update to PPP loan/EIDL grant issues.
- 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.
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.
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.
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
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:
costs are considered paid on the day that paychecks are distributed or the
Borrower originates an ACH credit transaction.
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.
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.
payroll costs must be paid during the Covered Period.
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
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.
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.
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.
- 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
- 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
- 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:
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;
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.