In times of economic turmoil, small business owners must make a variety of difficult decisions. Chief among them? Whether to keep employees on payroll. When uncertainty takes over, layoffs or furloughs provide a difficult but viable solution.
Of course, it’s not in the nation’s best interest to suffer mass layoffs in response to coronavirus-related challenges. As such, the Small Business Administration offers a loan known as the Paycheck Protection Program (PPP), which encourages small business owners to avoid layoffs. This loan can be forgiven if employees remain on payroll for eight weeks.
Qualifying For Loan Forgiveness
Beyond payroll, businesses that take advantage of the PPP can use money from the loan to cover rent, utilities, and mortgage interest. Less than 25 percent of the loan should be spent on these essentials.
Payroll costs are capped at an annual $100,000 per employee — or $15,385 over the course of eight weeks. This includes not only salary, but also tips and commission.
Loan forgiveness represents a wonderful opportunity for struggling businesses, but it’s not free of burden. Because loan money can only be allocated towards a narrow set of expenditures, business owners must closely track when and under what circumstances PPP funds are spent. These suggestions may ease the process:
- Open a separate bank account for handling PPP matters. This reduces the risk of accidentally using PPP funds for non-qualifying expenses.
- Use an accounting file to handle PPP funds alongside reconciliation tracking.
- Follow instructions carefully on the official loan forgiveness request as soon as the eight-week period ends.
If you’ve applied for the PPP loan but have yet to hear back, contact your lender. Many offer specific platforms for tracking loan applications.
As you handle the economic fallout of COVID-19 and quarantine efforts, look to the Highland Tax Group to take care of your most urgent IRS concerns. By dealing with the IRS on your behalf, we can remove a significant source of stress from your life. Reach out today to discover how we can help.