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You Received the PPP: NOW What?


In the April 15, 2020 edition of the Federal Register (see link below), beginning on page 20811, the SBA outlines the Interim Final Rule regarding the PPP program.  In those 7 pages, the Paycheck Protection Program “PPP” is described, but several questions remain. Our observations are based on our understanding as of this writing.   We will update you at least weekly as our understanding evolves during the coming weeks.

While the interim rule states that 75% of the PPP Proceeds “shall be used for payroll costs” it goes on to state that, “If you use PPP funds for unauthorized purposes” you will need to repay those amounts and could be subject to additional liability. Authorized purposes include:
  • Payroll, including wages (subject to an annualized limit of $100,000/employee) plus health insurance premiums and retirement benefits
  • Qualifying non-payroll expenses are limited to 25% of all qualifying expenditures. Besides payroll costs, qualifying expenditures include:
  • Cost of leasing space subject to a written lease effective before 2/15/2020
  • Utilities including phone, internet, gas, and water
  • Mortgage interest costs
PPP Proceeds not forgiven are considered a 2-year loan with an annual interest rate of 1%; the first monthly payment is deferred for 6 months after the funding date. Additionally, there are a number of tests regarding the levels of employment that you maintain during the 8 week measurement period that will determine how much of the PPP Proceeds may be “forgiven”. 
For now, we advise you to focus on the best long-term use of the money. We don’t know how long your business will be disrupted. You will need money to operate your business beyond the next 8 weeksSo, spending the money now for your staff to do nothing may deprive you of needed funds later that are subject to a very low rate of interest. Here are some practical steps to take when you receive the funds:
  • Hold in cash reserves any PPP proceeds received that exceed the “authorized” expenditures disbursed during the 8 week measurement periodFor example, if you receive $300,000 in PPP proceeds and you spend $225,000 on authorized payroll expenses and $25,000 on rent and utilities, you will want to preserve a bank balance of at least $50,000 as of the end of the 8-week measurement period.
  • Don’t immediately rehire employees who are on unemployment just to maximize loan forgiveness. We believe it is better to wait for more guidance as well as the results of the pending legislation. True, some of the money may have to be repaid, but the money is gone either way. We will comment further shortly after the new legislation is analyzed.
  • Do pay these bills:
  • Rent for your location, but not equipment
  • Utilities (gas, water, electric, phone, and internet)
  • Group Employee health/dental insurance premiums
  • A proportionate amount of Retirement Plan contributions (we will assist with this as well as with the other computations.)
  • Record the deposit into your accounting software separately from all other deposits. In your accounting software create a new income account called “PPP Proceeds”. PBM can assist you with setting this up
An 8-week clock starts on the date you receive the funds. Loan forgiveness depends on payments for qualified costs during those 8-weeks. We are building tools to help in the computations, but there are still unresolved questions that prevent calculating with confidence. Some of the unresolved questions are:
  • Will the start of the 8-week clock be changed in the next legislation?
  • How many hours per week constitutes a full-time equivalent (FTE): 30, 40?
  • What retirement plan costs are deductible?
  • If the loan is forgiven, what about the corresponding expenses? Will those also be deductible?
We will continue to advise on the PPP program at a minimum of once per week for the foreseeable future. Hopefully, new funding is passed by Congress today. If so, there may be more changes to the program. We’ll advise on those as well.


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