This article first appeared in the Boston Business Journal website.
The Small Business Administration’s Paycheck Protection Program is now up and running – at least for some lenders – and includes new rules for how much small businesses can pay their employees and still get full forgiveness.
Small businesses are still limited to a salary cap of $ 100,000, annualized over the period that the company is spending the PPP loan proceeds. But the period covered, which used to be between eight weeks or 24 weeks, is now any number of weeks between eight and 24, which means that every small business needs to carefully monitor its spending.
According to Sonia Desai, director of forensics and litigation at Munsch Hardt Kopf & Harr PC, experts agree that the maximum amount a company can pay each employee is $ 46,154, which is a salary of 24 weeks for an annual Paycheck equivalent to $ 100,000. However, that means that if a small business runs out of its PPP funds in week 16, for example, the maximum it can pay an employee and still receive full forgiveness is no more than $ 30,769.
In short, employee salary is capped at $ 1,923 per week for up to 24 weeks. And this rule applies to both first-time PPP loans and so-called “second draw” PPP loans for more severely affected companies that received their first loan last year. Companies still need to spend at least 60% of loan proceeds on payroll to receive full forgiveness.
The business owners themselves are still working under a lower salary cap set during the first round of PPP last year, according to Vijay Khetarpal, president and CEO of Integrity Financial Group, a financial advisory firm. This lower limit is $ 20,833. That is, when the PPP loan is issued quickly, e.g. For example, eight weeks, this limit drops to $ 15,385 or $ 17,308 for a nine week period.
According to Christina Moore, a partner at Taylor English Duma LLP law firm based in Atlanta but with offices across the country, small business owners need to keep these caps in mind when considering how to spend new PPP loan proceeds. “You should think about owner compensation caps just like you did with the first round of PPP loans,” said Moore.
Just like the first round of PPP loans, bonuses and allowances are allowed as long as the caps are not exceeded. And small business owners must note that not only the salary is included in the total compensation – it includes the payment of vacation, parental, family, sick or sick leave as well as severance payments, employee benefits such as group health or life insurance, pension payments and even state and local taxes levied on compensation of employees.
Although the SBA had issued guidelines prior to the launch of the program, Desai advised small businesses to keep track of when the SBA could update its guidelines or change aspects of the program. “The SBA has indicated that additional rules for second-drawing PPP loans will be published separately.
The reopened PPP window allows small businesses to apply for their first PPP loans, largely in accordance with the original rules of the program when it was launched last year, including a credit limit of $ 10 million and a size limit of approximately 500 employees, which however can change depending on the type of economy and industry. PPP borrowers can spend up to 40% of loan proceeds on business expenses such as mortgage interest, interest payments, rent and an extended rate including property damage, supplier costs and personal protective equipment.
Small businesses with up to 300 employees that saw a quarterly revenue decline of at least 25% in 2020 compared to the same quarter of 2019 can also apply for a second PPP loan of up to $ 2 million, according to the agency . The program has also been expanded to include news organizations, destination marketing organizations, and Category 501c (6) not-for-profit organizations, which include local chambers of commerce and trade organizations.
We have already described some of the specifics of this upcoming PPP round and who will qualify. This comes on top of a separate $ 15 billion grant program for live venues and theaters – applicants can only apply and receive funding from one or the other.