This article first appeared in Boston Business Journal’s Internet network location.
The Small Business Administration’s Payment Check Protection Program is now up and running – at least for some creditors – and comes with new rules on how much small businesses can pay their employees and still get full forgiveness.
Small businesses are still limited to salary caps of $ 100,000, annualized over the period during which the company spends the proceeds of the PPP loan. But the covered period, which used to be a choice between eight weeks or 24 weeks, is now any number of weeks between eight and 24, which means that every small business will have to watch their spending carefully.
Experts agree that this means that the maximum amount a company can pay to any employee is $ 46,154, which is equivalent to 24 weeks’ salary for an annual salary of $ 100,000, according to Sonia Desai, director of forensic services and litigation at Munsch Hardt Kopf & Harr PC. But that means that if a small company depletes its PPP funds in week 16, for example, the maximum it could pay an employee and still obtain total forgiveness is no more than $ 30,769.
In short, the employee’s pay is limited to $ 1,923 per week for up to 24 weeks. And this rule applies to both first PPP loans and so-called “second draw” PPP loans for the most affected companies that have already received an initial loan last year. Companies still need to spend at least 60% of the loan proceeds with payroll costs to obtain total forgiveness.
As for the entrepreneurs themselves, they still operate with a lower salary cap that was set during the first round of the PPP last year, according to Vijay Khetarpal, president and CEO of Integrity Financial Group, a financial consulting firm. That lower limit is $ 20,833. This means that if the PPP loan is spent quickly, as in eight weeks, the limit will be reduced to $ 15,385, or $ 17,308 for a period of nine weeks.
Small business owners need to keep these limits in mind while deciding how to spend the resources on the new PPP loan, according to Christina Moore, a partner at the Taylor English Duma LLP law firm, based in Atlanta but with offices across the country . “They should be thinking about maximum homeowner compensation limits, just like they did in the first round of PPP loans,” said Moore.
As in the first round of PPP loans, bonuses and extra remuneration are allowed, as long as the limits are not violated. And small business owners should note that it is not just the salary that is added to the general compensation – it includes vacation pay, parental leave, family leave, sick leave, as well as severance pay, employee benefits such as health insurance or group living, retirement payments and even state and local taxes levied on employee compensation.
Although the SBA published guidelines before implementing the program, Desai advised small businesses to keep track of where the SBA can update its guidelines or change aspects of the program. “The SBA has indicated that additional rules related to second draw PPP loans will be published separately, so the forgiveness rules related to second draw loans may or may not change from what we know now,” she said.
The reopened PPP window allows small businesses to apply for their first PPP loans, largely under the original program rules when it was launched last year, including a $ 10 million loan limit and a loan size limit. approximately 500 employees, although this may change depending on the type of business and industry. PPP borrowers can spend up to 40% of the loan proceeds on business expenses such as interest on mortgages, interest payments, rent and an expanded set of costs, including property damage, supplier costs and personal protective equipment.
Small businesses with up to 300 employees and who saw at least a 25% quarterly revenue reduction in 2020 compared to the same quarter in 2019 will also be able to apply for a second PPP loan of up to $ 2 million, according to the agency guidance. The program has also expanded to include news organizations, destination marketing organizations and non-profit organizations categorized as 501c (6), which includes local chambers of commerce and commercial organizations.
We have already detailed some of the pros and cons of this next round of PPP and who qualifies. This is in addition to a separate $ 15 billion grant program for live venues and theaters – applicants can only apply and receive funds from one or the other.