ValueXpress has processed roughly 20 Paycheck Protection Program (PPP) loans for its clients. The loans are forgiven if the proceeds are used for eligible expenses for the 8-week period after closing of the loan. The recipient of a PPP loan will have the following portion of the loan forgiven:
- payroll costs, including the employer portion of payroll taxes up to 100% of the loan amount, and any of the following expense that, in total, do not exceed 25% of the loan amount:
- certain employee benefits relating to healthcare,
- interest on mortgage obligations for loans closed prior to the PPP loan closing date,
- utilities, and
- interest on any other existing debt closed prior to the PPP loan closing date.
It is anticipated that the SBA and/or the IRS may audit borrowers to ensure compliance with forgiveness rules. ValueXpress is advising clients to create a file with copies of bills and checks for the 8-week period after the loan closes. It is important to create a spreadsheet of eligible expenses paid compared with the loan amount. The spreadsheet should contain a column that includes the 25% limit for non-payroll costs. If eligible expenses paid during the 8-week period after the loan closes do not exceed the PPP loan amount, the balance is not forgiven and must be paid back to the lender with interest charged at 1.00%.
Some PPP borrowers who have reduced staff may have difficulty reaching full eligibility for 100% forgiveness. Borrowers contemplating “prepayment” of payroll and other eligible expense prior to the expiration of the 8-week period may find those payments disallowed for forgiveness.