The Latest Information to Protect Your Business and Yourself


Click below to view our Latest Webinar Video and accompanying Slides entitled:  PPP Forgiveness Check-In.

PPP Loan Forgiveness Worksheet

View Our Webinar from June 5, 2020

View Our Webinar Video form May 18, 2020

The Paycheck Protection Program

March 13th, 2020, President Trump declared a national emergency concerning the novel coronavirus SARS-CoV-2. The coronavirus, or COVID-19, led to a nationwide change in the American workforce. Offices and storefronts closed, teleworking became the norm, Amazon Prime was essential, and 2-ply toilet-paper became an item of luxury. Importantly, and unfortunately, the U.S. economy came to a jarring halt as jobs were lost as a result of the social distancing and quarantine precautions. Business owners were thrown into a state of survival and the future of their businesses became an uncertainty.

While Americans sought answers from state and local leaders, the spotlight was on the federal government for assistance. Having already passed an appropriations bill and finishing a family and sick leave bill, next up was stimulus legislation. A hodgepodge of sorts, the Coronavirus Aid, Relief, and Economic Security (CARES) Act threw a variety of relief provisions at Americans hoping that something of value would stick. Included in the Act was the Paycheck Protection Program (PPP).

At a high level, the Program appeared too good to be true, transforming a loan into a tax-free grant for borrowers that continued to pay employees. The PPP provided borrowers an injection of cash equal to 2.5 months of the borrowers’ average monthly payroll costs to be spent over an 8-week “covered period.” If the borrower spent all proceeds during the covered period on payroll costs and certain other non-payroll costs, the loan would be forgiven (no repayment required) tax-free. The Program writers included mechanisms to ensure borrowers used the loans to retain and pay workers. Borrowers’ loan forgiveness would be reduced if the borrower did not retain or restore their workforce (measured in full-time equivalents) and the amount of pay to said workforce as compared to pre-COVID-19 reference periods.

Any Questions?

To the Program writers’ credit, the PPP was operating in unchartered territory and yet still promised to be up and running within days of the CARES Act being signed. To implement a program offering nearly $350 billion of relief (later, over $650 billion) in such a short period of time would ordinarily be commended. But with businesses on life support, the headaches from the PPP overshadowed any praise.

Borrowers hit a roadblock right out the gate when the term “payroll costs”, necessary to calculate the amount a business could borrow, was poorly defined in the CARES Act. It was not until days after the loan application form became available that this term was better defined in a flurry of frequently asked questions posted to the U.S. Treasury’s website.

Could the loan be used on expenses paid, or only on those expenses incurred during the covered period? Would the expenses be deductible? How did self-employed and partnership borrowers account for loans? Did rent expense include self-rentals? Could borrowers deduct floorplan interest? What was a transportation utility expense? What if borrowers could not rehire employees because they were making more on unemployment? Did borrowers have to pay employees even when they were not working? What did I get myself into? These were some of the questions that borrowers faced – some of which have yet to be answered.

The guidance for the PPP program came out piecemeal to say the least. At the time of writing, the amount of interim final rules (regulations) that have come out are nearing twenty. Greatest-hits titles include the “Interim Final Rule on Revisions to the First Interim Final Rule,” and the “Interim Final Rule on Additional Revisions to First Interim Final Rule.” The FAQ guidance currently stands at 48 questions, with rumors of another 30 coming. All the information has spurred planning strategies, Excel workbooks, and countless webinars with the latest-and-greatest on the PPP.

The PPP Flexibility Act, which the President signed into law at the beginning of June, also brought legislative changes to the Program. The Act expanded the 8-week covered period to 24 weeks among other borrower-friendly provisions that made loan forgiveness easier to attain. Even borrowers that could not get full loan forgiveness were gifted with an extended loan term of 5 years versus the original 2 years, if the borrower could convince the lender to make the change.

The PPP was an ambitious, complicated, frustrating, and – albeit debatable – useful tool to combat the pandemic-born economic recession. But adjectives aside, where does the PPP and its borrowers stand now?

