Will the PPP Loan My Business Just Received be Forgiven?
Your business just received a loan through the Payroll Protection Program. When the government set up the program, they said these loans could be forgiven under certain conditions. What are those conditions and how can you tell whether you have met them?
Per the program, a borrower is eligible for loan forgiveness equal to the amount the borrower spent on the following items during the 8-week period beginning on the date of the origination of the loan:
- Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
- Interest on the mortgage obligation incurred in the ordinary course of business
- Rent on a leasing agreement
- Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
- For borrowers with tipped employees, additional wages paid to those employees
Regardless of your total costs, the loan forgiveness cannot exceed the principal.
It is important, as you are planning on how to use these funds, to keep in mind that the amount of loan forgiveness can be reduced if there is a reduction in the number of employees or a reduction of greater than 25% in wages paid to employees. Examples of both methods for calculating forgiveness reduction are shown here:
Reduction based on reduction of number of employees:
Payroll Cost times Average # of FT Equivalent Employees (FTEs) per month for the 8-weeks from loan origination date divided by Option 1: Average # of FTEs per month from 2/15/19-6/30/19
Divided by Option 2: Average # of FTEs per month from 1/1/20-2/29/20
Reduction based on reduction in salaries:
Payroll Cost less, for any employee who did not earn during any pay period in 2019 wages at an annualized rate more than$100K, the amount of any reduction in wages that is greater than 25% compared to their most recent full quarter.
These reductions can be waived by June 30, 2020, if the borrower eliminates the reduction in employees or reduction in wages.
Contact your Brady Ware Advisor with any questions.
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