This article first appeared in the Boston Business Journal website.
The Small Business Administration Protection Program is now underway – at least for some lenders – and it comes with new rules on how much small businesses can pay their employees and still get full forgiveness.
Small businesses are still limited to $ 100,000 salary restrictions, which are annualized during the period in which the business spends PPP revenue. But the covered period, which was previously a choice between eight or 24 weeks, is now a number of weeks between eight and 24, which means that every small business will have to keep a close eye on its spending.
Experts agree that the maximum amount a business can pay to an employee is $ 46,154, which is 24 weeks’ salary for an annual salary of $ 100,000, according to Sonia Desai, director of forensic and litigation services at Munsch Hardt Kopf & Harr PC. But this means that if a small business uses its OPS funds in week 16, the maximum amount it can pay to an employee and still receive full forgiveness can not exceed $ 30,769.
In short, the employee’s payment is limited to $ 1,923 per week, for up to 24 weeks. And the rule applies to both first-time PPP loans and so-called “second draw” PPP loans for businesses hit hard, which already received an initial loan last year. Businesses still need to spend at least 60% of the loan proceeds on wage costs to get full forgiveness.
As for the business owners themselves, they are still working under a lower salary ceiling set during the first round of the PPP last year, according to Vijay Khetarpal, president and CEO of Integrity Financial Group, a financial advisory firm. That lower amount is $ 20,833. This means that if the PPP loan is spent quickly, such as eight weeks, the roof decreases to $ 15,385, or $ 17,308 for a period of nine weeks.
Small business owners need to keep the caps in mind as they figure out how to spend any new OPP loan proceeds, according to Christina Moore, a partner at law firm Taylor English Duma LLP, based in Atlanta but with offices across the country. “They just have to think about the compensation of owners, as in the first round of OPS loans,” Moore said.
Just like under the first round of PPP loans, bonuses and extra payment are allowed as long as the limit is not exceeded. And small business owners should note that not only is the salary added up with total compensation; this includes the payment for holiday, parental, family, medical or sick leave, as well as severance pay, employee benefits such as group health or life insurance, retirement payments, and even state and local taxes are set on compensation for employees.
Although the SBA published guidelines before the program was launched, Desai advised small businesses to track down when the SBA could update its guidance or change aspects of the program. “The SBA has indicated that additional rules regarding second-withdrawal PPP loans will be published separately, so the forgiveness rules associated with second-withdrawal loans may or may not change what we know now,” she said.
The reopened PPP window enables small businesses to apply for their first OPS loans, mainly under the original rules of the program when it made its debut last year, including a $ 10 million loan ceiling and a limit of about 500 employees, although this may vary depending on the type of business and industry. PPP lenders can spend up to 40% of the proceeds on loans on mortgage interest, interest payments, rent and an extensive set of costs, including property damage, supplier costs and personal protective equipment.
Small businesses with up to 300 employees and which experienced at least a 25% quarterly revenue reduction in 2020 compared to the same quarter in 2019 will, according to the agency’s management, also be able to apply for a second PPP loan of up to $ 2 million. The program also extended to news organizations, destination marketing organizations, and nonprofit organizations categorized as 501c (6), which includes local chambers of commerce and trade organizations.
We have already outlined some details of this upcoming PPP round and who qualifies. This is in addition to a separate $ 15 billion allocation program for live venues and theaters – applicants can only apply and receive funds from one or the other.