How to Maximize Your Loan Forgiveness Under the Paycheck Protection Program

April 28, 2020 | Article

By Tom Goekeler | Adam Sweet and Michael Holdren

As loans are funded under the Paycheck Protection Program, many organizations are making plans to move forward. However, there are still important planning considerations all borrowers should focus on. These additional items will help you maximize the amount of loan forgiveness you receive.

Maximize Your Forgiveness Now
Actions taken now can impact the amount of possible loan forgiveness. It’s important to begin the planning process immediately.

What Is the PPP?
The PPP loans are designed to incentivize organizations and businesses to keep employees on their payroll.

We developed resources to help you navigate PPP loan forgiveness.

How Much of the Loan Is Forgiven?
Generally, according to the SBA, loans have the potential to be forgiven if employees are kept on payroll during the eight-week covered loan period and if the money is used to cover a specific set of expenses. However, the amount of actual forgiveness depends on each organization and their circumstances.

An approach focused on proper planning and documentation can help a borrower achieve maximum loan forgiveness. Below are a few tips to help you achieve maximum PPP loan forgiveness.

We recently discussed what’s next for the PPP loan recipients.

Maximizing Loan Forgiveness Under the Paycheck Protection Program

Remember What Expenses Are Covered Under the Paycheck Protection Program
The Paycheck Protection Program loan proceeds can only be used for certain expenses, including:

  • Employee payroll expenses
  • Payments of interest on mortgage obligations
  • Rent
  • Utility payments
  • Interest on other debt obligations that were incurred before the covered period.

It appears a borrower must spend these loan proceeds by June 30 or the ending of the eight-week loan forgiveness period.

Given these restrictions on the use of the loan proceeds, some lenders have requested borrowers deposit the proceeds into a separate bank account to ease the expense tracking burden. Use of a separate account may have other advantages as well, including tracking of expenses giving rise to forgiveness (discussed below), as well as making it easier to identify excess loan proceeds that can be returned to the lender. There is no formal requirement that a separate account be maintained, though.

Understand the Impact of Payroll
Importantly, governmental guidance provides that at least 75 percent of the loan proceeds must be used to fund payroll costs. Although the consequences of failing to meet this requirement are unclear, possibilities could include loss of forgiveness, payment on demand notifications, and other penalties.

What is payroll?
Payroll is a defined term that generally includes gross annual wages up to $100,000 plus certain benefits (and subject to certain limitations).

Remember to Take the Right Next Steps
Once the PPP loan is funded, an eight-week clock begins for purposes of tracking eligible expenditures that may give rise to partial or complete forgiveness of the Paycheck Protection Program loan. These expenditures include:

  • Payroll costs
  • Any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation)
  • Any payment on any covered rent obligation
  • Any covered utility payment

Remember, governmental guidance provides that borrowers seeking forgiveness must demonstrate that at least 75% of their expenditures during the covered period relate to payroll costs.

Note this eight-week clock begins at date of funding, so borrowers must immediately be prepared to plan for and track the eligible expenditures listed above. Records required to track and prove expenses could include payroll forms, tax forms, invoices, receipts, as well as banking records.

Additionally, certain actions taken by a borrower regarding reduced employee headcount and wages can significantly impact the amount of any forgiveness. Borrowers may consider hiring a consultant to help organize records and model out the anticipated forgiveness and any limiting factors. A consultant may also help highlight what additional steps a borrower can take to maximize forgiveness.

The application for loan forgiveness has been released. Here’s what you should know.

What Do You Need to Do Now? 
PPP loan funding is only the first step. Organizations should start planning now to maximize loan forgiveness. Early action will produce the most forgiveness.

Don’t wait. Start maximizing your loan forgiveness now.

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