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Received Your SBA PPP Loan. Now What?

  • May 12, 2020 by hamiltontharp
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For those of our clients who have received their PPP loan and endured the painful application process, we have just one word to share – Congratulations!!!! Now what?

Now, you are on the clock! You have 8-weeks to determine how much of that loan will have to be returned and how much of that loan may be forgiven.

In our opinion, we think most of our clients will be left with some amount of loan. We hope that this article will provide some guidance that can be used to help you through this 8-week time period and to maximize what your loan forgiveness will be. With that said, we must qualify our comments in that there remains many unanswered questions and the SBA still must provide guidance to those answers. Accordingly, some of our comments and observations could be incorrect based on our present interpretations.

Based on our experience with the application process, the banking industry had developed their own due diligence rules and the documents required varied from bank to bank and how they interpreted what was includible costs. Be prepared for potential conflicts once the 8-week time period ends and you enter the “loan forgiveness” stage.


The SBA guidance provides that the PPP loan must be used only for qualified expenditures and if not used properly, the fine print of the loan document has a very heavy statement. “If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud”. We know that our clients would never knowingly misuse the funds, but we would be negligent if we did not share that statement with you.


The good news is that the categories of what you can use the loan proceeds for are limited. They are made up of “Payroll Costs” and “Non-Payroll Costs” which are defined as follows:

PAYROLL COSTS- At least 75% of PPP Loan

  • Generally, your gross payroll(wages); For a partnership, guaranteed payments.
  • Any compensatory payments that exceed $100,000 on an annualized basis are not included as qualified payroll costs. (Maximum of $15,384.64 for an 8-week period)
  • It does not include the employer portion of Federal payroll taxes, such as FICA or Medicare.
  • It does include some state and local taxes, such as SUTA and ETT for California.
  • Payments for group medical, dental, and vision insurance.
  • Employer paid retirement plan contributions.

NON-PAYROLL COSTS – Remaining 25% of PPP Loan

  • Rent payments based on a lease agreement.
  • Utility expenses such as gas, electricity, phone, and internet services. Services must have begun before February 15, 2020 to be included.
  • Mortgage interest on real and personal property incurred before February 15, 2020.
  • Interest payments on any other debt obligations that were incurred before February 15, 2020.
  • What time period do I have to make these expenditures over?
  • Are the qualifying costs based on paid or accrued?
  • What documentation do I need to keep?

As mentioned above, you have 8-weeks starting from the time your loan hits your bank account. Unlike a tax return, no extensions are allowed.


With respect to documentation, go overboard with organization and expect that you will have to provide your banker with copies of everything. Here are some of the steps we are recommending to our clients:

  • First, set up a separate file for qualifying expenditures and as the expenditure is made, take a copy of an appropriate supporting document and file it away.
  • Make sure you have a copy of your lease.
  • Take copies of all utility payments including showing the account was in existence as of February 15, 2020. This includes traditional gas, electric but also phone and internet bills.
  • Provide copies of any debt agreements as of February 15, 2020 to show the date of the mortgage as well as any other qualifying loan document. The amount of interest can be included as a qualifying expense.


The computations for purposes of the loan forgiveness creates some traps and could result in a significant portion of the PPP loan not being forgiven. In the mad rush to apply for the PPP Loan, many businesses did not spend a lot of time on the loan forgiveness computations. The following are some of the traps that will limit the forgiveness amount and we will spend time doing a deeper dive into each of the traps.

  • Your non-payroll costs may be limited based on the above.
  • Your “Full-time Equivalents (FTE)” counts come up short during the measurement periods.
  • You have reduced individual employee compensation by more than 25% during a covered period.

If you maximized your PPP loan by using your “average monthly payroll” costs from 2019 and then multiplied that by 2.5 to determine your loan it will be difficult to achieve 100% of forgiveness unless everything aligns in your favor. With that said, let us address each of the above items that may limit your forgiveness.