Take A Step Back, And A Deep Breath

 Borrowers should look at the big picture of the PPP as it currently exists. At the Program’s core, to receive full loan forgiveness a borrower should:

  • Spend 2.5 months of payroll costs over 6 months or less
  • Restore FTE workforce count to pre-COVID-19 levels by December 31, 2020 or earlier
  • Restore hourly salary/wage rates to pre-COVID-19 levels by December 31, 2020 or earlier

 Can you do this? If the answer is “yes” then maybe you can shift your attention away from the PPP and back to running your business.

Spend the Money:

PPP borrowers have 24 weeks (or 8 weeks, upon election) to spend 10 weeks’ worth of payroll. If the borrower does not have enough payroll costs to meet this requirement, the business can also spend up to 40% of the loan proceeds on utilities, rent, and mortgage interest. Keep in mind, too, that compensation to furloughed employees as well as bonuses and hazard pay are all eligible costs.

What Are We Waiting For?

For a borrower that has already received their PPP loan and is on track to receive full loan forgiveness, the borrower is nearly in the clear.

A revised version of the loan forgiveness application was recently released implementing the changes of the PPP Flexibility Act, accompanied by an “EZ” abbreviated version for borrowers without forgiveness reductions. FAQs and other interim final rules may also follow to cover specifics. The PPP may also receive another round of funding, but with a narrower scope for distressed smaller businesses.

One item to keep an eye on is the deductibility of PPP expenses. The IRS previously provided in Notice 2020-32 that expenses paid with forgiven loan proceeds will be nondeductible to match with tax-free loan forgiveness. However, several members of Congress on both sides of the isle have voiced that this was not the legislative intent of the PPP. Isolated attempts to restore deductibility, such as bill S.3612, are pending and gathering cosponsors. Deductibility may also be restored in some type of phase-4-legislation expected during the summer, aimed at further propping up the U.S. economy. We must wait and see.

The “spirit” of the PPP was to provide borrowers with an infusion of money to cover payroll costs and retain workers until the economy was back up and running. While the economy will need more time to be revived, hopefully you’re able to spend less of your time digging into PPP details and more time getting back to business.

Restore the Pay:

Borrowers are supposed to pay employees the same amount of compensation received during the first quarter of 2020, prorated over the covered period, or otherwise face a reduction in loan forgiveness. This seemingly daunting task was made easier to reach when the SBA clarified that a borrower will meet the pay restoration requirement if the hourly rate of an employee remains the same. Section (III)(5)(f) of the Interim Final Rule on Loan Forgiveness gives an example whereby an employee’s hours are cut in half from 40 hours per week (pre-COVID-19) to 20 hours per week (covered period). Since the employee is paid the same hourly rate during the covered period, the borrower will not be penalized, even though the employee’s pay has been halved.

Additionally, a borrower is safe harbored from the pay rate forgiveness reduction if:

  • An employee’s average annual salary or hourly wage decreased between 2/15/20 – 4/26/20, and
  • The employee’s average annual salary or hourly wage is restored by 12/31/20 or earlier

Restore the Workforce (If you can):

Borrowers are supposed to compare workforce count (measured in FTE) during certain pre-COVID-19 reference periods against workforce count during the covered period. If the workforce count during the covered period is less than during the pre-COVID-19 period, the borrower may be hit with a reduction in loan forgiveness. However, favorable exceptions/exemptions paired with a safe harbor make it easier to avoid forgiveness reduction.

A borrower is safe harbored from the workforce count forgiveness reduction if:

  • The borrower had a decrease in average workforce count between 2/15/20 – 4/26/20, and
  • The borrower restores workforce count to 2/15/20 levels by 12/31/20 or earlier

A borrower will not be penalized for a reduction in workforce count for any of the following:

  • Employees reject good-faith, written offers for rehire by the borrower, and the employer reports these occurrences to state unemployment offices
  • Employees were fired for cause
  • Employees voluntarily resigned and/or requested and received a reduction of their hours

A borrower is exempt from the workforce count forgiveness reduction if the borrower documents:

  • An inability to rehire individuals who were employees of the borrower on 2/15/20 and an inability to hire similarly qualified employees for unfilled positions on or before 12/31/20, or
  • An inability to return to same level of business activity as such borrower was operating before 2/15/20 due to compliance with requirements established or guidance issued by HHS, CDC, or OSHA during the period of 3/1/20 – 12/31/20 related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19

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