Congress has passed legislation to revise the loan forgiveness rules in the Paycheck Protection Program, the small business coronavirus relief program. The measure, which the president is expected to sign, extends the forgiveness period and lowers the percentage of a loan that must be spent on payroll to qualify for forgiveness.
Business owners who have obtained PPP loans still may be overwhelmed by the program’s complex rules, said Jennifer Berman, CEO of MZQ Consulting LLC and senior vice president of compliance for Kelly Benefit Strategies in Pikesville.
She offered four strategies for employers seeking to navigate the program’s guidelines and to maximize their loan forgiveness.
Although business owners cannot fully prevent themselves from being randomly audited, Berman said, they should organize all necessary documentation from the loan forgiveness period, including older records.
For example, Berman said, businesses using a loan to pay for utilities must prove that these systems were in place before Feb. 15th. Businesses should organize bills from before this date to demonstrate they met this standard. If you have trouble pulling together records, reach out for help.
“Where it’s not your strong suit, get help. I’m doing it. There are certain accounting offices that are helping with it,” Berman said. “There are certain attorneys available to be helping with it. But, at the end of the day there is a lot of money on the line, and if this is not your forte, don’t do it yourself. There is too much risk.”
Don’t try to maximize your benefits by laying off employees because of the extended forgiveness period.
Under the new rules, the Small Business Administration will forgive all loans if employees are kept on payroll for 24 weeks. The loan forgiveness period was originally eight weeks. Businesses originally had to spend 75 percent of their loan dollars on payroll, and this requirement has been lowered to 60 percent.
Berman said employers should know that if they do not rehire everyone, their forgivable amount — the amount of money a business spends within a covered period on expenses that are eligible for forgiveness — could decline. Deductions can lower this number if an employer sheds workers or lowers salaries by more than 25 percent.
“If I now know that it’s going to be 16 weeks or 24 weeks, maybe somebody would think, ‘I’m going to lay two people off because I’ll still get all my money reimbursed,’ and that’s not going to necessarily be the case,” Berman said.
Know your options and test them.
Applicants have choices when making decisions about their coverage periods. Their coverage period can begin on the day they receive their loan or the first day of the next payroll period. There are also two different formulas for calculating costs related to full-time employees.
Berman suggested employers use both formulas to see which one provides better financial outcomes. These calculations also help determine the amount of the loan that would be eligible for forgiveness.
Don’t rely solely on your lenders.
Berman recommended that loan applicants know their own numbers and understand program guidelines without having to consult lenders for every data point. She said business owners can do this by organizing by themselves or reaching out to professionals, but they should recognize that banks and credit unions are in new territory, too.
“Forgiveness is going to be adjudicated by the lenders. But they don’t necessarily know this any better than the rest of us do at this point,” Berman said. “So, I don’t want to say not to trust your bank, but I would say know your own numbers really well.”