We’re happy to hear that many of our clients have secured their Paycheck Protection Program funds. It sounds like approvals are coming in hourly. Inevitably, the next question is likely – what now? Here is what we know as of April 9, 2020.
From the day the loan funds are made available to you, the “covered period” begins. The covered period is defined by the CARES Act as the 8 weeks following receipt of these funds. During this time the following is critical in maximizing the amount of the loan that will be forgiven:
- The loan funds must be spent during the 8-week period on either:
- Payroll costs: wages, commissions, salary, similar compensation; cash tip or equivalent; vacation, parental, family, medical or sick leave; allowance for dismissal or separation; group health care benefits, including insurance premiums; any retirement benefits; and state or local tax assessed on the compensation of employees; or
- Mortgage interest and rent associated with agreements in place as of February 15, 2020 and utility payments (for utilities that were in service before February 15, 2020). No more than 25 PER CENT OF THE LOAN CAN BE FORGIVEN for non-payroll related costs.
- You must maintain an average monthly employee count during the covered period that is at least equal to the average monthly employee count before the pandemic. You can eliminate the reduction in your loan forgiveness that is based on the lower average monthly employee count by hiring back employees by June 30, 2020.
The inability to meet either of these parameters will result in some or all of the loaned funds being excluded from the forgiveness calculation. The unforgiven balance will require repayment over 2 years at 1% interest (per current Federal guidance).
Once the 8-week period is complete the SBA (possibly through the bank) will request documentation to support the numbers provided for #1 and #2 above.
For #1, adequate documentation will include (but is not limited to) payroll summaries, cancelled checks, ACH transactions, bank statements, rental agreements, invoices, etc. that clearly agree/reconcile to the amounts paid during the covered period.
For #2, adequate documentation will include (but is not limited to) payroll summaries (that include employee details) and support for the number of hours worked by hourly employees each pay period. Additionally, employee records could possibly be requested to support the existence of employees claimed. Also, similar documentation will be required for any payrolls paid between February 15, 2019 and June 30, 2019 and possibly January 1, 2020 to February 29, 2020.
We expect additional guidance will be forthcoming from the SBA over the next few weeks which should clarify applicable components of the CARES Act and address the countless questions being raised around this process. Meadows Urquhart stands ready to digest and disseminate this guidance as it comes.
Let us know how Meadows Urquhart can help. We are here to consult on the best spending strategies for your situation as well as to assist in the compilation, calculation and reporting associated with the loan forgiveness process.