PAYCHECK PROTECTION PROGRAM (PPP)

FORGIVENESS OF PPP LOAN

TOP LINE VIEW WHAT WE KNOW NOW

  • 30-60 Days from Now Regulations will be Promulgated by Treasury Department to Address Operation of the Forgiveness process.  As with the application process, forgiveness policy will be implemented by individual lenders and is unlikely to be uniformly administered

  • PPP interim rules released April 2 indicate that forgiveness will be based upon amounts spent within 8 weeks of receipt of funds, with 75% loan proceeds required to be used for payroll and 25% loan proceeds non-payroll (rent, mortgage, utilities). 

Forgiveness Calculation 

  • Borrowers will need to apply to their lender for forgiveness; processes, documentation and forgiveness calculation may vary based on interpretation of the rules

  • Forgiveness will be based upon a combination of:

    • Amounts spent during the 8-week period on eligible expenses and proportion dedicated to payroll 

    • The number of FTEs retained versus year earlier (2/15-6/30/19) or pre-application (1/1-2/29/20) period, whichever is fewer

    • Maintenance of payroll at reference-period levels

    • Forgiveness will not be negatively impacted  If FTEs and payroll are restored by June 30, 2020

  • Amounts not forgiven will convert into a 2-year loan at 1% interest. No payments will be due for the first six months; however, interest will accrue during this period

TRACKING EXPENDITURE OF PPP LOAN PROCEEDS

  • Open Separate Banking Accounts for PPP Loan Proceeds. Do not Mingle non-PPP funds with PPP funds.

  • Record on a Daily Basis all Expenditures using PPP Funds.

  • If funds must be dispersed from another account (e.g., ACH lease payments, payroll account), transfer funds from the PPP account to the payor to ensure proper tracking

  • Make sure you understand the reference period for your loan and have documented FTE and payroll levels against which to measure forgiveness

Tracking System

  • If possible, it may make sense to hire a payroll processor if you do not currently use one.

  • If you do have a payroll processor they are to set up a separate processing track for PPP funds

Make sure you identify for the payroll processor that it is PPP funds

  • Regardless of above two items, build a separate Chart of Accounts for or tag PPP expenses in whatever in-house financial software you use. 

  • Avoid cash transactions when using PPP funds.

  • Track on a daily basis Chart of Accounts entries

  • Track  by week the number of FTE on payroll for that week versus year earlier (2/15-6/30/19) or pre-application (1/1-2/29/20) period, whichever is fewer

PPP LOAN: FORGIVENESS LIFE CYCLE (ILLUSTRATIVE*)

  • Day 1:  Receive Loan

  • 8 weeks:: Reporting due back to lender on spending and use of PPP proceeds for forgiveness calculation

    • No payments due on amounts forgiven

    • Remainder of PPP converts to 1% loan, due 2 years from date of original PPP issuance

  • 6 months: payment period begins on amounts not forgiven (payment deferred for initial six months)

  • 2 years: final payment due

*Details may vary by borrower and as lender guidelines are published and implemented