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The SBA has two loan programs to help small businesses impacted by COVID-19: Economic Injury Disaster Loans (EIDLs) and the Paycheck Protection Program (PPP). If your business is eligible, you can get both of these loans and use the funds at the same time, as long as you don’t use them for the same purpose.
What you can use PPP for.For PPP loans, the definition of permitted use is much narrower—to be eligible for forgiveness, at least 60% of the loan must be used to fund payroll and employee benefit costs. The remaining 40% must be spent on:• Mortgage interest payments• Rent and lease payments• Utilities• Operations expenditures such as software and accounting needs (like Bench)• Property damage costs due to public disturbances not covered by insurance• Supplier costs such as cost of goods sold• Worker protection expenditures to be COVID compliantThe PPP application will ask you to certify that you’re using the funds for payroll and other eligible expenses. If you spend the funds on something outside of those categories, you could be charged for fraud.If you spend the funds on the right things but not the right ratio (eg. you spend 60% of the funds on rent and 40% on payroll), you’ll be charged 1% interest on the funds outside of the ratio range. Unforgivable loan expenses are treated like a 5-year SBA loan—but again, “unforgivable” in this case means it’s still in the right categories, just not in the right 60/40 ratio of payroll to utilities/rent/mortgage interest.Keep in mind there are a few other stipulations for loan forgiveness as well, such as maintaining your headcount numbers, and keeping pay rates the same.
Yes! The SBA is currently taking applications, however you must first apply to your lender. Check out our overview for an up-to-date list of PPP lenders accepting forgiveness applications.The conditions of the Paycheck Protection ProgramLet’s first review the terms of using your PPP loan.The funds from your PPP loan can be used for the following purposes:• Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits• Mortgage interest—as long as the mortgage was signed before February 15, 2020• Rent—as long as the lease agreement was in effect before February 15, 2020 (here’s what’s included in rent)• Utilities—as long as service began before February 15, 2020 (here’s what’s included in utilities)• Operations expenditures—any software, cloud computing, or other human resources and accounting needs (like Bench)• Property damage costs—any costs from damages due to public disturbances occurring in 2020 and not covered by insurance• Supplier costs—any purchase order or order of goods made prior to receiving a PPP loan essential to operations• Worker protection expenditures—any personal protection equipment or property improvements to remain COVID compliant from March 1, 2020 onwardsFurther reading: How to Spend Your PPP Funds (Updated for 2021)All expenses that fall under the above listed categories are eligible for forgiveness. The following conditions will also apply:1. 8 to 24 weeks of expense coverageExpenses eligible for forgiveness are those that are incurred over the 8 to 24 week period, starting from the day you receive your PPP loan from your lender. This is not necessarily the date on which you signed your loan agreement.You do not need to adjust your payroll schedule. All payroll that your employees incur over the 8 to 24 week period is eligible for forgiveness, even if the actual payout date falls outside the covered period.2. The 60/40 ruleAt least 60% of your loan must be used for payroll costs. Payments to independent contractors cannot be included in the payroll costs. Your forgivable amount will scale in proportion to the percentage of your loan that you spend on payroll, up to the total loan amount.For example, if a business gets a $20,000 PPP loan, they would need to spend at least $12,000—60% of the loan—on payroll. However, they spend only $9,000 on payroll. This is 75% of the minimum payroll cost required for full forgiveness so their forgiveness amount is 75% of the loan. This means $15,000 of the $20,000 loan is forgiven, and they have to pay back the remaining $5,000.You can also find your maximum forgiveness amount from your payroll costs. Simply divide your total payroll costs by 0.6.3. Staffing requirementsYou must maintain the number of employees on your payroll. This is because the purpose of the PPP loan is to maintain jobs.Here is the calculation you can use to determine if you’ve met this requirement:First, determine the average number of full-time equivalent employees you had during:• The 8-week to 24-week period following your initial loan disbursement, (A)• February 15, 2019 to June 30, 2019, (B1)• January 1, 2020 to February 29, 2020. (B2)Take A and divide that by B1. Then take A and divide by B2. Use the larger number you obtain.• If you get a number equal to or larger than 1, you successfully maintained your headcount and meet the staffing requirement.• If you get a number smaller than 1, you did not maintain your headcount and your forgivable expenses will be reduced proportionately.Seasonal employersFor seasonal employers, you have more freedom in choosing a 12-week period that best represents your operations. Here is the calculation you must use.First, calculate your average number of full-time equivalent employees you had during:• The 8-week to 24-week period following your initial loan disbursement, (A)• For seasonal employers only, any consecutive 12-week period between February 15, 2019 and February 15, 2020 (B)Take A and divide by B.• If you get a number equal to or larger than 1, you successfully maintained your headcount and meet the staffing requirement.