“Full-time Equivalents (FTE)” CALCULATION IS IMPORTANT:

  • If your employee count in 2019 was the same as 2020 and, there has been no reduction in wages, you probably will not have a problem and the FTE count exercise will probably not impact you other than to calculate the FTE’s in the measurement period.
  • If your current FTE’s are less than the period starting February 15, 2019 to June 30, 2019 you need to go through this calculation to determine if there needs to be a % reduction in your qualified wages.
  • If your current FTE’s are less than the period starting January 1, 2020 through February 29, 2020 you need to go through this calculation to determine if there needs to be a % reduction in your qualified wages.
  • If you reduced your FTE’s between February 15, 2020 and April 26, 2020 you need to go through this calculation to determine if the % reduction can be mitigated if you hire back by June 30, 2020
  • The calculation of your FTE’s will be part of the required documentation to submit to your bank when it is time to ask for loan forgiveness.
  • It appears that the SBA defines a “Full Time Equivalent (FTE)” as an employee that works 30 hours or more. Anyone that works less than 30-hours is considered a part-time employee. However, you can add up the total hours of your part-time employees and make a conversion to an FTE for purposes of these calculations.
  • The rules regarding the computations refer to “the average FTE’s” calculated during the measurement periods. We take this to mean that you must look at each pay period and do the FTE calculation for each payroll. You then take the total of the FTE’s in each payroll and divide by the number of payrolls in the measuring period.
  • Payments to independent contractors (1099 recipients) do not count as a payroll expense.


  • Set up an excel file to create a schedule that shows the qualifying payroll expenses, the nonpayroll expenses, and your FTE counts.
  • On a weekly basis update the schedule to show the cumulative qualifying payroll and qualifying non-payroll costs that have been paid.
  • Add to those totals the projected amounts to be paid in the remaining 8-weeks.
  • Using your PPP Loan proceeds as the denominator and the expected qualifying payroll costs as your numerator calculate the percentage.
  • If your percentage is on track to exceed 75% of the total loan proceeds that is a positive sign towards maximizing your forgiveness. This is the most important calculation because it impacts how much of the qualifying non-payroll costs will be considered for purposes of the loan forgiveness. If the percentage is less than 75%, start to plan accordingly.
  • Finally, review your expected qualified non-payroll costs for the 8-week period. Will the projected totals exceed 25% of the loan forgiveness? If not, look for ways to fill that gap. As a reminder, if the total qualified payroll costs exceed 75% of the PPP loan you just need to fill the gap which is the difference between the PPP loan and your qualified payroll costs.


  • We will need guidance as to what was the intent of the “payments made” or “costs incurred” language in the present guidance.
  • We think the definition of an FTE is 30-hours of work per week. However, this needs to be confirmed.
  • The SBA still needs to provide addition guidance on the calculations related to the “Restoration Test” as discussed above. This is confusing as written and is a very meaningful part of the CARES Act.
  • The CARES Act specifically says that any PPP loan proceeds that are forgiven are not taxable income. That is the good news. However, there is a provision in the Internal Revenue Code that says that any expenses paid with non-taxable income are not deductible. Stay tuned for guidance!
  • Will the states follow federal and not tax the forgiven PPP loan proceeds?
  • Will there be rules that limit companies from increasing payroll costs for selected employees during the 8-week measurement period?
  • What happens if you receive your PPP loans on May 15th? Do you only have 6-weeks in your “covered period”?
  • Guidance for the self-employed Schedule C borrower will need to be provided as to what nonpayroll costs can be included in their computations for loan forgiveness.
  • The SBA guidance for purposes of defining a salary reduction of more than 25% for an employee during the 8-week period needs clarification. They indicate you use the previous quarter which consists of 12 weeks and compare that to the 8-week period for purposes of the computation. This does not make sense.
  • How do you handle retirement plan contributions if historically a decision is not made until year-end? It may be that only 401k matching contributions may count.

We understand the PPP Loan Forgiveness step is confusing and we are here to help you and answer any questions you may have. We anticipate additional guidance from the SBA to be released in mid- May and will keep updating the information as it becomes available. As always, visit our dedicated COVID-19 Resource Page for continued updates and alerts.

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