Life Area: Professional
Topic: Paycheck Protection Program
Another View of PPP
This blog post is for my clients and audience member businesses, sole proprietors, and independent contractors that received or will receive Paycheck Protection Program (PPP) funds.
If you were lucky enough to be allocated some of the PPP money, congratulations, many applied but few were selected. The money from the first tranche of the program dried up in just 13 days, the second tranche was gone in less than 24 hours!
So, I know what you are thinking based on my interaction with clients: “I must spend all this money so I can get it all forgiven.” My advice is to: Get that thought out of your head!
The new Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Emergency Injury Disaster Loan (EIDL) and the Families First Coronavirus Response Act (FFCRA Act) initiated various loan programs, tax credit programs, and deferral programs that all intermingle with one another. If you opt for one program, it may preclude you from using another one of the programs.
Your goal should not be to spend all the proceeds so that everything is forgiven. If that happens, great, but that should not be your goal.
PPP is a two-step process
The Paycheck Protection Program is a two-step process:
- Get the Money – you did that!
- Spend the Money – this is what this blog post is about, and the calculations are a little tricky when it comes to what is forgivable or not!
Your goal should not be to spend all the proceeds so that everything is forgiven. If that happens, great, but that should not be your goal. You received this money to pay for expenses in the normal course of business over a designated eight-week period. You should spend the money as you would in the normal course of business based on your cash forecasting. The driver for spending the funds should be made on an economic basis, not based on making an expense forgivable.
The forgivable expenses are pretty straight forward. If you have to ask yourself “Does this expense qualify to be forgiven?” – it probably doesn’t. I have listed the qualifying expenses below. Simply put, qualifying expenses are payroll and related (at least 75% of the PPP funds) and certain business expenses including mortgage/lease payments and utilities (can not exceed 25%).