Rohit Arora Senior Contributor
Small Business Strategy
I write about small business lending and growth.
Believe it or not, it has already been 8 weeks since the first of the CARES Act Payroll Protection Program (PPP) loans were made, which means they are forgivable if they meet the 75% staff expenditure guidelines provided by the SBA and the Treasury Department. The remaining 25% of the funding can be spent on rent, utilities, and mortgage interest, but may not be used for mortgage principal or pre-payments. If any of the funding is spent on non-qualifying expenses, the money must be paid back within two years at an annual rate of 1%.
Related: $2.2 Trillion CARES Act Provides A Lifeline To Small Businesses
While the PPP lending initiative has helped thousands of small business owners all across the country, many have expressed uncertainty about how the forgiveness process works.
To have their loans forgiven, small business owners must complete an 11-page application, made available by the Treasury Department earlier this month, either by hand or through an online platform their lender provides. Small business borrowers must submit the forms to the bank or other SBA-approved lender that gave them their loan no sooner than 8 weeks after they received the money.
Among the data requested:
· Business Legal Name (“Borrower”)
· Business Address, Phone, Primary Contact Name, and Email Address
· SBA PPP Loan Number
· Lender PPP Loan Number
· Number of Employees when the loan application was made
· Number of Employees at the time of forgiveness application
· PPP Loan Disbursement Date (date when the borrower received the PPP loan)
· EIDL Advance Amount (if the borrower received an SBA Economic Injury Disaster Loan (EIDL) advance)
· Payroll Schedule
· Eight-week (56-day) Covered Period of your PPP loan (starting on the date the Borrower received funds, or the Alternative Covered Period if applicable)
· Documentation to prove the time and value of eligible expenses
The borrower must then submit a Forgiveness Amount Calculation along with the application. The small business owner must enter total eligible payroll costs paid during the Covered Period. Additionally, he or she must enter the amount of eligible mortgage or rent payments made during the Covered Period, specifically any business mortgage interest (not to include principal), and/or the amount of business rent payments for real or personal property during the Covered Period. The amount of utility payments made during the Covered Period must also be submitted.
Borrowers must certify that the dollar amount for which forgiveness is requested was indeed used to pay costs that are eligible for forgiveness (payroll costs to retain employees; business mortgage interest payments; business rent or lease payments; or business utility payments). Businesses must report any decreases in the number of full-time equivalent employees and salary/hourly wage reductions that exceeded 25% of an employee’s normal wages. Both conditions will reduce the amount of loan forgiveness the borrower is eligible to receive. Borrowers also have to abide by the PPP’s unique salary capping formulas for highly compensated employees making more than $100,000 annually. The request cannot exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/ partner (capped at $15,385 per individual).
Since the forgiveness application is a government form, a substantial amount of supporting documentation must be provided. Many mom-and-pop type businesses may struggle with the paperwork, especially if they have not taken out a loan in the recent past. Engaging your accountant to help with the application itself and the required documentation would be money well spent for anyone who is intimidated by the process and by the length of the form. However, the rules currently do not allow business owners to deduct those funds from their PPP loan as eligible expenses.
Borrowers who accepted more than $2 million from the PPP lending program can expect even more paperwork: those companies will be audited, as part of Treasury Secretary Steven Mnuchin’s mission to stop large, public companies from accessing the fund. At the start of the program, companies such as Ruth’s Chris Steakhouse ($20 million), Shake Shack ($10 million), and even the Los Angeles Lakers ($4.6 million) applied for – and were granted – loans. Following public outcry and criticism from Mnuchin himself, the corporations opted not to accept the loans.
However, more than four-fifths of publicly listed companies that received emergency small business loans from the U.S. government have held onto them, maintaining that they need the money, according to a report by Fox Business. Companies that should not have applied for the loans (because they had access to capital from other sources) had until May 18 to return the money to avoid penalties.
Overall, the PPP program has been successful in putting desperately needed capital into the hands of small business owners who needed it for their very survival. In fact, more than more than 4.42 million small business loans worth nearly $511 billion have been made to small businesses through the PPP program so far. Further, at the time of this writing there is an additional $100 billion still available in the fund for other businesses that initially missed out due to overwhelming demand, or have not yet applied.
Read more from Forbes