More than 70% of small businesses in the United States now have the Paycheck Protection Program (PPP) loan product to help retain employees during the current pandemic. The full amount of a PPP loan may be forfeited if the funds are used for qualifying expenses. Recent legislation liberalizes the conditions for canceling loans for funds used for payroll, utilities and rent. It is now based on a 24 week period, not just eight weeks.
But how do you best position your business to fully benefit from the cancellation of PPP loans? Here are five tips for meeting the challenge.
- Restore your staff. If possible, restore the number of full-time equivalent (FTE) employees to previous levels by the December 31 deadline (extended June 30). Bring FTEs back on leave as soon as you can. Of course, this should fit into your overall business plan. If an employee does not return, document the refusal. All of these actions will come in handy when the forgiveness formula is applied to your loan.
- Pile on labor costs. Run payroll and other remaining eligible expenses, including mortgage interest, rent, and utilities, on the last day of the 24-week period. This will allow your business to maximize the amount of loan forgiveness allowed as part of the calculation.
- Reward employees. Consider paying reasonable incentives to maximize the remission of wage costs. Bonuses can even go to family members like your spouse or children. But remember, you can only count wages up to $ 100,000 per person, prorated for the year covered, and you must be able to defend those payments as reasonable.
- Use the simplified application form. There are two loan forgiveness forms – the regular form (Form 3508) and a simplified version called Form 3508EZ. Review both forms before deciding which one is right for your situation. For example, there are fewer calculations on the simplified form with less documentation required. To be eligible for the simplified form, you must meet at least one of the following conditions:
- You are self-employed and have no other employees.
- You haven’t cut employee hours or cut wages and salaries by more than 25%.
- You’ve lost business due to COVID-19 health guidelines and haven’t cut employee wages and salaries by more than 25%.
- Document everything. Once you receive the PPP loan funds, keep the supporting documents on everything related to the loan. Document when you receive the loan, each time you spend part of the loan and the interest accrued on the loan. Also keep copies of receipts and invoices to document all loan expenses, including bank account statements– By Nancy J. Ekrem, CPA
PC of the DME CPA group
Certified Accountants and Business Consultants
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