Many of our clients are beginning to see EIDL funds hitting their business accounts, especially up to the $10,000 grant (or $1,000 per employee).  There are a number of questions surrounding the EIDL and PPP loans.  Here are our latest thoughts on many of those questions:

  1. EIDL Loan and Advance Payment
    1. Here are some important steps to follow when and if you receive your EIDL loan and advance payment.
      1. If possible, hold off on spending this money until further guidance is given.
      2. Any advance payment that does have to be repaid will reduce your forgiveness portion of your PPP loan.
      3. It may be possible to roll your two loans together.
      4. It’s important to keep your EIDL loan proceeds separate from your PPP loan proceeds and to not use EIDL loan proceeds on any items described below that you will be seeking forgiveness for on your PPP loan.
      5. To keep your EIDL loan proceeds separate, some may want to open a new bank account to house that money temporarily. While this is not a bad idea, it’s not essential. You can also move the money to an existing savings account.
      6. If you must use this money before we have more guidance, use it for business expenses OTHER THAN PPP-qualifying expenses.
  2. PPP Loan
    1. If you have not already filed for you PPP loan, you will want to get your application in now.  If your bank is no longer accepting applications and we’ve not already sent you a list of other banks that may be accepting applications let us know and we will send you a list of potential banks to apply.
    2. How to Spend the Money
      1. Some of you have already or will be receiving your PPP loan shortly.  How and when you spend those funds is important.  Please note that the guidance on the time frame and how the funds are spent is not finalized, we expect changes during the next couple of weeks.  But here are some broad guidelines in order to obtain forgiveness of the PPP loan proceeds:
      2. You must spend the fund within 8 weeks from the time you receive the funds.
      3. At least 75% of the PPP funds must be spent on payroll costs.  There is some area for interpretation here but generally includes:
        1. Gross payroll but does not include employer payroll taxes such as FICA and Medicare.  If you pay an employee $4,000 and withhold payroll and income taxes of $1,000, and the employee receives a net check for $3,000 then you count $4,000 as being included as a forgivable portion of the PPP loan.
        2. Medical insurance for group health coverage.
        3. Retirement plan contributions. We do not know if retirement plan payments are limited to 8/52 (8 out of 52 weeks) of the entire amount for the year (especially since we don’t know the amount for the current year yet), or if more/less can be put into the plan.
        4. If you are incorporated, you will want to pay yourself no less than $15,385 during this 8 week period. You can pay yourself more but remember you cannot count more than $100,000 per year so that limits you to $15,385 over 8 weeks. The same applies to sole proprietors and partners in partnerships. Distributions from an S-corporation should not come into play.
      4. Non-payroll costs – Up to 25% of the PPP loan proceeds may be used for certain non-payroll costs which would qualify for forgiveness as well.  Guidance is also needed in these categories, as there are many questions.  These categories include:
        1. Rent for a lease obligation in effect before Feb 15, 2020.  Can you pay more than two months?
        2. Interest on mortgage payments for debt incurred on real property in place before Feb 15, 2020.  Principal or prepayments do not qualify.
        3. Any other liability incurred before Feb 15, 2020.  Presumably this would include debt for equipment or practice purchase.  Not clear if this is interest only.
        4. Utilities including electricity, gas, water, transportation, telephone, or internet access for which the service began before Feb 15, 2020.
      5. Your PPP loan forgiveness may be reduced if you fail to hire enough employees during the 8 week period.  There is much confusion on what this means, do you have to have the same number of employees during the entire 8 weeks or just the same number by the end of the 8 week period.  We will clarify once we have some guidance.
    3. We have developed a PPP Loan Tracker to help with the following:
      1. Assist in keeping track of how you spend your PPP proceeds
      2. NOTE: this is a work in progress, and will be updated as we get more details on the forgiveness formulas.
      3. For now, this can give you a basic idea of how much money is spent, and how much you should spend in the different categories.
      4. As details emerge, we can consult with our clients individually to optimize forgiveness.
      5. If you would like a copy of our PPP Loan Tracker, please reach out to your personal tax professional for assistance.

Thank you again for your patience during these uncertain times.  It is good to see some of these stimulus funds making their way to our small business clients.  Hopefully, the information above will answer some of your questions for now.  We will keep you posted as we get more information.