Your business has successfully applied for and have been approved for a loan under the Paycheck Protection Program. You have received your loan proceeds and now are trying to navigate the uncertain waters of what comes next. Here is what we know:
What must the loan proceeds be spent on to ensure loan forgiveness?
- Payroll costs (compensation, group health benefits, retirement benefits, and state unemployment taxes)
- Rent
- Mortgage Interest
- Interest on other loans
- Utilities
Are there any other conditions to ensure full forgiveness?
- At least 75% of the proceeds must be spent on payroll costs, with 25% or less allocated to the other allowable costs noted above.
- An employee’s salary or wages must remain at 75% or more of their base salary or wage during the last full quarter before you received your loan.
- Full time equivalent employees must not be reduced in comparison to the base period (which is February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020 unless you are a seasonal employer).
- The proceeds must be spent within eight weeks of receiving the loan.
What happens if the loan is not forgiven?
- Payments are deferred for six months, but the loan must be repaid in full within two years.
- Interest is incurred at a rate of 1%.
What can I do to help make the forgiveness process go smoothly?
- Open a separate bank account for the loan proceeds to segregate them from other company funds.
- Make payments on expenses eligible for forgiveness from this account, including payroll, as much as possible.
- Have a good audit trail for how the money was spent, including supporting invoices and statements, lease agreements, etc…
- Make sure the company does not use loan funds for wages and salaries in excess of the pro-rata equivalent of $100,000 annually.
- Do not use loan funds for paid leave benefits under the Families First Coronavirus Response Act.
- Make sure you are tracking the full time equivalent employees in comparison to the base period. This may require rehiring employees who had previously been let go.
- Review employee compensation to ensure their pay has not been reduced more than 25% of the base amount.
The loan proceeds have been spent, now what?
- Contact your lender to obtain an application for loan forgiveness, complete, and submit back to the lender.
- Have all of your supporting documentation for how the proceeds were spent organized and ready to submit to your lender as they request.
Conclusion
Congratulations on the receipt of your loan! More information and guidance is being released frequently so be sure to check both our website and the SBA’s to remain current.
