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Update and clarification on PPP and EIDL

Thursday, May 28, 2020
by Barb

An update to PPP loan/EIDL grant issues.

  1. Correction Of Earlier Advice – The EIDL and PPP law and the rules concerning how they are going to be applied, are continuing to evolve as does most law.  Once the legislature passes a law (code), it’s up to the regulatory agency, in this case, the SBA, to write rules (regulations) clarifying it.  Accordingly, we have seen the SBA create regulations and create two major changes or interpretations to the law.
  1. EIDL Grants Won’t Be Forgiven If You Got PPP Money – A few weeks ago the SBA indicated if you got PPP money, the EIDL grants won’t be forgiven and will have to be paid back under your PPP loan rate of 1% over 2 years.  However, if you didn’t get any PPP money, the EIDL grant can still be forgiven if spent on permissible expenses.
  2. Owners Cannot Bonus Themselves Out Any Excess PPP – We previously believed based on the law, seminars we had attended, and articles we read, that if business owners had excess PPP money after paying allowable expenses, they could bonus the excess to themselves.   Last week the SBA published the form to apply for PPP forgiveness and the department of treasury updated the federal register which is setting forth the PPP and EIDL rules and made it clear the maximum amount owners can pay themselves from PPP loan proceeds is limited to their average weekly payroll times eight and this applies for all borrowers.  If you can’t spend it all, you may want to consider giving your employees a bonus with the leftover money.  Understand if you do this, you would be out of pocket any matching employer payroll tax and insurance expenses, but the rest of it would cost you nothing.
  1. Deadline To Spend PPP Money – Your PPP money must be spent 8 weeks from the date your loan funded.  Be sure to know the date your loan funded and note on your calendar the day 8 weeks later to be sure all of the PPP money is spent.  We recommend you consider spending the money the day before your 8 weeks is up, just to avoid unforeseen circumstances.
  1. PPP Money Can Only Be Spent On Expenses Incurred During The 8 Week Period – For example.  Let’s assume the following scenario.   You got your PPP money on April 26, 2020.  The 8 week period starts April 26, 2020 (the day you got the proceeds…not the day after) and ends June 20, 2020 (56 days or 8 weeks later).  Your payroll is paid on the 4th and 19th for payroll earned from the 1st to the 15th, and the 16th through the end of the month.   That means when you pay payroll for time related to April 16, 2020 – April 30, 2020 on May 4, 2020, you can only use PPP funds for the payroll incurred April 26, 2020 through April 30, 2020.   Here is some further guidance from the SBA:

·      Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction.

·   Payroll costs are considered incurred on the day that the employee’s pay is earned.  Which means that if you received the loan disbursement 4/26/20, the PPP loan can only cover employees pay beginning 4/26/20 and cannot be used to pay for payroll in arrears.

·      Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period are eligible for forgiveness if paid on or before the next regular payroll date.

·       Otherwise, payroll costs must be paid during the Covered Period.

·   Alternative Payroll Covered Period:  Borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date. For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the Alternative Payroll Covered Period is April 26


  1. Don’t Spend Your PPP Money on Impermissible Expenses – Remember.  Your PPP loan is only forgiven to the extent you spend it on permissible expenses.  Permissible expenses include:  payroll (including employee portion only of payroll taxes), health insurance and retirement plans (both employee and employer portions), rent, mortgage interest, and utilities.   Business utilities include payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.  It is our understanding that cell phone expenses are also considered utilities so long as the primary purpose is for business use.  Impermissible expenses include but are not limited to:  employer portions of payroll taxes, FUTA, SUTA, payroll processing fees, and workman’s compensation fees.
  1. PPP Money Is Not Tax Free – At present it appears any expenses paid with PPP money cannot be deducted on your federal tax return, but this is still subject to some debate.  So while the PPP funds you receive for qualified expenses is essentially “free money” (like extra income you don’t have to pay back) it may not be “tax free money”.   But still, if someone handed you $10,000.00 and all you had to do is pay the tax on it, you’d still get to keep the vast majority and that would be a pretty good deal.
  1. Track Your PPP Expenses – Be sure to keep track of how you are spending your PPP money so you know what you have spent and can report it properly when you apply for forgiveness, so you know what you have spent, and how much you have left to spend.  I have attached another form of sample form you could use to track expenditures.
  1. Budget Your PPP Money – Your PPP loan should have been for 2 ½ times normal monthly payroll.  That means if you only spend it on monthly payroll, you won’t have spent the entire amount.  Remember, you can also spend it on rent, mortgage interest, utilities, in addition to payroll, health insurance, and retirement.  You can also issue bonuses to your employees to make sure you have used the entire amount.  We strongly advise using the entire amount.  It is like “free” money.   I have attached another form of sample form you could use to track budget and expenditures.
  1. You Have To Apply for PPP Forgiveness – You have to apply to the bank from where you got your PPP loan for forgiveness.  Your bank is responsible for auditing your expenses to see if they qualify for forgiveness.  At present there is no deadline for applying for forgiveness but we recommend you do it as soon as possible (within a week or two) of the expiration of the 8 week period until we have further guidance from the SBA.    Last Friday the PPP loan forgiveness application was published see https://www.sba.gov/sites/default/files/2020-05/3245-0407%20SBA%20Form%203508%20PPP%20Forgiveness%20Application%20FINAL_Fillable.pdf   This loan forgiveness application may require significant time to complete so please be sure to budget enough time to complete the form and compile all supporting documents.
  1. See if Your Banker Will Conduct A Test Run – These forgiveness applications will be reviewed and/or approved by the lender from whom you obtained the loan.  We recommend contact your lender at least a couple of weeks before the end of your 8 week period and see if:

·        they can tell you if you submit an application and they deny some of the expenses, if they will give you the opportunity to amend the application to designate other qualifying expenses if they exist;

·        if they will briefly review your expenditures to date and advise if they see any expenditures they believe do not qualify.

Remember to be kind to your banker.  After all, they got you this money.  They probably have a lot going on right now.


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