Q: Is my SBA loan through the CARES Act forgivable? And what do I need to do to stay compliant with federal requirements governing my loan?
A: Yes, the Paycheck Protection Program (PPP) loan is forgivable if you follow the actual intent of the law and interpretations that have been subsequently provided. According to a summary of the interim final rule issued by the Small Business Administration on April 2, the CARES Act “is designed to encourage eligible employers to keep employees on their payroll, despite experiencing economic hardship related to COVID-19. The CARES Act temporarily adds a new product, titled the Paycheck Protection Program, that provides for forgiveness of up to the full principal amount of qualifying loans guaranteed under the Paycheck Protection Program.”
The first thing to remember is that the amount of the PPP loan forgiveness may extend to the full amount of the loan plus interest. The total amount of forgiveness will depend on the amount of your pizzeria’s payroll costs, payments of interest on mortgage obligations, rent or lease payments, and utility payments that were generated on contracts or services in effect as of February 15, 2020.
Don’t attempt to skirt the system. Guidance issued by the SBA mandates that no more than 25% of the above costs can be figured into your total loan forgiveness under this program. The true intent of the Paycheck Protection Program is to ensure that you keep your employees on the payroll. The SBA specifically states, “If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability, such as charges for fraud.”
Secondly, if you receive a PPP loan for your pizzeria under this program, you will have eight weeks from the date the money arrives in your bank account to inform the bank and/or the SBA how these loan funds were disbursed. It’s crucial to maintain separate checking accounts and accounting for every expenditure. This is the time to get disciplined in your record keeping!
On the day after this eight-week period, further guidance will be issued on how your record keeping should be provided to the SBA (through your bank) in order to request PPP loan forgiveness. So you need to set up a daily record keeping system for this program now! Create your own system to identify initial loan monies received and to preserve all receipts for any bills paid. Work closely with your payroll provider to isolate this eight-week period of activity and start a disciplined program. If you, as the owner, don’t have the time to handle this important task, assign it to a trustworthy employee, but make sure that you personally review it—daily.
Finally, from March 13 forward, you should create a road map of accounting for your pizzeria, including a daily record of employee attendance. Require your key advisers (including your CPA, banker, attorney, insurance agent, payroll manager and investment adviser) to apprise you of how their systems work and to update you on available financial programs and advise you on any pitfalls to avoid. Personally, I created the website mycovidcpa.com as a service for PMQ subscribers to help them get the most current road map that can help navigate through these challenging times.
Above all, choose advisers whose systems you can trust to provide accurate data. As we emerge from this difficult period, your financial success is in your hands. Don’t wait for someone from the government to contact you. Be proactive and get answers unique to your situation!
Visit Michael Rasmussen’s website, hitechcpa.com, for additional insight into restaurant-specific tax strategies, accounting and technology programs.