22 Apr Preparing for Loan Forgiveness Under the Paycheck Protection Program (PPP)
In preparing for receipt of any funds from the Paycheck Protection Program Loan (PPPL), one should consider setting up a separate bank account to deposit the PPPL funds in and then to pay out expenses that qualify for loan forgiveness. First, let’s review section 1106 Loan Forgiveness under the CARES Act. It states, Borrower shall be eligible for loan forgiveness equal to the amount spent by borrower during an 8-week period after the origination date of the loan on:
- payroll costs (wages up to $100,000 annually per employee, health insurance, and some state taxes)
- interest payment on mortgages incurred prior to February 15, 2020,
- payment of rent on any lease in force prior to February 15, 2020 and;
- payment on any utilities for which service began before February 15, 2020.
Recent updates also stated that 75% or more of the loan forgiveness needs to be for payroll. So, our suggestion is to open a bank account specifically for the PPPL proceeds and qualified expenses listed above. They have the qualified expenses listed above paid out of that account, and hopefully this process will make is easier for banks to see the qualified expenses were paid using the PPPL proceeds and hopefully allow for an easy process for the loan forgiveness. This PPPL process has been challenging for more applicants, so perhaps this separate bank account will make it easier is requesting for loan forgiveness in the future. As long as the business sets up the bank account early and requests checks, then we would expect these qualified expenses can be paid out of this designated account.
Please note this is not a full explanation of the CARES Act or the PPPL program. For more information please review our previous posts and speak with your tax advisor.
Please contact us if you have any questions.