By Charles W. Dowden, Vice President
Commercial Lending
BancorpSouth Bank.

The SBA Paycheck Protection Program was set to expire on June 30, 2020, but has been extended to August 8th. Funds are available; the challenge is finding a lender still doing the PPP loans. As of June 20th, there have been 4,666,560 SBA PPP loans made for $514.9 Billon, and $128.5 Billon still left in the fund.

Calculating the initial PPP loan was a relatively straight-forward calculation, unless you had a complex business structure. Determining what amount will be forgiven will require some extra work. Two recent updates to the program help you with what can be forgiven. Payroll, for the purpose of the calculation, can be as low as 60% of the loan amount and the balance of 40% can go toward business expenses that include rent, mortgage interest and utilities. The period in which to use the PPP funds changed from 8 weeks to 24 weeks.

Here’s an overview of what information you’ll need to gather for your lender for the forgiveness calculation. (Follow this link to the SBA website with the actual forms and instructions: https://www.sba.gov/document/sba-form-paycheck-protection-program-loan-forgiveness-application-revised-6-16-2020.)

Information to gather for the calculation:

  • Original SBA PPP application and backup.
  • EIDL (Economic Injury Disaster Loan Emergency Advance). This was the loan you went directly to the SBA website and applied for. That’s right, the EIDL loan is also part of the calculation.
    • Amount
    • Application Number
  • Covered Period.
    • Date funded
    • 24 weeks later
  • Payroll
    • Calculate FTEs. The U.S. Treasury defines an FTE as any employee who works 40 hours per week or more. Each employee who, on average, worked more than 40 hours a week during the particular calculation period counts as one FTE. One employee cannot be greater than one FTE— overtime does not apply.

Any part-time employees who did not work more than 40 hours on average will have their average weekly hours worked added together. Divide by 40 and round to the nearest tenth to get your FTE calculation. For example, if you have three employees who consistently worked 20 hours a week, altogether they would count as 1.5 FTE. Add your full-time FTE and your part-time FTE to get your total FTE figure.

For simplicity, when completing the forgiveness application, the SBA has alternatively allowed you to use 1.0 for any employee who works more than 40 hours a week, and 0.5 for all other employees. You may use either method of calculation, but the method must be consistently used.

  • The actual payroll calculation is complicated. The following information is collected and summarized on two schedules – Table 1 and 2.
    • List every employee who worked for the company during the covered period (2020) and also were employed during 2019. Next, list any new employees who were hired during the 2020 covered period. For each type of employee, list their compensation during the covered period. These can’t exceed $100K on an annualized based for the year.
    • Same as above, except for employees that make more than $100K a year. You can only show $100K for each employee.
  • Other Expense
    • Calculate expenditures for business mortgage interest, rent or lease and payments and utilities.
    • Make sure you have all the backup to support every expense claim you are taking.

Once you have all this together, you can complete the application and determine how much will be forgiven. Hopefully, all is forgiven. If not, then that rolls into a loan with interest of 1% and is paid back over 18 months. The first six months, in which there are no payments due, is essentially the Covered Period (funding date plus 24 weeks).

The final catch to the SBA PPP program is that the amount of the PPP loan that is forgiven cannot be included in expenses for your 2020 tax return (i.e., basically, the expenses being forgiven can’t be deducted). This means your profit will be higher and you’ll pay a little more in taxes. But like most, your income is going to be down for 2020 anyway.

Good luck!