initially, there was going to be no comp to the lenders and the loan was going to be .5%.

  21. Patricia Maness

    If I receive the PPP loan on May 1, but do not bring workers back until June 1, will I get partial loan forgiveness? I have a small restaurant that employees about 36 workers. They are currently drawing unemployment. With the $600.00 bump up on their unemployment ,90% of them are making more money than the restaurant pays them. I think by June 1, my state will allow inside dining and we can reopen with partial dine-in. If its not forgiven, I will consider it the precious capital that I think will much needed in the coming months. I would just like to have some idea if what to expect come loan forgiveness time.

    1. Post
      Author
      Nate Williams

      Hi Patricia,
      Good luck to you as you reopen your business. I wish you the best of success.
      Our advice would be to sit on the PPP funds until June 1 when your employees come back. Once your restaurant opens, and they have an opportunity to work, their options for unemployment benefits will dry up quickly. Needless to say, since none of them are working currently, they are not costing you anything (same as if you were getting 100% forgiven). The amount you get forgiven for your loan will likely be less than what you borrowed, but should be very close to what you spend on payroll in June; at the end of June, you should be left with residual funds that can be used as working capital.
      I hope that helps.

  22. Juanita Snyder

    This is the best site I have seen with PPP guidance. I have four questions:

    1. Are Payroll Processing costs (the amount we pay our payroll company bi-weekly to run payroll) included in the 75% Payroll category for forgiveness?

    2. Are the quarterly payments we pay our 401K administrative group included as “retirement”benefits and allowable under the 75% payroll category for forgiveness? This is not the Safe Harbor amount we contribute bi-weekly, I know that is included, this is the fee the 401K company charges us to handle the plan.

    3. The PPP guidelines indicate we can include group health including insurance premiums paid as a part of the 75% payroll category. Do we use the full premium, or do we have to subtract anything the employee pays? Reason would indicate that you would deduct it, however, there is nothing that states that and as we are using employee gross wages and not deducting payroll taxes , perhaps we do not need to deduct this either?

    4. What are transportation utility costs? I’ve seen three definitions, but nothing from the sba or treasury guidance.

    Thank you!

    1. Post
      Author
      Nate Williams

      Thanks for the compliment. Here are my answers:
      1. I don’t believe they are.
      2. I don’t believe 401(k) admin fees will be included in the forgiveness amount. I believe the Safe Harbor contributions will be included in the forgiveness; it is still undetermined if contributions for the business owner, or any profit sharing will be forgiveable.
      3. My understanding, as of today (5/5/20), is only the employer contribution, less the employee portion, would be eligible for forgiveness. However, we (all Americans) are still waiting on further guidance regarding forgiveness.
      4. I don’t believe transportation costs are included in the definition of utilities.

  23. Debra

    Thank you for this great information- I own a daycare center (two locations) and had to close one site due to lack of enrollment on the last day of February 2020. I owed 1 month’s back rent. The only way I was able to obtain my PPP loan was using the payroll/bank information for both facilities (they are under one EIN). Am I able to back pay this rent for the closed business during this 8 week period? Keeping in mind that I can only use 25% of funds for rent, utilities, etc. I have just enough to pay two months rent for my current location and the back rent at the closed location.

    1. Post
      Author
      Nate Williams

      Great question Debra. The law says that you may get reimbursed for expenses “incurred and paid” during the 8-week period. “Paid” means you actually paid the money. “Incurred” means that the expense is an expense that pertains to the 8-week period. Therefore, my understanding is that you can neither back-pay or prepay things like rent.

  24. David Sparks

    I have always had the intent of the PPP was to keep employee’s paychecks going even though we couldnt work because of the pandemic. Furthermore in order to have the loan forgiven you had to keep them ‘on payroll’ and use the funds tomostly for payroll . I have done that. I have been paying my employees in full for the past month even though only a portion were able to perform any work which was done remotely at home. Being partially back to work company we’ve made sure we have hour by hour records of each employee on how much they’ve been paid doing actual work vs the portion of their paychecks were for hours they couldn’t work but we paid them anyway. I intended to ‘pay myself back’ basically using PPP dollars for the portion of my payroll that wasn’t for the work we were able to do in these first weeks of shut down. We did finally get approved for the PPP loan just a few days ago. I have question clarifying if I can use PPP funds retroactively for the past month. My concern was because of how you interpret an FAQ question/answer I found on the SBA website as copied below:

    Question: The amount of forgiveness of a PPP loan depends on the borrower’s payroll
    costs over an eight-week period; when does that eight-week period begin?
    Answer: The eight-week period begins on the date the lender makes the first
    disbursement of the PPP loan to the borrower. The lender must make the first
    disbursement of the loan no later than ten calendar days from the date of loan approval

    If we go back to work, next week for example, does that mean I cant use the PPP funds to reimburse myself for the wages I’ve already paid over the past month for hours my employees couldn’t work because of the virus?? Clarification on this would be much appreciated.

    1. Post
      Author
      Nate Williams

      David,
      The rules for forgiveness are still being ironed out. This week we’ll be publishing a new blog post covering what we know and what we don’t know about forgiveness. Right now we mostly know general principles, but there are a lot of unanswered questions. All this is a disclaimer for my attempt to answer your question: the rules might change.
      Additionally, you start your comment out by referring to the “intent” of the law. I think identifying the intent is important and can be helpful; however, sometimes the application of the law doesn’t capture the intent, nor does it make sense or seem fair. The intent might be there, but big government actions are always a blunt instrument.
      My understanding is that there is an 8-week clock that starts the minute the PPP funds land in your bank account. Employee expenses incurred and paid during this 8-week period are eligible for forgiveness. So no, I do not think you can look back at expenses you incurred prior to receiving the funds and reimburse yourself, then get that reimbursement forgiven.
      In saying this, I’m not saying your case doesn’t make sense, I am saying that I don’t believe that is how the law will work.
      I hope this helps.

  25. Jonathan

    I received my PPP funding last week. We are desperate for your answer this weekend!

    My business is in Los Angeles, California where there is a stay-at-home order by the California Governor.

    Can I bring my employees back now and pay them with these funds, i.e. start payroll again today in this case?

    A lot of businesses are open. Mine is an online retail shipping and fulfillment operation needing to be open at all times to meet shipping deadlines.

    Short: Can I bring my employees back for Monday’s shipping activities? Will I run into a problem?

    1. Post
      Author
      Nate Williams

      Jonathan,
      Sorry about the slow reply. The primary issue you’re running up against doesn’t deal with the PPP and forgiveness but deals with the laws in your state. Ideally, when you get the PPP funds everyone is back on payroll 100%; however, in practice that isn’t possible due to stay-at-home orders, unemployment benefits, employees willingness to come back, etc. Our consistent advice has been this: don’t let the PPP loan and the goal of forgiveness dictate your business. Instead, run your business based on other factors (laws, demand for employees, employee availability, etc.) and let the forgiveness be what it is. And in general, if the amount of forgiveness is reduced because you don’t have the payroll amount you had before, you should also have funds left over, thus giving you the same result.

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