Once the coronavirus outbreak was declared a global emergency, the concern over its deeply negative impact on the world’s economy quickly became a ‘front and center’ issue.

In the United States, several options were put forth to help ease the financial burden for both individuals and for corporate and nonprofit organizations. As local and national economic support packages were established for the business community, one of the most popular was the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).

This plan was designed to be very attractive for small and mid-sized businesses especially because it provided a quick influx of cash that would give companies the boost they needed to keep their employees intact, discourage anyone opting for filing for unemployment compensation, and to help the company be better positioned for a seamless recovery once the threat of the virus lessened.

In addition, a second appealing feature was the benefit of forgiveness. As long as the guidelines were carefully adhered to, and the loan was used for the purposes intended, the business owner could apply for forgiveness. This would be accomplished by applying through the issuing bank at the conclusion of the program’s eight-week period.

First every business leader should consider their company’s short and long term strategy for growth and sustainability. If going forward into a recovery phase and beyond, filing for forgiveness is seen as a smart, practical business decision, then it is essential to follow the guidelines as laid out by the SBA. It is suggested that you work with your trusted advisors to ensure compliance, as the rules for calculating costs can get complicated.

But here are three steps that provide a simplified version to get you started on the right path:

  • First, don’t forget that the loan was meant for you to pay your employees and keep them off of unemployment. This means you have the opportunity to re-hire and pay your staff with the loan proceeds.  You need to maintain or re-establish your headcount and pay employees enough to satisfy the 25% rules.   75% of the funds you received need to be spent on payroll if you are to apply for forgiveness. You can then use the rest of the cash on allowable expenses that were specifically identified by the SBA, such as business rents, mortgage interest, utilities, and a few others.
  • Second, remember that if you are applying for forgiveness of the loan, only $1,923 per week per employee will count..
  • Third, it is imperative that you begin these payments from the very date you receive the money, or as close to that as possible. You must also ensure that all your pay periods fall within the eight-week window provided by the SBA.

Along with carefully following steps one, two and three, every business and nonprofit is required to submit a detailed loan forgiveness calculation along with any supporting documentation. Recognizing that the rules are vague and some detail is lacking, the responsibility is falling to the business leaders to comply and to have proof of their actions and intent!

If you want to discuss how you can take advantage of the opportunity for forgiveness, please contact us!

One philosophical note before we conclude: Don’t bend over backwards too, too far in trying to get your loan forgiven. The last thing you should do is sabotage the long-term health of your business in your attempt to maximize PPP loan forgiveness. Instead of going through contortions to potentially achieve 100% loan forgiveness, invest your time contemplating your business strategy, forecasting different scenarios, and having a plan for how to grow out of our challenging economy.