Take These 3 Essential Steps Immediately For Up To 100% PPP Loan Forgiveness

The most attractive aspect of the Payroll Protection Program (PPP)—the possibility of up to 100% loan forgiveness—is still shrouded in a daunting combination of governmental vagueness and public confusion.  Which is too bad, because the intent of the program (which, as of press date, is about to receive a second influx of cash) is indeed for these loans to be forgiven whenever they have been used for their intended purpose.  

That’s why this article is so important. Below, I’ve had the small business consultants at  CFOShare, a firm that provides “fractional CFOs” to assist firms in business sustainment and growth, assist me in distilling three steps for my readers that, if followed religiously, should, based on currently known information, give you the best chance of maximum–perhaps even 100%–PPP loan forgiveness.

IMPORTANT DISCLAIMER: Please note that I (Micah Solomon) am neither an accountant nor a lawyer. Nothing in this article should be considered a substitute for the professional advice you should be contracting for from your financial and legal advisors.

1.        Use all of the funds you receive on payroll, if possible, ideally straight-ahead W2-generating payroll. If that’s not how you usually make payments, you may want to change your ways, at least for the 8-week period that is counted, converting 1099 contractors to W2 employees. This is something the government prefers you to do anyway, so there’s very low risk in such an adjustment. (Engaging a payroll service like Paychex makes this extremely easy.)

Note a very tricky complication here: It is mathematically impossible to get the full 100% forgiveness simply by paying the same person/people the same wage that your original PPP calculation on your application was based on. Why? Because the PPP funds that are being dispersed are intended to be equal to a full 2.5 months of 2019 payroll, and the PPP forgiveness is to be calculated on a mere 8 weeks of payroll (counting from the day you received the PPP funding.)

What to do? You can use the rest of the funds on permissible expenses (business rents, mortgage interest, and utilities, with some restrictions). But the safest thing to do (“safe” meaning likelihood of achieving full loan forgiveness) would appear to be to increase your payroll, either the amount per employee or the number of employees you have on payroll, or by paying bonuses or a 401(k) profit share…

….but watch out for point #2…

2.        Don’t pay any single employee (including yourself) more than $3,846.15 per 2-week pay period–or, if you do, be aware that any amount over an annualized $100,000/yr ($3,846.15 per 2 week pay period) will not count towards forgiveness. At time of writing, the SBA has been vague about the exact way this is calculated, so, for best results, play it safe.

3.        Start these payments from the very date you receive the money, or as close to that as possible, and make sure all your pay periods fall within the 8 week window. This is a tricky little point; forgiveness appears to be calculated on a cash basis, in which case, accrued payroll with a pay date after the 8-week period won’t count.

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One philosophical note before we conclude: Don’t bend over backwards too, too far in trying to get your loan forgiven. The last thing you should do is sabotage the long-term health of your business in your attempt to maximize PPP loan forgiveness. Remember–even if it isn’t forgiven, the PPP is a very low interest loan. Instead of spending great effort achieving 100% loan forgiveness, invest your time contemplating your business strategy, forecasting different scenarios, and having a plan for how to grow out of our challenging economy.