April 22nd, 2020


Paycheck Protection Plan: I’m Approved and I Have My Funds…What’s Next?

If you’re one of the lucky ones who managed to apply for and receive funding in this first round of CARES Act benefits, congratulations! The next step? Maximizing your loan forgiveness potential, because as you may already be aware, up to 100% of this loan’s total value may be forgivable.

While guidance on what will qualify you for loan forgiveness has shifted almost daily since the CARES Act was signed, we believe there are some consistent and key guidelines that will help you maximize this potential for forgiveness under the PPP. The information below should help you be prepared, but you’ll want to keep in mind that the SBA, US Treasury, IRS, or your lender may change what documentation is needed or how the loan forgiveness is calculated.

Our first recommendation is to check with your lender and make sure you’re doing your best to meet the specifications below—but with the understanding that as guidance is clarified from these various government agencies, at least some part of your PPP loan will not qualify for forgiveness and will remain under the 1% over two years loan terms.

According to the SBA, the 8-week period to measure forgiveness potential for your PPP funds starts the day you receive the funds in your account. While as we’ve mentioned the guidance may change, the following is what you need to do today to help maximize the PPP loan forgiveness amount.

First, you may need to undo any cost management adjustments you previously implemented so you are able to meet the following criteria:

  • FTE headcount is matched during the 8 weeks and no later than June 30, 2020 compared to either:
    • Average FTE headcount of Jan-Feb 2020
    • Average FTE headcount of Feb 15, 2019 to June 30, 2019 – typically applies to seasonal businesses, confirm with your lender before using this as your chosen comparison period
  • Staff is at 75% or higher of their previous 2019 annualized wage or previous 2020 annualized wage for Jan-Feb 2020 if the individual was not hired before Dec 31, 2019
  • 75% of loan total must be spent on payroll related costs. Payroll related costs are defined as:
  • salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee, or $15,385 in gross wages in the 8 weeks), and
  • employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums (except owners); and payment of any employee retirement benefit (except owners).
  • FFCRA Leave and Employee Retention Tax credits: Your payroll company may already be processing the employee retention tax credit under the CARES Act and/or the FFCRA tax credits for qualified coronavirus-related leave. Either way, you will  want to let them know your PPP loan funding date/8-week start date to avoid double-dipping violations, as PPP Loan recipients are not eligible for the tax credits while under the PPP 8 week forgiveness measuring period.
  • “Yes, the PPP covers payroll costs, which include employee benefits such as costs for parental, family, medical, or sick leave. However, it is worth noting that the CARES Act expressly excludes qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (FFCRA) (Public Law 116–127). Learn more about the FFCRA’s Paid Sick Leave Refundable Credit online.”
  • IRS Note:
  • “May an Eligible Employer receive both the tax credits for qualified leave wages under FFCRA and the Employee retention credit under the CARES Act?”
    • “Yes, if an Eligible Employer also meets the requirements for the employee retention credit, it may receive both credits, but not for the same wage payments. Section 2301 of the CARES Act allows certain employers subject to a full or partial closure order due to COVID-19 or experiencing a significant decline in gross receipts a tax credit for retaining their employees. This employee retention credit is equal to 50% of qualified wages (including allocable qualified health plan expenses) paid to employees after March 12, 2020, and before January 1, 2021, up to $10,000 in qualified wages for each employee for all calendar quarters. However, the qualified wages for the employee retention credit do not include the amount of qualified leave wages for which the employer received tax credits under the FFCRA.”
  • “May an Eligible Employer receive both the tax credits for qualified leave wages under FFCRA and the Small Business Interruption Loan under the CARES Act?”
    • “Yes.  However, if an Eligible Employer receives tax credits for qualified leave wages, those wages are not eligible as “payroll costs” for purposes of receiving loan forgiveness under section 1106 of the CARES Act.”
  • State and local taxes assessed on compensation; and
  • for a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
  • 25% of the loan can be used for the expenses below and still qualify for loan forgiveness:
  • Interest on mortgage obligations, incurred before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020.
    • electricity, gas, water, transportation, telephone, and internet access for service that began before February 15, 2020. (Not found on US Treasury website but as defined on Kabbage Bank PPP FAQ. Check with your lender to see how they define covered utilities)

Note: these are the published requirements for forgiveness that are known as of April 21, 2020. These may change as new guidance changes. If you find your practice is any percentage below these requirements at the end of the 8-week period, the amount of loan forgiveness will be lowered by the same percentage. Try your best to meet these requirements but understand that if they change or you fall somewhat short, all is not lost. This just means that a portion of your PPP loan will not be forgiven and will fall under the “1% interest for 2 years” terms.  

What to track to help apply for forgiveness on the loan

Since the loan forgiveness guidelines may change, it is recommend that you do your best to have detailed documentation and tracking of how you spend the PPP funds, as well as details for your payroll by staff member for the 8 weeks under the PPP loan period. You will also want to ask your lender about any documentation you should keep so that it is available later to help them with reporting for the forgiveness review.

  • Documentation of full-time employee count for the 8 weeks (head count and hours worked)
  • Wages rates for staff during the 8 weeks up to $100k pay rate (any wages above $100k pay rate should be paid from practice and not PPP funds)
  • Bills or invoices for:
    • eligible mortgage interest
    • rent/lease payments
    • covered utilities
  • Details on how your PPP funds were spent. You may choose to check with your accountant on the best way to track this information for easy reporting and easy review come tax time.
  • If you have PPP funds in a separate account: consider transferring your funds to reimburse the business on the payments the business made from the normal bank account for PPP approved expenses.
  • If you have the PPP funds in your main bank account: track all expenses the funds are used for with detailed entries in QuickBooks and notes that make them easy for you to identify them as PPP fund spending.

And finally, some helpful links for further reading: