If it sounds too good to be true, it probably is. In today’s post we’re covering important considerations about using (and possibly returning) Paycheck Protection Program (PPP) funds which is part of the federal government’s COVID-19 response.
Spoiler alert: PPP money is not free money.
The rules covering how a business may spend its PPP money are continually evolving. You probably already know you’re required to spend 75% of your loan on payroll expenses, but employers must pay close attention to guidance about what is (and what isn’t) a qualifying payroll expense. There also are similar limitations on the 25% that can be spent on rent, mortgage interest, and utilities.
Unfortunately, the PPP rules have created a maze of hurdles for businesses hoping to achieve loan forgiveness. If a business that received PPP funds doesn’t closely monitor and comply with the evolving guidance, it’s at risk of the PPP loan not being forgiven.
To be safe, businesses with PPP money should either (1) prepare for the possibility that the loan will need to be repaid or (2) work with legal counsel or their CPA to ensure compliance with PPP rules.
If you’ve reviewed the requirements of the PPP and cannot comply with them, you still have time to return the funds without having to pay penalties or interest. This safe harbor deadline is May 14, 2020.
We’re closely monitoring developments related to the Paycheck Protection Flexibility Act which is a bipartisan effort to provide businesses with more flexibility for using their PPP funds without foregoing loan forgiveness. But this is merely a bill. It isn’t the law of the land – yet. We’ll report on developments related to the Paycheck Protection Flexibility Act and new guidance from the U.S. Department of the Treasury and Small Business Administration here, so stay tuned.
Our legal team has worked with and provided guidance to many companies that have received significant funds through the federal Payroll Protection Program. If you have questions about how to comply with PPP requirements, contact us. Our team would be glad to assist you.