Every day for the past 2 weeks I received at least five questions about PPP loan forgiveness details. I have some great resources from my association with other professionals. I’ve read the CARES Act nearly word for word and digested more webinars, newsletters, blogs and analysis than anyone I know. Even with all that research and study, there are questions I couldn’t definitively answer. The CARES Act was vague, and until today, the only real guidance we had were the FAQs issued jointly from the Treasury Department and the SBA (issued May 5, modified May 13).
Clearly what everybody wants to know is “How much of my PPP loan will be forgiven?”
Great question, because it has a significant impact on the magnitude of a business’ short-term cash flow problem. As of May 15 we now have the form and instructions banks will use to calculate forgiveness. It’s called the Paycheck Protection Program Loan Forgiveness Application.
The form and its instructions answer some sticky questions like these:
Should I change my pay dates to maximize payroll spending within my 8 week window? Probably not if you pay biweekly or weekly. A new Alternative Payroll Covered Period gives you flexibility to chose your window. If you pay monthly, it’s a different story. It’s clear now that you may include paychecks incurred or paid during the covered period. Depending on pay dates and your loan funding date, you might get a couple more weeks covered if you change from monthly to weekly mid-way through the covered period.
Does my 2019 401(k) employer contribution count toward my payroll spend if I fund it during my 8-week period? Surprisingly, yes as currently written. It appears that you can include employer retirement contributions paid during the period, even if they are not incurred. That is, they do not need to be expenses related to the 8-week period so long as they are funded during your window.
Can I prepay health insurance premiums for future months and include them in eligible payroll costs? Surprisingly, yes as currently written. Again, it appears the expense won’t need to be incurred during the period so long as it is paid during the period.
Bonus for Business: What Once Said “And” Now Says “Or”
This seemingly small wording change from expenses “incurred and paid” to “incurred or paid” will increase forgiveness for many borrowers. It indicates lawmakers’ intention is to provide funds, not to saddle businesses with more debt.
Sounds Good! Is This Your Final Answer?
Absolutely not. As I write this, media outlets speculate that significant changes are in the works to give businesses more flexibility to spend the money. It seems the Act’s initial intention of keeping people employed is moving toward an intention of keeping businesses afloat. Stay tuned.