Paycheck Protection Program Loan Forgiveness
Updated: May 29, 2020
Olsen Consulting has already prepared payroll calculations, and PPP forgiveness calculations for several of our clients. If you've received PPP funds and need help pulling together your data, contact us. We can help guide you through the PPP loan forgiveness process. Please note that this post is informational, and should not be construed as legal or financial advice.
The Corona-virus Aid, Relief, and Economic Security Act (the CARES Act) allows for loans under the Paycheck Protection Program (PPP Program). The purpose of this program is to “provide economic relief to small businesses nationwide which were adversely impacted by COVID-19.” PPP loans will be forgiven so long as the loan proceeds are used to cover payroll costs (and mortgage interest, rent and utility costs) within the eight-week period after the loan was made and if employee and compensation levels are maintained. Both the full principal amount as well as any accrued interest on the loan may be forgiven.
Accounting for how much of the PPP loan will be forgiven is essential for receivers of the loan. Olsen Consulting has prepared accounting reports that can assist you with predicting how much of your PPP loan amount will be forgiven. These reports also allow companies to consider the financial impacts of bringing different employees back at different times.
Several consultants, including David Jean for Albin Randall and Bennett, have already created powerful spreadsheets with these capabilities. Olsen Consulting contributes additional automation and auditability functions to streamline the customer experience.
PPP Loan Forgiveness Amounts
Loans can be forgiven if the money is used for payroll costs, mortgage interest, rent and utilities within the eight weeks after the loan was granted. PPP loans will not be forgiven if staff headcount and payroll are not maintained. Further, the loan forgiveness amount will be decreased if salaries and wages are reduced by more than 25% for any employee who makes less than $100 000 USD per annum. Companies have until June 30, 2020 to restore full-time employment and salaries levels from any changes made between February 15 and April 26 of this year.
Loan Forgiveness Complexities
Calculating the expected amount of PPP Loan forgiveness is laden with complexities. The use of a custom solution by Olsen Consulting can help. Some of the challenges in calculating the PPP loan forgiveness amount are as follows:
· FTEs are capped to 30 hours per pay period per employee per week, or 60 hours per pay period per employee bi-weekly;
· to receive loan forgiveness, the average FTE must be equal to or greater than the average FTE’s from February 15, 2019 through June 30, 2019, or through January 1, 2020 through February 29, 2020, whichever is less;
· the PPP loan forgiveness calculations must be auditable (i.e. traceable back to 941 submissions, net pay and company financials);
· expenditures that are already covered by other provisions of the CARES Act must be excluded, such as Covid-19 related pay and FICA expenses;
· it is necessary to combine data when companies have both weekly and bi-weekly pay periods.
The High Cost of Miscalculations
There are also certain exceptions, which if not realized, can result in companies missing out on loan forgiveness amounts of up to $15 000 per employee. One such example is the reduction exemption for employees who receive an annualized salary for over $100 000, or approximately $1923/week - if any one employee has received $1923 for any week in 2019, then they may be exempted from the forgiveness reduction. Without the use of an automated report, it is tedious for companies to accurately calculate their forgiveness reduction exceptions, and mistakes are costly.
Loan Forgiveness Offer
The process for loan forgiveness requires that a request be sent to the lender who is servicing the loan. It is necessary to include documents that will verify the number of full-time equivalent employees and pay rates. Documentation should confirm the applicable payments on eligible mortgages, leases, and utility obligations. Any documents that are included with the request must be certified as true and should prove that the loan amount was legitimately used to keep employees and make eligible mortgage interest, rent and utility payments.
The lender must make a decision regarding loan forgiveness within 60 days of the request being submitted.
Olsen Consulting has prepared custom reports, which subscribe to the requirements of the CARES Act. This tool is useful for projecting how much of the PPP loan amount will be forgiven.
 https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf  https://www.osler.com/en/resources/regulations/2020/covid-19-emergency-forgivable-loans-for-small-u-s-businesses  https://www.arbcpa.com/ppp-loan-forgiveness-workbook/  https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf  https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf  CARES Act Section 1105(d)(3)(B).  https://home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf