PPP Loan Forgiveness Q&A
In 2020, businesses across the country got a crash course in emergency business loans as COVID-19 descended on us. As finances took major hits, businesses in every sector began feeling the pinch. Luckily for them, Luckily for them, three small letters were on their way to help out.
PPP loans are one of the main thrusts of the US government’s CARES plan. They serve a very particular purpose: helping businesses mitigate the negative impact of COVID-19. Which is great but, like any other loan, there will come a time when you’ll need to pay it back.
Only, in many cases, that actually isn’t an issue for PPP loan holders. Join us, today, for part one of our two-part look into the process of PPP loan forgiveness and how you can apply for your Altamonte Springs business.
Have Applications For Loan Forgiveness Already Opened?
They have! The Small Business Administration (SBA) has officially begun accepting applications for PPP loan forgiveness. Good news for small businesses, but there is one stop you’ll need to make before you can get your application in for consideration. Specifically, business owners will need to submit applications to their lenders, first. With that out of the way, however, we can move on to the application itself.
PPP Loan Forgiveness: The Conditions
Starting with the terms of the PPP, itself, we understand that the loan amounts granted to businesses are based on their 2019 average monthly payroll costs. At the time of release, applicants were eligible for up to over twice that amount, to aid in covering eight weeks’ worth of payroll expenses.
Once granted, the PPC loan’s funds can be used for any of the following purposes:
- Payroll: The most obvious purpose for a PPP loan, businesses can use this money to cover salaries, vacations, family expenses, medical costs and sick leave, and health benefits.
- Rent and Interest on Mortgages: For mortgages signed before February 15, 2020, this loan can be used to pay off this rent and to keep mortgage interest from overwhelming you.
- Business Utilities: So long as the business service in question started before February 15, 2020, PPP loans are perfectly fine for paying off these expenses.
Since the confirmation of loan forgiveness for PPC loans, these stipulations are all eligible for forgiveness. That means, with the right submission, you could be completely forgiven for these expenses.
It’s important to consider some of the following conditions, as well:
24 Week Coverage
The expenses eligible for forgiveness include anything incurred over 24 weeks, commencing the day of the first payment by your lender. This date and the date of your loan agreement aren’t necessarily always going to be the same date.
You won’t need to adjust your payroll calendar, as any payroll your employees incurred in the 24 weeks will also be eligible, even where pay dates fall outside of the eight week period. Expenses stop being eligible after the December 31st final deadline. For loans disbursed on or after July 16th, the implication here is that you won’t have the full 24 weeks to take advantage of. For loans before June 5th, the 8-week period is still a viable option.
Wondering whether the 8 week or 24 week covered period makes more sense for you? The consideration is whether you’re self-employed and receiving the owner compensation benefit or if you have the eligible expenses you would need to pay off the loan.
60/40
In order to qualify for loan forgiveness, you’ll also need to be able to show at least 60% of your loan being used for the purposes of payroll. Keep in mind, this doesn’t include independent contractor payments.
Forgivable amounts with regard to PPP loans will proportionally increase based on the amount being spent on payrolls. This amount goes up to the full amount of the total loan.
The Needs of Your Personnel
Next on your list will be maintaining the number of employees reflected in your payroll. Not sure whether you’ve met this requirement? You can check this, using a fairly simple formula:
- Determine your average number of full-time equivalent employees for the 8-week period following your initial loan disbursement.
- Generate the same data from February 15th, 2019 to June 30th, 2019.
- Determine the same from January 1st, 2020 to February 29th, 2020.
Divide your 1st number from the list above by your 2nd number. Then divide the first by the third. Take the largest of these two numbers and, if it is equal to or greater than 1, you’re in good shape! Anything less, and you’ve failed to keep your template. Your forgivable expenses will be adjusted.
One thing to keep in mind is that, if you are a seasonal employer, you will need to divide 1 by 2.
Employee Rehire Exemptions
For employees who were brought on as of February 15, 2020 and either let go or placed on leave, rehiring could be a complicated issue once the company is in a place to reinstate them. If the employee should choose to decline your reemployment offer, there are ways to exclude them while still calculating forgiveness.
In order to qualify, you’ll need to hit the following notes:
- a written offer to rehire in good faith
- offering to rehire for the same salary and number of hours as before their firing
- verified documentation of the employee’s rejection of your offer
In addition, if any of these conditions apply to your situation, they may still qualify for the exemption:
- firing for a worthy cause
- voluntary resignation
- successful voluntary application for a reduction in hours
In applying for this exemption, you may be required to prove you weren’t able to hire employees with similar qualifications for the vacant position. You may also have to prove that you were unable to return to standard business operation levels, as a result of security concerns.
Lastly, it’s worth noting that employees who decline offers for re-employment are also unlikely to be eligible to receive ongoing unemployment benefits.
Payment Requirements
In cases where the employee’s pay for the 24 week period amounts to less than 75% of their pay in the most recent quarter of their employment, the eligible forgiveness amount is reduced. This reduction amounts to the difference between their current pay and 75% of the original pay amount.
Rehiring Grace Period
When it comes to rehiring, businesses can bring any staff who have been laid off or forced into leave back onboard. They are also allowed to reinstate any pay that was lowered by over 25% to match the requirements of the discharge, provided those changes were the result of COVID-19 from February 15th and April 26th. In both cases, the business owner would have until December 31 to do so.
Looking for more insights into managing your Altamonte Springs office payroll process? Visit Vision HR today to find our more about our extensive HR offerings, today. And stay tuned for part two of this article: we’ve got so much more to get into!