• If you get a number smaller than 1, you did not maintain your headcount and your forgivable expenses will be reduced proportionately.You must rehire employees to maintain your employee count before you apply for forgiveness. It’s best to check this calculation throughout your covered period to make sure you’re meeting the requirement. To help, we’ve answered the most common questions around PPP rules on rehiring employees.Exemptions on rehiring employeesEmployees who were employed as of February 15, 2020, and were laid off or put on furlough may not wish to be rehired onto payroll. If the employee rejects your re-employment offer, you may be allowed to exclude this employee when calculating forgiveness.To qualify for this exemption:• You must have made an written offer to rehire in good faith• You must have offered to rehire for the same salary/wage and number of hours as before they were laid off• You must have documentation of the employee’s rejection of the offerIf any of these conditions apply to an employee, you can also qualify for an exemption:• They were fired for cause• They voluntarily resigned• They voluntarily requested and received a reduction of their hoursYou may also be required to demonstrate you were unable to hire similarly qualified employees for unfilled positions, or document that due to safety requirements, you were unable to return to normal operating levels. Note that employees who reject offers for re-employment may no longer be eligible for continued unemployment benefits.4. Pay requirementsYou must maintain at least 75% of each employee’s total salary.This requirement applies to every employee that received less than $100,000 in annualized pay in 2019 or 2020 (depending on what year you used to calculate your PPP loan amount).If the employee’s pay over the 24 weeks is less than 75% of the pay they received during the most recent quarter, the eligible amount for forgiveness will be reduced by the difference between their current pay and 75% of the original pay.5. Rehiring grace periodFor PPP loans distributed in 2020, any rehiring must have been done before December 31, 2020.For PPP loans distributed in 2021, the SBA has not released any information on a potential grace period for rehiring employees. As of now, any rehiring must be done before the end of your covered period.Further reading: Safe Harbor Rules for PPP Loan Forgiveness
Yes! The SBA is currently taking applications, however you must first apply to your lender. Check out our overview for an up-to-date list of PPP lenders accepting forgiveness applications.The conditions of the Paycheck Protection ProgramLet’s first review the terms of using your PPP loan.The funds from your PPP loan can be used for the following purposes:• Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits• Mortgage interest—as long as the mortgage was signed before February 15, 2020• Rent—as long as the lease agreement was in effect before February 15, 2020 (here’s what’s included in rent)• Utilities—as long as service began before February 15, 2020 (here’s what’s included in utilities)• Operations expenditures—any software, cloud computing, or other human resources and accounting needs (like Bench)• Property damage costs—any costs from damages due to public disturbances occurring in 2020 and not covered by insurance• Supplier costs—any purchase order or order of goods made prior to receiving a PPP loan essential to operations• Worker protection expenditures—any personal protection equipment or property improvements to remain COVID compliant from March 1, 2020 onwardsFurther reading: How to Spend Your PPP Funds (Updated for 2021)All expenses that fall under the above listed categories are eligible for forgiveness. The following conditions will also apply:1. 8 to 24 weeks of expense coverageExpenses eligible for forgiveness are those that are incurred over the 8 to 24 week period, starting from the day you receive your PPP loan from your lender. This is not necessarily the date on which you signed your loan agreement.You do not need to adjust your payroll schedule. All payroll that your employees incur over the 8 to 24 week period is eligible for forgiveness, even if the actual payout date falls outside the covered period.2. The 60/40 ruleAt least 60% of your loan must be used for payroll costs. Payments to independent contractors cannot be included in the payroll costs. Your forgivable amount will scale in proportion to the percentage of your loan that you spend on payroll, up to the total loan amount.For example, if a business gets a $20,000 PPP loan, they would need to spend at least $12,000—60% of the loan—on payroll. However, they spend only $9,000 on payroll. This is 75% of the minimum payroll cost required for full forgiveness so their forgiveness amount is 75% of the loan. This means $15,000 of the $20,000 loan is forgiven, and they have to pay back the remaining $5,000.You can also find your maximum forgiveness amount from your payroll costs. Simply divide your total payroll costs by 0.6.3. Staffing requirementsYou must maintain the number of employees on your payroll. This is because the purpose of the PPP loan is to maintain jobs.Here is the calculation you can use to determine if you’ve met this requirement:First, determine the average number of full-time equivalent employees you had during:• The 8-week to 24-week period following your initial loan disbursement, (A)• February 15, 2019 to June 30, 2019, (B1)• January 1, 2020 to February 29, 2020. (B2)Take A and divide that by B1. Then take A and divide by B2. Use the larger number you obtain.• If you get a number equal to or larger than 1, you successfully maintained your headcount and meet the staffing requirement.• If you get a number smaller than 1, you did not maintain your headcount and your forgivable expenses will be reduced proportionately.Seasonal employersFor seasonal employers, you have more freedom in choosing a 12-week period that best represents your operations. Here is the calculation you must use.First, calculate your average number of full-time equivalent employees you had during:• The 8-week to 24-week period following your initial loan disbursement, (A)• For seasonal employers only, any consecutive 12-week period between February 15, 2019 and February 15, 2020 (B)Take A and divide by B.