Top 5 Things You Need to Know Regarding PPP Loans Amidst Covid-19
by Ledger Bench LedgerBench is your trusted accounting & bookkeepiIn the wake of the Coronavirus Aid, Relief, and Economic Security Act (CARES
Act), the United States has conferred an additional $310 billion funding to the
Paycheck Protection Program (PPP) that was almost running out of funds in
April. The importance of PPP is ever-important in these times of economic
uncertainty as PPP is one of the few opportunities that small businesses have
to obtain forgivable loans to sustain employees on the Payroll services.
But, there are so many questions that are yet to be answered and cleared for
entrepreneurs, especially in the light of the forgivable nature of the PPP
loans.
Another burning issue here is the grey area, where many public companies
confessed to having taken the PPP
loan which was truly meant for small businesses with employees less
than 500.
To contain such malpractices, the federal government has come out with the
briefing that the authorities will audit any company that levies for loans more
than $ 2 Million.
This blog will provide answers to all the commonly asked questions and
queries related to the PPP loan and how it can benefit your business.
Question 1: What costs are eligible for forgiveness under the PPP?
Answer: The actual forgivable part of the PPP is dependent
on certain factors. These are based on the payments made and the costs incurred
during the COVID-19. These are the costs that are eligible for forgiveness in
the PPP loans:
- Salary
and wages or other similar payroll compensations.
- Payments
that have been made in the light of sick leaves.
- Allowance
for separation.
- Payments
made for group health care benefits, including insurance premiums.
- Retirement
benefits
- State or
federal payroll taxes
- Please
note that cash compensations that exceed $100,000 are exempted from this
excuse. Additionally, the employer's share of the federal payroll taxes is
also exempted from being forgiven under the PPP.
Question 2: What costs are not eligible for forgiveness under the PPP?
Answer: Although the PPP loan is a breath of fresh air for
businesses who are trying hard to genuinely retain their employees, there are
still certain costs that are exempt from being forgiven under the PPP loan.
These are:
- Payments
made to independent contractors.
- Under
the Family First Coronavirus Response Act, there are qualified sick leaves
and parental leave wages. These, therefore, are exempt from the
forgiveness under the PPP.
- If we
take February 15, 2020, as the benchmark date; then any interest payments
on personal property, rent payments under agreements in existence, and
utility payments like electricity bills, etc. are also not permitted for
forgiveness under the PPP loan.
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Question 3: What are the limitations of loan forgiveness?
Answer: There certainly are limits to forgiveness in the
PPP loans. The first is that not more than 25% of the loan forgiveness can be
linked to non-payroll costs. Additionally, proceeds directed towards advance up
to $10,000 on Economic Injury Disaster Loan will also be deducted from the loan
forgiveness amount.
There are two formulas to determine the forgiveness amount in the loan
deduction. The FTE Method and the reduction in wages.
The loan forgiveness amount is subject to reduction by multiplying it by the
following fraction. These are as follows: (This is known as the FTE method)
- The
numerator of which is the average number of FTE employees per month
employed by the borrower during the covered period.
- The
denomination of which, as elected by the borrower is:
- The
average number of FTE employees per month (from Feb 15, 2019, to June 30,
2019)
- The
average number of FTE employees per month (Jan 1, 2020, to Feb 29, 2020)
The second is the reduction of wages method. This method is
applicable as follows:
- Identify
employees who did not receive the salary at an annualized rate of more
than $ 100,000 for a single day in 2019.
- Compare
each covered employee’s wages during the period to his/her salary during
the first quarter of 2020.
- For an
employee who is covered, the salary is reduced by more than 25%, then you
need to apply the following formula:
- Multiply
the first-quarter wages by .75
- Subtract
the result from the covered period wages
- The aggregated
dollar amount will reduce the loan forgiveness amount.
Question 4: What are the documents that you need to apply for forgiveness?
Answer: To receive the loan forgiveness, you need to
comprehensively submit accurate copies of the following documents, complete and
updated:
- Documentation
to verify the number of FTE employees on the payroll. This also includes
the payroll tax filings.
- Cancelled
checks, payment receipts, and transcripts of accounts verifying payments
of mortgages, rent and utility payments.
- You also
need to submit an authentication certificate from a representative of the
business that certifies that the information and documents submitted are
accurate and the amount that is requested for forgiveness, will help
retain employees.
- In
addition to these, the SBA can also ask you to submit additional documents
to solidify and authenticate your case.
What Does Your Business Need?
The essential element in COVID-19 is to sail through with as little damage
as possible. With the PPP loan and the secure ability to seek forgiveness on
the loan is a boon in these times. You need to seek spaces where you can seek
the maximum benefits and forgiveness on the PPP loans. We hope that your
essential queries were answered and cleared through this blog. For any
additional query and query on the PPP loans and how it affects your business.
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Created on Aug 19th 2020 01:00. Viewed 234 times.