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IRA Financial Blog

SBA PPP Loan Guidance – Episode 230

Adam Talks

IRA Financial’s Adam Bergman discusses the brand new regulations the SBA has introduced about their Payroll Protection Program loan for small businesses.

In this bonus podcast, Mr. Bergman wants to talk in depth about the PPP loan and the new guidance the SBA has introduced. If you are a small business owner, you need to pay attention if you plan to apply for the loan. So long as you use the money received for the right purposes, the loan will be forgiven. Any business owner who qualifies should apply for the PPP loan.

What is the PPP Loan?

Due to the COVID-19 pandemic, most business have had to close shop, cut payroll and even let people go. Thanks to the CARES Act, the government has provided funding for business owners who are suffering financially due to this crisis. One such provision is the Payroll Protection Program, or PPP loan. Most businesses under 500 employees are eligible to apply.

Based on your payroll over the last 12 months (or 2019) you may receive up to 2.5 times your average monthly payroll expenses. This will allow you to pay your employees for eight weeks. The money must be spent on business expenses, but, especially your payroll. The idea is to keep as many Americans off of unemployment as possible. Of course, it aims to help all small business owners across the county.

What Do We Know Now?

Since the CARES Act was signed into law, little information has been released to the public about exactly how the PPP loan works. However, on May 15, 2020, the SBA released a PPP loan forgiveness application. This application illustrates many of the concerns borrows have had about the loan. Specifically, the terms of the loan and how you can have it forgiven.

PPP Loan Forgiveness Guidance

First, is the $2 million threshold. Basically, if you do not receive that amount of money, your PPP loan should be forgivable. Once you exceed that amount, you are certain to be audited by the IRS. No matter how much you receive, you will need to show how you spent that money. 75% of the PPP loan must be used towards payroll expenses. The other 25% (or less) can be used for other business expenses, such as rent/lease, utilities and taxes.

One of the biggest questions is the time frame of when you must use these funds. We knew you were getting funds to cover eight weeks of payroll. What was unclear is the exact time this “clock” started. It was hard for many businesses to begin spending this money as soon as it hit the bank. For example, payroll might have been paid the day before. The application shows now that the tie frame can start when your payroll becomes due. However, many businesses, including restaurants, would like a longer period to spend these funds. Since this is a reasonable request, this may become a reality soon.

Lastly, you must retain the employees that are being counted for the loan. Therefore, if you had 20 employees on your payroll, and receive funds for those people, you must continue to pay them. Obviously, there are exceptions for employees who quit or were let go for just cause. If you fail to maintain your payroll, you must pay back money allocated to those persons.

Should You Apply?

Yes yes yes! If your business has been affected by the coronavirus, yes, you should apply for the PPP loan, and any other loans out there. Assuming you spend the funds as intended, the loan will be forgiven. We don’t know how long this pandemic will last, therefore we can expect to see more help from the government. Speak with your bank or reach out to the SBA to see what is available to you.

Thanks for listening to the extra podcast this week! As always, be safe and practice social distancing. Wishing everyone a safe and healthy Memorial Day weekend. Be sure to check out all of our podcasts on our SoundCloud page as you enjoy this holiday!


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