• If you get a number equal to or larger than 1, you successfully maintained your headcount and meet the staffing requirement.• If you get a number smaller than 1, you did not maintain your headcount and your forgivable expenses will be reduced proportionately.You must rehire employees to maintain your employee count before you apply for forgiveness. It’s best to check this calculation throughout your covered period to make sure you’re meeting the requirement. To help, we’ve answered the most common questions around PPP rules on rehiring employees.Exemptions on rehiring employeesEmployees who were employed as of February 15, 2020, and were laid off or put on furlough may not wish to be rehired onto payroll. If the employee rejects your re-employment offer, you may be allowed to exclude this employee when calculating forgiveness.To qualify for this exemption:• You must have made an written offer to rehire in good faith• You must have offered to rehire for the same salary/wage and number of hours as before they were laid off• You must have documentation of the employee’s rejection of the offerIf any of these conditions apply to an employee, you can also qualify for an exemption:• They were fired for cause• They voluntarily resigned• They voluntarily requested and received a reduction of their hoursYou may also be required to demonstrate you were unable to hire similarly qualified employees for unfilled positions, or document that due to safety requirements, you were unable to return to normal operating levels. Note that employees who reject offers for re-employment may no longer be eligible for continued unemployment benefits.4. Pay requirementsYou must maintain at least 75% of each employee’s total salary.This requirement applies to every employee that received less than $100,000 in annualized pay in 2019 or 2020 (depending on what year you used to calculate your PPP loan amount).If the employee’s pay over the 24 weeks is less than 75% of the pay they received during the most recent quarter, the eligible amount for forgiveness will be reduced by the difference between their current pay and 75% of the original pay.5. Rehiring grace periodFor PPP loans distributed in 2020, any rehiring must have been done before December 31, 2020.For PPP loans distributed in 2021, the SBA has not released any information on a potential grace period for rehiring employees. As of now, any rehiring must be done before the end of your covered period.Further reading: Safe Harbor Rules for PPP Loan Forgiveness
EIDL Refinance
Using a PPP loan to refinance EIDLSo what happens if you get an EIDL and later apply for a PPP loan? In that case, you may need to refinance the EIDL loan with the PPP loan. Essentially, you’ll get a bigger PPP loan and use part of it to pay off your outstanding EIDL.If the EIDL was not used for payroll costs, it doesn’t have any impact on your PPP loan. However, if you took out an EIDL before April 3, 2020, and used it for payroll expenses, you must refinance the EIDL by carrying over the EIDL balance into your PPP loan.Let’s look at an example of how that works. To calculate your maximum PPP loan, you take:• The lesser of $10 million, or 2.5 times a business’s average total monthly payroll amount for calendar year 2019• Plus the outstanding amount of any EIDL loan made between January 31, 2020, and April 3, 2020• Minus any EIDL advance you receivedSay Yami Yoga Studio’s average monthly payroll for the PPP loan amount calculation is $10,000 per month. At 2.5 times their payroll, the maximum loan amount would be $25,000. However, the business also received an EIDL in March of 2020, which has a balance of $15,000. The company could get a $40,000 PPP loan—that’s $25,000 plus $15,000 to pay off the existing EIDL—which is sent directly to the SBA.When it comes time for Yami Yoga Studio to apply for forgiveness, the company needs to document how it used the proceeds of both loans in calculating the 60/40 percent ratio.For example, say the company used $10,000 of the $15,000 EIDL to pay salaries of employees and the other $5,000 on rent and utilities.With the remaining $25,000, Yami Yoga Studio will need to spend at least $14,000 on payroll costs to reach the 60% threshold. The remaining $11,000 can be spent on other eligible expenses. Here’s a better look at the math:Loan amount Payroll (60%) Other eligible costs (40%)PPP loan - $40,000 $24,000 $16,000Less use of EIDL loan - $15,000 (10,000) (5,000)Remaining PPP loan proceeds 14,000 11,000PPP loan and EIDL advanceThe EIDL allows small business owners to request an advance of up to $10,000. While the SBA refers to this as an advance, it doesn’t have to be repaid, even if your EIDL application is ultimately rejected. The advance can be used for maintaining payroll, proving sick leave to employees, rent or mortgage payments, and other obligations.While the EIDL advance was originally deducted from PPP forgiveness amounts, this changed with the second stimulus bill released on December 27, 2020. The EIDL advance does not reduce your PPP forgiveness amount.The role of bookkeepingStaying on top of your bookkeeping is essential for both loan programs. Not only will it help you stay on top of what you’re using the funds for, but there are recordkeeping requirements for both loans.The PPP requires you to track your payroll, rent/lease, utilities, and interest expenses for mortgage payments to apply for forgiveness. We can help you stay on top of your expenses to help you get the entire loan forgiven.The EIDL, you may need completed financial statements for the past 5 years and for every year going forward.Basic Qualifications for Employers