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Preparing for the Paycheck Protection Program

An SBA loan that helps businesses keep their workforce employed during the Coronavirus (COVID-19) crisis.

There is a lot of uncertainty in the world right now. The Paycheck Protection Program is one avenue meant to support small businesses and keep employees on payroll, but are you ready for it? You likely know the SBA will forgive loans, ultimately converting to grants, if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities—but are you prepared to track and supply this information when it comes time to forgive your loan?

A consideration here is that businesses will need to keep accurate records to justify forgiving the loan. If ever there were an “essential worker” at this time, it is your accounting department. But this is not just a matter of your accounting department playing a critical role right now—it is a matter of having an ongoing importance to your overall business outlook from today throughout the length of this program and loan requirements. In fact, your accounting department is about to become your right hand, if it isn’t already!

First and foremost, coming up with the magic number for the loan amount you are requesting. This figure needs to take into account many things, such as payroll costs, interest on mortgage, rent and utilities. There are formulas at play here, requiring at least 75% of the forgiven amount must have been used for payroll cost.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels.  Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. These are areas that will require specific and ongoing reporting, both to avoid reducing forgiveness amounts as well as alert you when you may have tough decisions to make in the coming months. Will a decision you make today cause you to owe significantly more back when your loan is due?

Those are the things your accounting department must be tasked with helping you navigate. If your accounting department is not prepared or cannot be utilized in this way, either due to COVID-19 or otherwise, now is the time to talk to us. We’re helping all our clients navigate the loan application process and will be their front line navigating the ongoing forecasting and analysis process, as well as ensuring pristine records are maintained to support their loan forgiveness over this period.

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