The Paycheck Protection Program (PPP) created under the CARES Act grants loans to small businesses to keep employees on the payroll amid the ongoing coronavirus pandemic. Many payroll service providers would like to remind business owners about renewing their loans and applying for possible forgiveness. Here’s a short overview of the matter.

What Can PPP Loans Cover?

The primary purpose of PPP loans is to fund eight weeks of payroll expenses for small businesses affected by the COVID-19 pandemic. According to guidelines, at least 75% of the loan proceeds should go to payroll costs, including wages, salaries, paid leaves, allowances for dismissal or separation, and employer contributions. It can also be used to settle non-payroll expenses, such as mortgage interest payments, leases, and utilities, incurred during the applied two-month period.

Once funds are disbursed, borrowers have to use these within the following eight weeks. It means that companies cannot hold on to the proceeds in anticipation of targeted business reopening beyond the covered period.

How Does Loan Forgiveness Work?

The most enticing incentive of the program for business owners is loan forgiveness. For this reason, many are eager to apply for loans without fully understanding the set guidelines. If you fail to qualify under the forgiveness program, you have to make loan payments for two years with 1% interest.

Forgivable PPP loans only apply to properly disbursed funds for eligible payroll costs and non-payroll expenses, with the latter capped at 25% of the loan amount. Bear in mind that the forgiven amount is reduced when either full-time headcount or salaries decrease, but not if a laid-off employee refuses to be rehired. Consult a payroll services professional or accountant to know what can affect loan forgiveness under PPP.  

What Is the Required Documentation?

During the loan application process, you have to submit documents detailing payroll costs and eligible interest payments, rent, and utility expenses. It’s best to ask your payroll services provider, but it will include payroll reports, tax filings, and documents on employer contributions. Ensure that you also include the application for loan forgiveness, as its approval process will likely take weeks.

Learn more about PPP loans by consulting a payroll services professional at William G. Molitor, CPA, in Saint Peters, MO. Since 1990, their certified public accountants have helped individuals and business owners across the St. Louis metropolitan area with tax planning and preparation, accounting, payroll services, and bookkeeping. Call (636) 926-0502 to set an appointment or visit them online.