Preparing for Paycheck Protection Program (PPP) Loan Forgiveness
/Businesses that have or expect to secure a loan under the Payroll Protection Program should begin setting up a system to accumulate the information needed to apply for forgiveness of the loan after the eight-week, post loan origination period. The difficulty with that is no formal application for loan forgiveness has been released yet and official interpretations of the PPP are still forthcoming. Also, based on recent comments made by the Treasury Secretary, significant changes to the loan forgiveness eligibility requirements remain a possibility.
While these official interpretations and other guidance are being worked out, we believe borrowers should be developing a system to accumulate the following basic data:
Detail payroll records, by employee, for the eight-week period commencing on your loan origination date (i.e., date the lender makes first loan disbursement).
Related federal and state payroll filings for the same period.
Detail records of employer contributions made to the company's employee retirement plans (e.g., 401(k) Plan) during the eight-week period commencing on your loan origination date.
Monthly computations and support of the number of full-time equivalent employees during the period commencing on your loan origination date through June 30, 2020.
Detail records of employer provided health insurance benefits for the eight-week period commencing on your loan origination date.
Support for other covered expenses (mortgage, interest, rent, utilities) such as loan agreements, rental agreements, cancelled checks, invoices, etc.
This information will be used to help determine the amount eligible for loan forgiveness. At a high level, forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels, (i.e., forgiveness is reduced if full-time headcount declines or if salaries and wages decrease).
One note of caution, based on the limited detail of the PPP to date and as currently written, most borrowers seeking loan forgiveness should expect to have at least some payback, even if all employees are brought back to pre-COVID-19 shut down levels. The simple reason being is that the original loan amount was based off a full two months of payroll related costs (plus 25% of the two full months of payroll costs for other allowable expenditures) whereas the forgiveness amount is limited to a defined eight-week period (with certain "make up" exceptions through June 30, 2020). Again, we just don't know what the final interpretations of the PPP will be yet. While waiting for this guidance, PPP borrowers should create a system to accumulate and separately store all information expected to be needed for the forgiveness application. You may also consider maintaining a separate bank account for the PPP funds and paying all eligible expenditures out of that account.
As always, if you have any questions or if we can be of service, please do not hesitate to contact your MSL representative.
