Happy day to you. This is Ken Kaufman and I am thrilled you’re here for Episode 60: The PPP Loan Forgiveness. Now, under the CARES Act and in conjunction with the SBA and the treasury department, the government has put together this program called the Paycheck Protection Program or PPP loans and their objective is to basically help try to keep the economy going during COVID-19. There’s been a lot in the news about it. A lot of things going on around it. I wanted to just dedicate this episode to anyone who is working through that right now and in the process. I know I’ve heard that some of these PPP loans have just barely been funded even as most recently the recording of this episode, which is Friday, May 15th. This will go live probably in just a couple days on Monday. I wanted to just take a couple of minutes and give you a little bit of perspective on this and offer some help and then a free tool.
First of all, when the program was announced, we got very involved in the details, and there are to be clear still a lot of details that aren’t finalized or figured out. Congress, as we speak, is negotiating and talking through potentially changing some of the elements and requirements of the PPP loan and how to get forgiveness for it. But, as I know and see and understand the world today, I was doing all this research…or I should say the way I see the world today is based on all the research and understanding. Now, having helped basically 40 different PPP loans go through the processing and ultimately get funded, a big chunk of those were with the business where I’m the full-time CFO, and then I have some others just on the side that I was kind of helping and giving direction to and helping them think through how to go through the process.
So, now that we’re at this phase where most of the funds have been used up and probably we’ll see a lot more getting funded at least as of right now, there’s a lot of discussion about, “Okay, now, how do I get these funds forgiven?” Because the funds are being issued as a loan that are interest-free, payment-free for the first six months, and then it amortizes at 1% interest over the next 18 months. So, in essence, it’s a 24-month loan but the first 6 months that you have the money is free. SBA and treasury have worked together to say, “Hey, if you meet and follow these certain requirement sand guidelines, you are going to be able to get some, if not all, of those loan proceeds forgiven.”
I’ve gone through and worked with my team and with others, and there have been some spreadsheets circulating around the internet but basically we’ve got a really good, solid cadence now about what’s it going to take to get forgiveness and how does it work at least based on the rules today. And so I want to make an offer to anyone who’s struggling with thinking through forgiveness or how to calculate it or how to go through it, just send me an email at firstname.lastname@example.org, and I can send you a spreadsheet that [inaudible 00:03:19] and does the calculations. Now, I’m not claiming to be giving tax advice or legal advice. This is just a document that we’ve been working on and trying to figure out or trying to make it easy to just plug numbers in and then watch and see what happens. It can help make some decisions about how you’re spending money during the 8-week cover period and so on and so forth.
If you are a Schedule C tax filer for your business, so that means either your sole proprietor or you may have an LLC but it’s a single-member LLC and it’s disregarded for tax purposes and all your income from your business efforts are flowing through that Schedule C, which is part of your personal tax return in a 1040 form. If that’s your situation, one of the really nice things is that the SBA and treasury have just said, “Hey, we are going to automatically forgive 8 weeks’ worth of your 2019 profitability.” Whatever that profit number is on your Schedule C from those business activities, if you take that number, divide by 52 to get down to your weekly average and then multiply it by 8 to come up with the 8-week average, that is the amount that is basically automatically forgivable. And then you have the ability, if you’ve got payroll and you’re getting forgiveness for some of that and then the fixed cost which includes your rent, mortgage interest, any leases, especially if you have automobiles related to your business and the delivery of your products and services to whatever degree that applies, all your utilities including mobile phone and internet, all of these things come together and there’s percentages and things. So then there’s a lot online and some of those could end up changing anyway, so I don’t want to spend too much time on this podcast going into the details of exactly what is forgiven but there are some things that are really clear. For Schedule C filers, it looks really nice and clean.
And then for those that aren’t Schedule C filers, payroll and those fixed costs will still stay the same in terms of forgiveness. You do want to make sure that you’re into doing anything that’s over the top on self-dealing. If you’re on payroll and raising your wages dramatically or raising your wife’s wages dramatically or husband’s, just making sure that all that stays above board is pretty important and pretty critical if you’re an S corp or you have some other structure or you’re running payroll for yourself.
I hope this just taking a quick minute to talk through the PPP loan forgiveness process is helpful. All of this won’t happen until after June 30th and there’s a couple of reasons I think why that is but mostly because there is a way to overcome, if you haven’t restored all your positions or haven’t hired everybody back, as long as you get them hired back by that June 30th date, you have the ability to go for 100% forgiveness on those eligible payroll costs. At least it can’t be more than $15,385 during the 8-week period because that would mean the person’s over $100,000 and you can only count the wages up to $100,000 and no wages that would be the equivalent to over $100,000-year salary. I’ve done all the math to figure that out. This spreadsheet I’ve got actually will run all that math automatically for you if you plug the numbers in.
The opportunity to get forgiveness won’t be until after the June 30th date because that’s when the quarterly payroll taxes are finished, and they would have the ability…it would document that you’ve added those employees back and the timing of when you added them back and how much they made during that quarter. Some of the 8-week covered periods are going to stretch beyond June 30th but, as of right now, June 30th is the date and you need to make sure that you’re documenting through the process everything you’re spending money on. Some people created a separate bank account and put their PPP funds in there, but everything I’ve heard is that’s turned into a bit of a nightmare because they pay their payroll out of a different account or they have automatic drafts and withdrawals for some of their rent and mobile phone costs and internet costs and things from other accounts. That maybe hasn’t played out perfectly.
Ultimately you just need to be able to document and show all the way through the process that you were charged for something, that you did receive the product or the services related to it, and then tie all the way back to your bank account and the money going out. If you pay for some of these things with a credit card, you ultimately will need to likely show the credit card statement where the charge appeared and then that you made the payment on that credit. You can see the forgiveness is it may not be until July or even after where businesses can really get all their documentation together and go to their bank and present their forgiveness case in terms of how much of the loan should be forgiven.
Again, I hope this is helpful. email@example.com. Send an email there. I can send you a Google sheet link, and I’ll give you View Only access, and then all you need to do is make a copy of it, and then you can save that privately into your own Google Drive, and nobody will have access to it or see it other than you or anybody you want to share it with, and then you can use that to your heart’s content. Again, hope this has been helpful. Many, many thanks to you for joining today. This is a wrap for Episode 60. Happy day!