Achieving PPP Loan Forgiveness

Businesses that have managed to secure financing through the Paycheck Protection Program (PPP) are fortunate—but also saddled with a lot of red tape. Business owners and managers should be careful that they adhere strictly to the terms of the program in order to qualify for loan forgiveness.

In response to the coronavirus pandemic, Congress created the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The historic $2.2 trillion stimulus bills included $350 billion towards the PPP; a forgivable loan program targeted to aid small businesses dealing with losses resulting from the coronavirus pandemic. Unfortunately, the Small Business Administration (SBA) loan program, which was rapidly flooded with applications, quickly maxed out the money available for emergency loans. Congress is expected to authorize more funds for the program in the near future.

While business owners who did manage to secure a PPP loan are fortunate, they have a lot of work ahead of them. In order to qualify for loan forgiveness, the PPP funds must be used for certain allowable purposes, including:

• Salaries, wages, commissions, or similar compensations (up to $100,000 per year per employee, prorated);
• Cash tips or equivalent;
• Employee leave, including parental, family, medical, or sick (excluding family or sick leave under the Families First Coronavirus Response Act);
• Allowances for dismissal or separation;
• Group healthcare benefits, including insurance premiums;
• Retirement benefits;
• State or local taxes on employee compensation (not including the employer’s share of FICA payroll taxes, Railroad Retirement Act taxes, or other required U.S. income tax withholdings);
• Continuation of group healthcare benefits during employee leave and insurance premiums;
• Mortgage interest, rent, utility payments, and any other debt obligations incurred prior to February 15, 2020;
• Compensation and income of up to $100,000 per year (prorated) for sole proprietors and independent contractors.

Money used for any of the allowable purposes listed above will qualify for 100% forgiveness; loan money used for non-allowable purposes must be repaid. This means that businesses who take on PPP loans must shoulder a big burden of new reporting requirements. Failure to keep thorough records of how the loan money is used could result in loss of forgiveness for some portions of the loan money. For detailed information specific to loan forgiveness, click here.