With $100 billion left over for the Paycheck Protection Program (PPP), questions have arisen over the leftover from round two while round one ran out in 13 days. Is it as simple as businesses are reopening in conjunction with state reopening guidelines or is it because the rules of forgiveness are constantly changing? Whatever the reasons may be, the Small Business Administration (SBA) has released the following PPP forgiveness guidelines (which are subject to change):
1. At least 75% of PPP funding must go to business payroll.
2. The remaining 25% is allocated for mortgage interest, utilities, and rent.
While these are the two overarching PPP forgiveness guidelines, as of May 27, 2020 the House is already voting on changing the guidelines again. Their vote will determine the extension of the spending period from 8 weeks to 16-24 weeks and will add more flexibility to what the 75% can be spent on.
Without the change to the guidelines, the current ones state that furloughed employees must be rehired at the same pay and with the same hours by June 30th. Employees who are rehired at a reduced salary and/or hours will reduce the loan forgiveness amount according to percentage of the pay and hours reduced. If the employee refuses to be rehired, the small business owner must obtain this objection in writing from the furloughed employee so it doesn't count against forgiveness. Unlike furloughed employees, fired employees will not count against the small business owner's loan forgiveness.
Under the original PPP forgiveness guidelines, the spending period is at 8 weeks, beginning the moment a small business is funded. With the SBA's introduction of the Alternative Payroll Covered Period, the spending period begins on the following payroll cycle. For example, if your small business is funded on June 1st, your cycle is supposed to end July 26th, 56 days later. Under the Alternative Payroll Covered Period, a small business owner can start their 8-week period on your next payroll cycle date and if their payroll exceeds the 8 weeks, that can still be forgiven as well.
Another oddity under the PPP forgiveness rules pertains to Schedule C, 1099, and sole prop owners, who currently have a maximum forgiveness of either 15.38% of the net profit from 2019 or $15,385. This poses a logistical problem as there is no way to have the entire loan completely forgiven. Those small businesses falling under this category are hopeful for a correction in the guidelines.
In reviewing the current SBA forgiveness guidelines, it is clear that there are some kinks still being worked out. To review the current guidelines and to apply for PPP forgiveness, download the Lendtek mobile app in the Google Play or Apple app stores, sign-up or log into an existing account, click "CARES Act", and then "Forgiveness App".
We understand these constant changes can be confusing so please feel free to reach out to us directly with any questions: funding@lendtek.com. Lendtek is here to help get your small business back on track.
5/29 UPDATE: — On Thurday, The House passed a bill to tweak the rules spelling out how businesses can use their Paycheck Protection Program loans. (READ MORE...)
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