The Paycheck Protection Program (PPP) has allowed many businesses including self-employed individuals to remain open, while continuing to pay employees and support local economies during the COVID-19 pandemic. If your PPP loan application has been approved, we can help you prepare and track the use of loan funds to maximize forgiveness rules.

Note: If you have considered, but not yet applied for a PPP loan, we encourage you to do so now as funds are limited and loan applications are processed on a first come, first serve basis.


What We Know So Far

There are now over 2.6 million PPP loans approved with over $191 billion total funds released to date. As more loans continue to be approved, we urge clients to focus carefully on the use of funds, in order to benefit from loan forgiveness. The Small Business Administration (SBA), jointly with the US Treasury, are still adding new guidelines and clarifications. Please connect with us about your specific situation, as we are monitoring the rapidly changing rules around the use of loan funds and forgiveness.


The Basics

Businesses are allowed eight weeks from the date they receive PPP funds to spend the loan proceeds on payroll costs, health care benefits, mortgage interest payments, rent, utility, interest payments on debt incurred prior to February 15, 2020, and refinancing on an SBA Ecomomic Injury Disaster Loan (EIDL) advance.


Payroll Costs

The intent of the PPP is to continue paying employees by requiring that loan forgiveness must include at least 75% of funds to be used for payroll costs over the eight week period.

If salaries decrease by more than 25% for any employee who made less than $100,000, or if the number of full-time employees decreases, the amount eligible for forgiveness will be reduced. If a business remains closed when it receives funds, it must continue to pay employees even if they are not able to work to ensure maximum forgiveness of the loan.

More clarification is needed in situations where employees have left for their own reasons or need to be fired due to performance issues. Current guidelines provide that the forgiveness will be tied to comparisons of employee count, as well as any reduction of pay. The SBA has also addressed situations where a business lays off an employee and offers to rehire the employee, but the employee declines the offer. In these situations, the business must make a good faith written offer to rehire, and document the rejection of the offer by the employee. Businesses have until June 30, 2020 to restore full-time employment and any salary reductions made between February 15, 2020 and April 26, 2020.


Self-Employed Individuals

Loan forgiveness is available to self-employed individuals equal to the total incurred during the eight week period, based on the following costs:

  • Owner compensation replacement limited to 8/52 weeks of 2019 net profit, excluding any qualified sick or family leave equivalent amount for which a credit was already claimed under the Families First Coronavirus Response Act (FFCRA).
  • Employee payroll costs.
  • Rent on lease agreements in force before February 15, 2020.
  • Utility payments under service agreements dated before February 15, 2020.
  • Interest on mortgage obligations incurred before February 15, 2020.


Self-employed individuals may also borrow funds to cover the following costs not eligible for forgiveness:

  • Interest on other debt obligations incurred before February 15, 2020.
  • Refinancing of an SBA EIDL advance.


Authorized Non-Payroll Costs

In addition to payroll costs, the remaining 25% of the loan forgiveness may be allocated to authorized non-payroll costs over the eight week period: mortgage interest, rent and utilities.

Utility costs include electricity, gas, water, transportation, telephone or internet access for service which began prior to February 15, 2020. Further guidance released added gas used when driving a business vehicle. Other common utilities such as garbage collection or security monitoring may also be classified as a utility, but a business should confirm this with the lending institution.

Additional guidelines are also needed on payments to related parties, such as self-rentals and family member employees.


More About the Eight Week Period

The eight week period begins on the date the borrower receives the disbursement of the loan proceeds. Current guidance references “payments” during the eight week period, but it is silent on whether these expenses are under the “cash” or “accrual” method. We are waiting for clarification on whether the borrower could pay amounts for costs incurred before and after the eight week period (for costs paid during the covered period). So far, only prepayment of mortgage interest has been specifically disallowed.


Additional Considerations

According to the Internal revenue Service (IRS), the forgiven portion of the loan does not constitute taxable income. The IRS has clarified that costs forgiven will not be allowed as deductions. Each state will make determinations on whether the forgiven portion of the loan is taxable along with the deductibility of the costs paid using PPP funds.

The SBA also reminds in its most recent FAQs to carefully review the application requirement for the borrower to certify that “current economic uncertainty makes this loan request necessary to support ongoing operations of the applicant.” If you determine that you do not need the loan, you have until May 14, 2020 to repay the loan in full without facing additional government scrutiny and potential fines.

Lastly, it is important to keep in mind that the SBA, IRS or both will likely review all loans. In fact, the SBA has already decided that it will review all loans in excess of $2 million. We expect that they will expand review to smaller loans as they deem appropriate. Businesses should prepare for the possibility of further scrutiny.


We are here to help you navigate various COVID-19 pandemic relief programs available to your business. Please connect with us for guidance.