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May 28, 2020

Congress passes modifications to PPP!!  The Senate still needs to pass and implement these changes but keep your eye on this as you are figuring out how to implement and use your PPP funds…this keeps changing.


RATIO  The 75/25 rule has been changed to a 60/40 ratio. Meaning 60% to payroll and 40% to other expenses. This will be a huge help. Remember the original law creating the PPP didn’t have the 75/25 rule the SBA created that as their rule interpreting and implementing the PPP).

TIMELINE The eight week period has been extended to a 24 week period. This eases the stress of business owners to allow them to use the money as they re-open rather than forcing them to spend it when reopening is still unsure.

Original Post

The SBA has finally released guidance and an application for Paycheck Protection Program loan forgiveness. This means PPP borrowers can now use the Loan Forgiveness application to structure how they spend their loan funds. The application provided will be submitted to the bank that lent you the PPP funds and not through the SBA. I imagine most lenders will create a digital version of this but having the ability to look at what’s required should help you start to plan how to use your PPP funds. 

Worth noting in the SBA guidance is that businesses can adjust the 8 week period to match their payroll schedule. So if funds are released to your business in the middle of a payroll cycle you can start the ‘alternative payroll covered period’ on your next payroll date. This will help businesses make sure that they are maximizing their use of the funds. 

A Note for Sole Proprietors, Partnerships and the Self-Employed

Sole Proprietors, Partnerships, and Self-Employed please make sure that you go through this application. The SBA has now made it clear that contributions to retirement funds or health insurance costs are not eligible for forgiveness under the PPP. Yes, if you were taxed as an S-Corp then you would be able to deduct these expenses but if you are not a formal business entity then you cannot. I don’t like it weather…but rules. 

Forgivable Payroll Expenses

The guidance from the SBA breaks down that Eligible Payroll Costs incurred during the 8 week period after the loan was funded, and for each employee must not exceed pay of $100,000 per year (less than $8,333.00 per month).  ‘Eligible Payroll Costs’ include:

“Compensation to employees (whose principal place of residence is in the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; an allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on the compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation.” SBA Interim Final Rule 13 CFR Part 120

Forgivable Non-Payroll Expenses

Businesses may also have non-payroll expenses forgiven so long as those expenses are less than 25% of the total amount sought to be forgiven. If you want to have $100,000 forgiven then no more than $25,000 can be spent on the following non-payroll costs: 

(a) covered mortgage obligations: payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020 (“business mortgage interest payments”); 

(b) covered rent obligations: business rent or lease payments pursuant to lease agreements for real or personal property in force before February 15, 2020 (“business rent or lease payments”); and 

(c) covered utility payments: business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020 (“business utility payments”). SBA Loan Forgiveness Application 

The non-payroll costs being less than 25% of the total amount forgiven has been really frustrating to small businesses in high rent areas where rent can easily exceed payroll in normal times, and staying open requires…you know…paying rent!

How Should Business Owners Prepare

Use the application as a guide as you plan how to distribute your funds. If you are running monthly payroll talk to your CPA or payroll company about the ability to switch to bi-weekly payroll so you can maximize the 8-week period covered. There may not be any more government programs like this coming, so make sure you use this money in the way it serves to save your business. Forgiveness isn’t all or none, you can have some of the funds forgiven while others aren’t and that’s ok too. If its what will keep you in business legally use these funds in a way that makes the most sense for your business. 

Stay safe out there and if you want a more in-depth exploration of this topic and others check out the Get Legit Law & Shit podcast


Emily D. Baker, Esq.

Emily D. Baker, Esq.

Badass Lawyer for Online Business

Emily has been running business for 15 years and has ove 13 years of legal experience. She spent 10 years at the Los Angeles County District attorney's office where she truly learned to be a solopreneur. Emily has built her consulting and speaking business from the ground up, in her garage jamming out to 90's music. She specializes in no BS practical advice for the starting and scaling online entreprenur. Emily will tell you what the business gurus can't in a way that is both hillarious and empowering.

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