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PPP Loan Forgiveness Preparation for Small Businesses

The Paycheck Protection Program, part of the CARES Act, signed into law on March 27th and opened loan applications on April 3rdDesigned to help small businesses weather loss of revenue due to the COVID-19 pandemic, the Program offered potentially forgivable loans to businesses with fewer than 500 employees. The loans are intended to pay employee wages and other critical business expenses.  

Bank loan applications opened on April 3rd and funding ran out on April 16th. Over 1,600,000 loans, with an average value of $265,000, were distributed in only 14 days. For organizations that secured funds, the journey is not finished. Now begins the preparation to apply for loan forgiveness.  

To be eligible for forgiveness, businesses need to carefully track payroll, rent, and utilities expenses over the next few months. There are many unanswered questions about how this information will be gathered and how the forgiveness process will work. (This Forbes article provides a detailed perspective about the unknowns.) Beginning careful, detailed tracking now will put business leaders ahead of the game when the forgiveness application is made available. Further, it will support other opportunities for small businesses to gain Federal support through other programs during this time.   

KSMC’s Financial Services and Systems team offers a few recommendations for businesses to prepare, today, for future PPP loan forgiveness and other Federal support

  • Follow up on additional information requests from your lender regarding the loan. Additional information may include the Federal quarterly tax form for Q1 2020 (Form 941) and a summary of payroll activity to date in 2020specifically, the earnings register by employee or prepared reports by your payroll company
  • Begin detailed tracking of payroll, rent, and utility expenses in preparation for tracking during the covered period of eight weeks from loan distribution 
    • Note that payroll expenses are summarized as salary, wage, commission or similar compensation; cash tip or equivalent; vacation, parental, family, medical, or sick leave; employee exit; healthcare benefits and premiums; retirement benefits; State or local tax on employee benefits. You’ll find more detail in the SBA FAQ. 
    • Detailed tracking will need to include the stated payroll costs; mortgage obligation interest; rent; utility payment including electricity, gas, water, transportation, telephone, and internet access. (All of these need to have been in place before February 15th.)  
  • If you use a payroll provider, work with them to identify pre-built reporting to gather additional information for your bank and begin gathering data for the forgiveness process. Payroll providers are preparing specific reports for reporting for this information, which you will need to access and use. You’ll also need to tie this with your employee health benefits payments and will need to prepare your own reporting for this purpose.  
  • If you use a payroll provider, check with them on offerings to assist with payroll tax deferral programs also a part of the CARES Act. Businesses are eligible to defer deposits of the employer’s share of Social Security tax that would be otherwise due between March 27th and the end of the year. (There are specific rules for businesses that receive PPP forgiveness that you and your bank should monitor. You can find more information from the IRS.)
  • Finally, work with your payroll provider to put reporting in place specifically for the EFMLA and Paid Sick Leave updates made in the Families First Coronavirus Relief Act. (Learn more about FFCRA from the Department of Labor.) This Act requires that employers offer employees paid sick leave or expanded family and medical leave for specified reasons related to COVID-19. Employers are provided tax credits for employee payments made during their leave and will need to track appropriately to be eligible 

Diligent and proactive preparation for PPP forgiveness and other Federal support will help small businesses manage this process and their cash flow more easily in the upcoming months. If you have questions about how to get started, our Financial Services and Systems team is here to help. Contact us today.