The Paycheck Protection Program offers small businesses forgivable loans under the CARES Act and has many small business owners asking questions. New information has been released to help answer those questions relating to loan forgiveness.
Loan forgiveness is pretty simple for small businesses who have kept, or brought back on, their employees and used 75% of the loan for payroll and allowable expenses. Many questions arise for those who have lost employees during this time.
New guidance from the Treasury:
Partial Loan Forgiveness
If you have not used use at least 75 percent of the loan for payroll, you can still get partial loan forgiveness.
You Can Fire People
The Paycheck Protection Program is designed to preserve jobs and prevent layoffs, thus business owners have to maintain their headcounts and their payrolls to qualify for loan forgiveness. However, you can fire an employee for cause and you will not be penalized if an employee quits.
Expect More Debate Over How Money Can Be Used
One of business owners’ biggest worries has been how the funds can be used. What if they use half the money on payroll, and the other half to pay a vendor that’s been screaming at them? That violates the 75/25 rule — but the money was still used for a legitimate business purpose. This is something that will likely continue to evolve further.
Bonuses are allowed
You’re allowed to pay employees as much bonus as you want during the eight-week forgiveness period, as long as their total pay during that time doesn’t come to more than $15,384.
Loan Forgiveness Can Be Slow
Payments on all PPP loans are deferred for six months. The new guidelines say that the banks have 60 days to review forgiveness applications, and then the SBA gets another 90 days.
Your Payroll Dates Are Probably Fine
To get the loan forgiven, business owners have 8 weeks from the time they get the money to use 75 percent of it on payroll. If the money comes in on May 10, for example, and biweekly payroll is run May 14, can the entire payroll be counted toward forgiveness? Treasury says business owners can choose an “alternate covered period” that lines up with their payroll dates, rather than counting a strict eight weeks from when the loan money showed up.