Ensuring Maximum Forgiveness on Paycheck Protection Program (PPP) Funds Under the CARES Act

As a result of the Novel Coronavirus (“COVID-19”), the federal government has passed significant legislation in an attempt to provide relief to businesses struggling with economic hardships as a result of widespread closures and stay-at-home orders.  One major part of these governmental actions includes the passage of the Coronavirus Aid, Relief, and Economic Security Act (also known as the “CARES Act”) on April 2, 2020.

The CARES Act provides for approximately $2 trillion in aid through expanded unemployment assistance, individual relief checks, tax credits, loans, and grants to businesses which were closed or significantly effected by COVID-19, and funding to hospitals and health care facilities. Of this, approximately $350 billion was allocated to the CARES Act’s Paycheck Protection Program (“PPP).   When that money was almost immediately sought by the millions of businesses seeking assistance, an additional $175 billion was additionally allocated.

The PPP limited its funding to each company to two and a half times the company’s average monthly payroll costs.  While the PPP is considered a loan program, the funds may largely (or entirely) be forgiven as long as the company uses the funds for approved expenses. The details of exactly which expenses would be considered approved and how these funds could be used has been the subject of much uncertainty over the past several weeks.  Indeed, the SBA (Small Business Administration) has posted additional rules and guidance on the matter more than 10 times in two months.

In order for the PPP funds to be forgivable, in the 8 week period following the company’s receipt of the PPP funds, the company must use these funds only for the following expenses:

• Payroll costs (for employee’s whose principal place of residence is the United States, salary, wages, commissions, cash tips or the equivalent based on recorded history, payment for benefits such as group health case, taxes on employee compensation, etc., not exceeding a $100,000 salary as prorated for the covered period); and
• Nonpayroll costs including only:
  • Interest payments on any business mortgage obligation on real or personal property that was incurred before February 15, 2020 (but not any prepayment or payment of principal);
  • Business rent obligations on real or personal property under a lease agreement in force before February 15, 2020; and
  • Business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

Payroll costs must account for at least 75 percent of the PPP funds.  Nonpayroll costs cannot be used for more than 25 percent of PPP funds for the funds to be forgivable.

PPP are not automatically forgiven. If a company is looking for the funds to be forgivable, then the company must complete and submit a Loan Forgiveness Application with their lender. The lender then has 60 days to issue a decision to the SBA as to what funds should be entitled to forgiveness. If any portion of the PPP funds are determined to not be forgivable, then the company must repay the loan within two years with a 1 percent interest rate.

The amount of PPP funds which may be forgiven may be reduced by a reduction in pay to employees and/or a termination or layoff of employees in some situations.  However, employers can avoid this by restoring salaries and/or employees to their positions by June 30, 2020.

The attorneys at McLaughlin & Nardi, LLC are continuously monitoring the ever-evolving and expanding rules and procedures in relation to the CARES Act and are able and available to assist with determining if your business qualifies for the above assistance, and to assist you with navigating through the requirements for PPP forgiveness.  We are and will continue to be here for you and your business during these particularly difficult times to assist in navigating these new laws as they develop.  To learn more about what we may be able to do to help, please contact us by e-mail on the contacts form on this page, or telephone at (973) 890-0004.