By Jagrut Shah The Paycheck Protection Program (PPP) was introduced to help small businesses impacted by COVID-19 survive. PPP is a loan extended to small businesses as a direct incentive for them to keep their workers on the payroll. PPP loans will be forgiven by the SBA if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. PPP loan calculation includes following items as average monthly payroll cost: Approved Payroll Cost (for last 12 months before loan application)
Unapproved Payroll Cost (can't be included in calculation)
Loan amount will be 2.5x of average monthly salary for last 12 months before loan application. PPP loan can be utilized for the following expenses Borrowers are eligible for forgiveness if costs paid during the eight- week period after the PPP is originated (Covered Period) are on account of (1) Payroll (2) payment of interest owing on pre-existing mortgage obligations (secured by real or personal property) (3) covered rent obligations, and (4) utility payments that were in place prior to February 15, 2020 (the Amount of Loan Forgiveness). So if PPP loan is utilized for office supply (non- covered expense) of $10,000 then such amount will not be forgiven and needs to be paid back in 2 years with 1% interest. This could be the reason SBA has reduced repayment loan terms from maximum allowable 10 years to 2 years. Here's an example 2.5x of average monthly salary as loan received to be used as below. 8 weeks of salary expens (approximately 2 months) + interest on mortgage obligations + covered rent + utilities
Avg monthly Salary of ABC | $100,000 | |
PPP Loan allowed (not to exceed $10M) | 2.5 * $100,000 | $250,000 |
Utilization | ||
8 weeks of Salary – approx. 2 months | 2 month *$100,000 (assuming no reduction in salary) | $200,000 |
Rent, mortgage interest, utilities | During covered period | $50,000 |
Total loan utilized | $250,000 | |
Loan amount forgiven | Since ABC Co. maintain required number of employees and payroll amount at the same level as before, entire loan amount will be forgiven upon application to lender subsequently. | $250,000 |
PPP Loan Forgiveness To be eligible for forgiveness, at least 75% of PPP loan amount should be used for payroll cost. Only up to 25% can be used for other covered expenses like rent and utilities. Contact us Please contact us at info@chugh.com for expert advice from our experienced professionals We recommend sharing this alert with your contacts who may benefit.
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