How to maximize the benefits of your PPP Loan.
- Borrow the largest amount possible. Interest is at 1% with no payments for 6 months and 2-year term. Use the funds for qualifying expenditures. Repay the loan when cashflow is stabilized.
Once the business receives the funds, forgiveness will be determined based on expenditures for the following 8-weeks. Plan on what you will spend the money on – payroll, rent, utilities, interest. Calculate your expected forgiveness on an on-going basis. Make what-if-calculations.
- Account for the loan received and the expenditures made. Maintain documentation so you can apply for loan forgiveness through your lender.
- Create a balance sheet account to keep track of the PPP loan and funds.
- Document as you use the funds for eligible expenses. Consider opening a dedicated bank account or create a clearing account in your GL to record expenditures to create an audit trail
- Monitor how the funds are spent against the plan created.
- at least 75% of the funds for payroll costs
- up to 25% of the funds for eligible non-payroll costs: rent, interest payments on mortgages, interest on pre-existing loans, and utilities. (forgiveness will be reduced by the amount of any Economic Injury Disaster Loan (EIDL).)
- Avoid having your Loan forgiveness reduced. The following are conditions of reduction in forgiveness:
- Reducing Employees’ (who made less than $100,000) compensation in 2019 by >=25%
- Maintain the number of full-time equivalent employees. Calculate FTE using 2 time periods: (use the most favorable one)
- February 15, 2019, through June 30, 2019
- January 1, 2020, through February 29, 2020
Note: unclear at this time how loan forgiveness will be reduced. If business has terminated employees, hire them back by June 30, 2020, to qualify for loan forgiveness.
- Avoid other CARES Act programs that nullify participating in PPP, including:
- The Employee Retention Credit
- Deferral of Payroll Taxes
- Maximize payment of qualifying expenditures for loan forgiveness. Calculate your expected forgiveness on an on-going basis and consider the following:
- Make payroll payments to fall within the 8-week period that starts one you receive the funds
- Consider bonuses to employees making <100k
- Consider Catch-up payroll to any employees whose compensation was reduced
- Make additional or early payments on rent, mortgage interest, or utilities (up to the 25% threshold)
- Avoid misuse of PPP funds. Using funds for fraudulent purposes are subject to criminal charges.
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