Recently, we provided an outline of the Paycheck Protection Program (PPP) in this blog. Since then, banks have been inundated with applications from business owners. To no surprise, many questions have surfaced as this historic program is being rolled out.
The information below focuses on your business after you’ve successfully completed your PPP application and your loan application is processed and approved.
Finalizing your Paycheck Protection Program Loan
After the Paycheck Protection Program application has been completed, common questions include:
Q: What are the final steps before your business receives the funds it applied for?
A: Your business must sign a promissory note with the lender who accepted your application. The U.S. Small Business Administration (SBA) has now clarified the lender may use its own promissory note form, or a form used by SBA.
Q: When will my business receive its loan proceeds?
A: The lender must make disbursement of the loan proceeds to borrower within 10 days of approval.
Forgiveness of your PPP loan
The first 8 weeks after the loan is funded is the period examined for purposes of forgiveness. Payroll and other qualifying expenses of your business paid for with loan proceeds outside of the first 8 weeks after loan funding are not eligible for forgiveness.
Q: How is forgiveness calculated?
A: You of course must use the proceeds for qualifying expenses. At least 75% of the loan proceeds must be used for payroll costs (a defined term that includes wages and health care benefits). In other words, although rent, utilities and mortgage interest are qualifying expenses, a business can’t spend more than 25% of the loan on those items and expect forgiveness for those expenses.
- If your business reduces headcount, that will proportionally affect forgiveness. For any changes in head count or salary levels made between February 15, 2020 and April 26, 2020, if those changes are restored by June 30, 2020, your business is still eligible for forgiveness.
- And, any reduction by more than 25% of wages (for employees earning less than $100,000 annually in 2019) will result in a proportional limit on forgiveness.
We should anticipate more clarification on the forgiveness portion of the PPP in the coming days and weeks.
As always, please let me know if I can help.
Chuck Van Horn resolves business disputes. A shareholder at Berman Fink Van Horn, Chuck’s areas of concentration include business and commercial litigation.