updated - October 29, 2020 Thursday EDT
The coronavirus pandemic has impacted everyone. One of the major side effects of this public health crisis has been the development of an economic crisis as well. While numerous small businesses trying to figure out ways to keep their doors open, the Paycheck Protection Program, also called the PPP, has been a welcome respite from the stresses of running a business during the pandemic. At the same time, it is important for all small businesses to remember that these funds are loans. They have to be paid back unless the business qualifies for loan forgiveness. How can a small business maximize their chances of being approved for loan forgiveness? There are a few points to keep in mind.
First, all small business owners need to make sure that their lines are used for eligible expenses. The vast majority of these funds need to be used to cover the cost of keeping employees on the payroll. Only a certain percentage of these funds can be used for utilities. They are already stories about people committing fraud and using funds from the PPP for personal and ineligible expenses. Do not do this. The loan will not be forgiven and some people might even end up facing criminal charges.
Second, make sure the employee headcount is kept out. All small business owners who received funds through the PPP need to make sure that they maintain a consistent number of full-time equivalent employees, usually shortened to FTEs during the course of the pandemic. If this number changes, small business owners need to document any and all attempts to get that employee to return to work. Some employees may not want to come back because unemployment benefits have been increased.
Third, small business owners need to make sure that they do not reduce the wages of an employee by more than 25 percent. If the wages are reduced, this could lead to issues with the FTEs discussed above. If an employee's wages are reduced, it is important for small business owners to document why and ensure they have the documentation stored safely in case the government wants to see it. The goal of the PPP is to provide funds that allow small business owners to keep their employees fully funded without having to drastically increase their own overhead expenses. If a small business owner cuts an employee's wages, this defeats the purpose of the program.
Finally, it is important for all small business owners to make sure that they document everything. When it comes to payroll for franchises, there can be a lot of moving parts for franchisees, so it is always better to over-document than under-document. The government is going to want to see proof of how the funds were spent. This proof is going to be necessary in order to qualify for loan forgiveness. The only way this is going to happen is if the small business has all of the documentation ready to go. Advanced software programs can help with this, but make sure your provider has a PPP forgiveness report available.
These are just a few of the most important points that all small business owners need to know about loan forgiveness when it comes to the PPP. Following these tips can help small business owners make sure that their chances of successfully qualifying for loan forgiveness are maximized.
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