PPP Forgiveness Best Practices

Brian Martucci of Money Crashers

The Paycheck Protection Program (PPP) helped to fund many businesses, including senior care facilities, during the COVID-19 pandemic. This Small Business Administration (SBA) loan helped businesses to keep their employees employed, and if businesses used the funds for eligible expenses, the funds could be forgiven.

The PPP loan is a new program and guidelines regarding the loan and its forgiveness have been gradually released. Facilities that anticipate applying for loan forgiveness (or already have) can stay ahead of the game by reviewing the best practices below.

Requirements for Loan Forgiveness

The SBA outlines specific requirements for loan forgiveness. While originally a loan could be fully forgiven if 75% of funds were used for payroll costs, that figure has been updated to 60%. To date, a loan can be fully forgiven if at least 60% of the fund is used for payroll, and the rest of the funds are used for interest on mortgages, rent, and utilities.

Keep in mind that loan forgiveness is based on a business either maintaining or quickly rehiring employees while maintaining their salary levels. If a business’ number of full-time employees declines, or if salaries decrease, then loan forgiveness will also decrease.

Best Practices for PPP Forgiveness

To maximize your business’ chance of having a PPP loan forgiven, you’ll need to take specific and deliberate action. Brian Martucci of Money Crashers notes that the most important thing that any borrower can do is to use the PPP loans for forgivable expenses, including payroll, mortgage interest, rent, and utilities.

In addition to properly using those funds, it’s equally important to verify those expenses with documentation. Martucci recommends tracking expenses with:

  • Verification of full-time status for each full-time employee on your payroll
  • Salary or wage rates for each full-time employee
  • Mortgage documents
  • Real estate lease agreements
  • Evidence of rent paid
  • Any applicable utility bills

There’s been significant confusion around the SBA’s definition of “payroll expenses,” and that could mean less loan forgiveness than you’re anticipating. According to Martucci, the following expenses qualify as payroll expenses for the PPP loan:

  • Salaries, wages, tips and commissions, up to $100,000 annualized per employee
  • Employee benefits, such as paid leave and vacation time, group insurance benefits, severance pay, and retirement benefits
  • State and local employer-paid payroll taxes
  • Self-employment income and income from contract work, up to $100,000 annualized per employee

Martucci notes that many employers assumed that employees with high salaries – those over $100,000 – are also eligible for full forgiveness. “As you can see, that’s not true — forgiveness is capped at $100,000 annualized per employee,” notes Martucci.

Keep in mind that the PPP loan is a low-interest loan with a 1% interest rate, so even if your senior care facility doesn’t qualify for full forgiveness, this is a more affordable loan to carry. If your loan was issued before June 5th, it has a 2-year maturity. A loan issued after June 5th has a 5-year maturity.

Moving Forward

To apply for PPP loan forgiveness, you will need to apply through your lender, not directly through the SBA. Your lender will provide forms and guidelines for their own processes. Martucci notes that if your lender denies your forgiveness application, you have 30 days to ask the SBA to review the lender’s decision. “Borrowers can also directly appeal the SBA’s decision to deny forgiveness, though there’s as of yet no data on the rate at which forgiveness denials have been overturned,” he explains.

Martucci ends with a word of caution: “There’s a lot of noise around PPP loans in general and forgiveness in particular. Frankly, a lot of unscrupulous people are eager to take advantage of business owners with limited SBA borrowing experience. Your best source of legitimate, accurate information about PPP is the SBA itself — not third parties with something to sell. It goes without saying that you should not pay anyone who claims to be able to work some magic with regards to PPP loan forgiveness. Stick to the best practices outlined here.”

For additional information, review the Money Crashers PPP Guide for Small Business Owners, and check the SBA website regularly for updates.

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