PPP Loan Forgiveness Calculations Have Changed

Payroll Protection Loan Calculations Have Changed

 

PAYCHECK PROTECTION LOAN UPDATE:

Make sure to read our Update from 6/4/2020, as there is lots of information in there that is very important to the changes in forgiveness calculations.  The updated forms and corresponding guidance released yesterday filled in a lot of missing gaps and we have summarized that information below:

  • 8 weeks can now be 24 weeks – In an effort to make forgiveness more attainable the new guidance allows one to choose either an 8 week calculation period or a 24 week calculation period if your loans were taken prior to June 5th. Any loans after June 5th are required to take the 24 week period.  There are some small differences in calculations (outlined below) but their intent was to get folks to 100% loan forgiveness and these new rules should accomplish that.

 

  • Owner compensation – You can choose one of the two options below depending on whether you choose the 8 week calculation or the 24 week calculation:
    • Eight weeks’ worth of 2019 net profit (up to $15,385) for an 8 week covered period or
    • 10 weeks’ worth of 2019 net profit up to $20,833 for a 24 week covered period.
    • Health insurance costs for S-Corporation owners cannot be included when calculating payroll costs, however retirement contributions do count.

For those whom file a schedule C, you would elect the 24 week period and you will automatically receive 100% loan forgiveness.

  • Employee compensation – The 24-week extension also increased the amount eligible for forgiveness to business owners with employees. The payroll costs including salary, wages and tips are still capped at $100,000 of annualized pay. But now instead of $100,000/52 * 8 (a max of $15,385 per individual), you get up to $100,000/52 *24, making the new maximum forgiveness cap $46,154 per individual for 24 weeks.

Keep in mind the payroll costs also include covered benefits for employees (but not owners), including health care expenses, retirement contributions, and state taxes imposed on employee payroll paid by the employer (such as unemployment insurance premiums).

  • Non-payroll expenses – The loan forgiveness amounts for non-payroll costs have also been extended to 24 weeks, making it much easier to meet loan forgiveness thresholds.

The “incurred or paid” rules still applies so if you are close to forgiveness but a little short, this may be a way to extend the 8 week or 24 week period, whichever you decide to apply.

 

 

 

  • Updated Forgiveness Forms
    • Click here to get the revised full Loan Forgiveness Calculation Forms.
    • Click here to get the new EZ version:
      • Must be self-employed and have not employees; or
      • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; or
      • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wage of their employees by more than 25%.

If you have not yet applied for the Paycheck Protection Loan, this guidance is good news and we recommend every business apply for this loan.  There is still over $100B left in the program and it expires at the end of this month.

 

ECONOMIC INJURY DISASTER LOANS & GRANTS:

 

A lot has happened and changed with the EIDL Grants and now the EIDL Loans:
  • The EIDL Grants originally came out as a $10,000 Grant, but quickly changed to a $1,000 grant for each employee up to a maximum of $10,000.
  • If you get the EIDL Grant and the PPP Loan you will need to reduce your loan forgiveness by the amount of the EIDL Grant. See the instruction on the PPP Forgiveness forms outlined above.
For those that applied for the EIDL Grant, you will receive a follow up SBA e-mail saying you are approved for an EIDL Loan up to a maximum of $150k. If you want more you can apply for up to $2 million. Please note that this is a loan and not a grant and therefore this must be paid back.
On a further note, applications for the grant have reopened and you can now apply once again.  Click here to do so:

Prior to accepting any loan, we highly recommend you review the loan terms as there are a couple of sections that need to be fully understood before moving forward:

  • Purpose of the loan is for “Working Capital expenses” to alleviate economic injury caused by disasters occurring in the month of January 31st, 2020 and continuing thereafter. Eligible expenses include:

  • Fixed expenses (rent, insurance, etc.)
  • Payroll
  • Accounts payable
  • Expenses the loans CANNOT be used for:

  • Dividends and bonuses – Please understand this section fully as most of our S-Corporation clients take dividends from their Company and based on this clause will not be able to continue this moving forward.
  • Disbursements to owners, unless for performance for services. Please review this section of the loan documents as with dividends above, this limits an owner’s ability to take profits out of the Company.
  • Repayment of shareholder loans. Review above; this limits an owner’s ability to take money out of the Company even if categorized as a shareholder loan.
  • To expand business operations – loan is for working capital, cannot be used for marketing or to expand the business through acquisition.
  • Refinancing long-term debt.

Loan Terms:

  • 30 year loan @ 3.75% interest with no payments for the 1st 12 months.
  • Very favorable loan terms, but you must be sure it is worth the limitations outlined above.
  • For loans above $25,000, the SBA will take a security interest in your assets.
  • The SBA will require that you keep books and records for the most recent 5 year until 3 years after the date of maturity. In addition, you will need to keep itemized receipts and contracts for all loan funds spent.
  • In summary, you will need to keep a very detailed set of financials available for SBA review until 3 years after the loan is paid off.

REMOTE BOOKKEEPING SERVICES:

Our Small Business Services Package is an all-inclusive remote solution that offers small business relief from the day-to-day accounting hassles while providing easy access to financial data. As your trusted advisor, we maintain your general ledger, record deposits, furnish financial statements and supply valuable financial and tax advice throughout the year so your management team can make more informed decisions.
We use the latest technology to deliver convenient accounting services via our client portal, completely remotely. Fill out our  Contact Sheet , or send us an email if you would like to learn more about this customizable service.
As always, we are monitoring the situation daily and will continue to provide updates as they develop. If you have any questions please don’t hesitate to reach out.