Application and purpose of PPP.
The goal of the Payroll Protection Program (PPP) is to allow businesses and their employees to weather this storm. The forgiveness provisions all relate to continuing employee payroll, and allowing businesses to pay rent/mortgages/utilities. This forgiveness program is not designed to help businesses buy new equipment or pay off existing debt. At the time of application, the applicant must certify that the business intends to use to funds to cover payroll and/or rent/mortgage/utilities.
Even without forgiveness available for certain spending, businesses that find themselves with excess PPP loan funds may use those funds to buy equipment, pay off debt, or put in the bank. The PPP loans carry a one-percent interest rate, and payments are deferred for 6 months. Businesses may also obtain non-PPP loans through the SBA’s Disaster Loan Program, which can be used to make capital improvements in the company, such as to buying equipment, paying off debt, or building up cash reserves.
Businesses that choose to forego both the PPP loan and the Disaster Recovery Loan may have the opportunity to reap certain tax credits at a later date.
Strategies for compliance and maintaining forgiveness eligibility for the PPP Loan.
After the funds have been received and are being used for a forgivable purpose, businesses will need to proactively request forgiveness from their lending financial institution. In order to receive forgiveness, businesses will need to show proof of how the funds were spent.
Businesses should keep an organized filing system and documentation for all pay stubs, invoices, and proof of payment for rent/mortgages/utilities.
In order to ensure the business has the greatest opportunity to have the PPP loan forgiven, it is advised and suggested that they place these funds in a separate checking account from their typical daily operating account. This will allow for a more straightforward money trail, as well as prevent the need to disclose bank statements that show all of a business’ spending, rather than simply the spending that relates to the PPP loan and forgivable spending.
Finally, please keep in mind that there is a limit on how much of the PPP can be used for Rent, mortgage, and utilities. That amount is 25% of the total loan amount. For more information about recommended steps, please contact our Goosmann Law Team.