Your PPP loan has been approved. Now what?

Thinc Strategy

April 16, 2020

Now it’s time to put the money to work in ways that’ll position your business to qualify for having the loan forgiven, essentially converting the loan into a grant.

While the SBA hasn’t issued full guidance for how businesses will need to apply for forgiveness, here’s what the conditions included in the CARES act along with advice from SBA-lending experts indicate business should be doing now:

Document, document, document. To have the loan forgiven, you should be able to document that:

  • 75% of the loan is used for payroll expenses including benefits like group healthcare benefits and payment of retirement benefits.  
  • 25% of the loan is used for rent, utilities, interest on mortgage obligations
  • You have maintained your number of FTEs and have not reduced salaries by more than 25% for those employees (limited to a cap of $100,000/annual salary level)
  • If you had previously reduced FTEs, you have the ability to restate them prior to June 30 and still be in a position to have the loan forgiven
PPP Spending Allocation Guidelines

Use it sooner rather than wait. The guidance is that for forgiveness, the funds are to be used over the 8weeks after the loan is made. Once you have the funds, put them to work for the following 8-week period. If you don’t need all of the funds under the75%/25% requirement, you can repay immediately with no early payment penalty.While the loan forgiveness is a valuable component of the program, it’s also good to remember this is a very low-interest rate loan, so it may be worth using this instead of your regular line of credit, if you anticipate needing to tap your line or other lending source for cash flow later this year. 

Evaluate your baseline payroll period for comparison: The rules leave it up to the borrower as to which time frame they use for their comparison. The amount eligible for forgiveness will be reduced (i) proportionally by the number of full-time equivalents per month during the “covered period” divided by the average number of full-time equivalents per month employed between February 15, 2019and June 30, 2019 or January 1, 2020 and February 29, 2020 (at the employer’s option). So, do the math now and compare it to your current staff and payroll to determine which timing is best for your business situation.

Lean on your payroll provider or CPA.Talk with your payroll provider (if your business uses one) to get help with documentation. Similarly, enroll the support of your CPA, your landlord and utility provider to ensure you have the documentation now that you’re likely to need later.

Update your business scenario planning. You’ve just gotten a short-term cash infusion of 2.5 times your payroll. Now’s the time to re-evaluate your what-if scenarios for the balance of 2020. How does this funding position your business to weather the various effects of this public health crisis? Are you now in a position to think about what you can start doing rather than what you have to cut?

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