PAYCHECK PROTECTION PROGRAM – WARNING

Written by Matthew Dickens on April 20, 2020. Posted in General

PPP LOAN – WARNING

The Payroll Protection Program is a loan and is expected to be repaid at 1% interest over a 2-year term.

A portion of the loan may be forgiven provided certain requirements are met.  We want to make sure that you understand not all borrowers will qualify for this loan forgiveness. Before accepting, you should not assume that you will qualify for loan forgiveness and will, therefore, be required to repay the entire amount.

WARNING – our initial research indicates that the loan forgiveness requirements may be more difficult to qualify for and prove than originally understood.

We have recently received notification of acceptance from several clients regarding the Payroll Protection Program loans through the Small Business Administration and their local lenders. We would like to extend our concern about acceptance and the ultimate forgiveness of these loan proceeds.

From our initial research, we have determined that there are several requirements that must be met in order for the loan to be forgiven.  First, in order to qualify for forgiveness, 75% of the loan amount must be spent on Payroll (not subcontractors) in the 8 weeks that follow the deposit of the loan proceeds.  The remaining 25% must be spent on rent, mortgage interest and utilities.  Assuming the first test is met, there are two additional tests that could reduce or eliminate the forgiveness of your loan. 

1. You must maintain the number of employees on your payroll. Hopefully, there will be substantive guidance on the calculation of employees.  Currently, the wording indicates “full-time equivalent employees when compared to a prior period”.  However, there is no link or support for this requirement on the SBA website or other authoritative sources that we can locate. 
2. You must maintain at least 75% of total salary when compared to a recent period. This test will be applied for each individual employee in the 8-week period of the loan. If the employee’s pay over the 8 weeks is less than 75% of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness will be reduced by the difference between their current pay and 75% of the original pay.

We understand that you probably have questions as to whether you qualify for forgiveness.  At this time, we encourage you to contact your lender for specific details for determination.  At this time, we cannot guarantee or express an opinion as to whether the loan will be forgiven.  Please proceed with caution.