PPP Loan Forgiveness Application Out — Watch for Gotchas!

Checking calculations on a spreadsheet.You can download the PPP Forgiveness Application form here. Here are a few things we see (this isn’t professional advice, just a few points to think about):

  • The period over which you collect expenses (payroll and allowed expenses) is 8 weeks, starting either from the date you received the funds, or the first day of the following pay period (Alternate Payroll Covered Period). Whichever you choose (and it can make a difference, so you need to do the calculation with both dates), you can include expenses paid or incurred. You’ll have to study the rules for the difference, but you can’t count expenses twice.
  • Since you based the amount of the loan of the average monthly payroll cost times 2.5, many businesses will not get forgiveness of the entire loan amount. Example: suppose you have a payroll of $20,000 per month, all salaries paid on the 15th and end of month ($10,000 per payroll). You request $50,000 in PPP loan (2.5 x $20,000). Now you calcuate 8 weeks of salary. You’ll probably have only 3 actual payroll dates in the 56 day (8 week) period. If you hold one period of salary, you have (apparently) incurred another payroll worth of expense. That means you have payroll expense of $40,000, but you have to come up with $10,000 of rent, mortgage interest, etc. during that 8 weeks.
  • Owing money isn’t really an issue. The interest rate is 1%.
  • Be careful what you spend the money on. If you deposit it into your general operating account and pay bills, you may not be using it for “covered expenses,” but you agreed (and signed) that you would only use it for “covered expenses.”
  • One last item: there’s this nasty little signoff on the last page: “does not exceed eight weeks’ worth of 2019 compensation for any owner-employee or self-employed individual/general partner, capped at $15,385 per individual.” This may further limit the compensation you are allowed to include.

Lastly, all of this is changing. Several organizations including the AICPA and NFIB are pointing out that this math doesn’t work for all businesses. So expect to see some changes.