Accounting on Tap

I RECEIVED THE PAYCHECK PROTECTION PROGRAM LOAN — NOW WHAT? BY DAN BERGS, CPA

Many businesses applied for the Paycheck Protection Program since it became available in early April as a result of the Coronavirus Aid, Relief and Economic Security (CARES) Act. The Small Business Administration (SBA) is administering the loans in response to the economic hardships facing businesses as they fight revenue loss from COVID-19.

The purpose of the Paycheck Protection Program loan is for businesses to keep employees on payroll and for employers to have payroll costs forgiven. (This program continues to undergo rapid changes, so some parts of this article may no longer apply by the date of publication.) While there is a lot more detail behind the scenes, the following is a summary of the loans.

Q: HOW CAN THESE LOAN FUNDS BE FORGIVEN? You have eight weeks from the time the loan funds are received to use them for payroll costs, utilities, rent and mortgage interest on loans. Only up to 25% can be used for rent, utilities and mortgage interest, while the remaining can be used for payroll costs, including wages, health insurance benefits paid by the employer, retirement benefits paid by the employer, and state and local taxes assessed on compensation (state unemployment insurance in Wisconsin). Employer payroll taxes do not qualify.

Q: WHAT SHOULD OUR BUSINESS DO AFTER RECEIVING LOAN FUNDS? If you laid off employees, you should hire them back after receiving your Paycheck Protection Program loan. Pay your employees their normal rate of pay and benefits, then you can use up to 25% of the funds for non-payroll costs. You have eight weeks after receiving the loan funds, so use them wisely. For example, discuss with your landlord if he or she is OK with you paying two months’ rent after receiving the loan funds.

Q: IS THERE ANYTHING WE SHOULD BE DOING FROM AN ACCOUNTING PERSPECTIVE TO KEEP TRACK OF THE MONEY WE SPEND? I recommend moving loan funds to a savings or money market account after receipt. Then to take care of qualifying costs (such as payroll, health insurance, retirement plan matches, rent, utilities and/or mortgage interest), transfer the money to a checking account to pay these expenses. It is important to have a quality tracking process to make sure the maximum amount of loan funds are forgiven.

Q: WHAT IF WE DON’T USE ALL OF THE FUNDS WE RECEIVE? If you don’t use the funds that you receive for qualifying costs, then you owe the loan money back.

Q: WHEN IS THE LOAN MONEY DUE BACK? The loan funds are due back within two years. There are no prepayment penalties.

Q: WHAT IS THE INTEREST RATE? The interest rate is currently 1% (subject to change).

Q: DOES THIS LOAN HAVE PERSONAL GUARANTEES OR COLLATERAL REQUIREMENTS? No, there are no personal guarantees and no collateral is required.

Make sure you discuss this with your banker and professional advisors as there is new guidance being issued frequently on this loan program. There are several other options available for small business owners as well. Consult your advisor on additional options to assist your business during these challenging times. TLW

Dan Bergs, CPA, is a supervisor in the tax and business services department with Wegner CPAs LLP. Wegner CPAs LLP has offices in Madison, Baraboo, Waukesha and Janesville. This article is not intended to give complete tax advice, but a general review of subject matter. For more information, please contact Bergs at (608) 442-1986 or dan.bergs@wegnercpas.com.