These are unchartered times and they bring unchartered events for all small businesses and accountants. The SBA Payroll Protection Program is providing unprecedented amounts of funding for businesses in a time of need. There are these top 5 things you need to know about the SBA Payroll Protection Program to improve your chances of receiving funds and having the loan forgiven:
- Have clear documentation to substantiate the application. Even the application has had a few reiterations in the short time that the program has been live. Here’s the most recent one as of the posting of this article. Paycheck-Protection-Program-Application-3-30-2020-v3
- Know what you can and can’t include in your payroll calculations. You can include:
- Gross Wages – capped at $100,000 on an annualized basis for each employee.
- State and Local Taxes paid by the Company
- Company portion of Company provided Healthcare
- Company portion of Retirement Costs
- For a sole proprietor or independent contractor filing on their own behalf, you can include wages/commissions/income/net earnings from self employment capped at $100,000.
- Know what you can NOT include in your payroll calculations such as
- Company matching for Social Security and Medicare
- Federal Unemployment Taxes
- Payments made to 1099 contractors. These contractors are eligible to file on their own so you can not include them in your calculations as well as this would be considered double dipping in the funds.
- Here’s a great format to use. SBA-CARES-ACT-Loan-Calculation-Sheet (1)
- 75% of the PPP funds have to be utilized for Payroll related costs (see #2 above) and the other 25% can be utilized for Mortgage Interest, Rent, Utilities and Interest on other debt obligations.
- These commitments for rent, utilities, debt etc have to have been in existence as of 2/15/2020.
- Funds must be spent within 8 weeks of receiving the funding.
- Your employee FTE (Full Time Equivalent) count that you included on your application must be the same or more at the end of those 8 weeks if you are working towards full forgiveness. If that is not the case for you, then there may be some reduction of what is forgiven.
- You must also use the funds as they are intended. Failure to do that can also impact your ability to have 100% forgiveness of this loan.
- Document, document, document and visit with your Accountant to ensure you are coding the receipt of these funds properly as well as understanding how you are going to need to pull together reports on how the funds were spent.
- If you haven’t already, contact your Accountant/Bookkeeper/CPA/Financial Consultant to assist you. They are going to be your best friend throughout this process in helping you work with the bank’s requirements. Every bank is asking for information that they find helpful for their process so these are general guidelines but each bank’s specifics are a little different we are finding through this process. We provide support through QuickBooks®Desktop and QuickBooks®Online as they are user friendly and that is our specialty.
- Have a good accounting system as the lenders want historical information to help you qualify for the loan and they will want details of how the funds are being spent to help you justify the forgiveness component. You can’t afford not to have a good accounting system throughout this process.
- Don’t delay. If you haven’t already filed for the PPP or EIDL, do it soon as the funds are on a first-come-first-serve basis so you may miss out if you wait too long.
- Visit with your accounting professional about week 5 or 6 of the program to have a review and determine where you are at in the process and what needs to happen before the end of week 8 so you don’t unnecessarily miss out on meeting the requirements for forgiveness.
There are lots of moving parts to the Payroll Protection Program, Economic Injury Disaster Loan and Payroll Tax Credits. They are good tools but you have to understand what you are signing up for and play by the rules if you want the full benefit of them. You can participate in more than one of these but they do have limits on what is forgiven if you partake of more than one program, so visit with your accounting professional first and then make informed decisions that provide you the best benefit for your particular situation. Need help? Reach out to us and we’d be happy to help you with this process.