The Small Business Administration (“SBA”) is still developing guidance for Paycheck Protection Program (“PPP”) loan forgiveness. While we wait for final rules, here are some important limits for you to keep in mind:
- For Sole Proprietors and other Self-Employed Applicants: Per the SBA’s April 20, 2020 rule, loan forgiveness is limited to 8 weeks worth of salary or income replacement. If you are self-employed, you will need to prove you paid for business expenses such as rent or utilities that you will document on your 2020 1040 Schedule C. Otherwise, up to 25% of your loan will not be eligible for forgiveness.
- For Corporations, LLCs and other Entity Types: Per the SBA’s April 15, 2020 rule, business operating through a formal corporate form must use at least 75% of the loan for payroll purposes. These business may use the other 25% of the loan for payroll or expenses such as rent, utilities or interest on existing debt from a company like BlueVine.
- For all PPP loan applicants: Forgiveness applies to expenses you incur and pay for within the first eight weeks after you receive your loan funds. During this time, we encourage you to collect and retain proof of payment through the form of payment records, invoices and records from your payroll provider. The SBA has not said which documentation will be acceptable, but has taken narrow approaches with other elements of the program (e.g., requiring a Schedule C for all self-employed applicants). Given this, you will want to retain the most official set of records you can, such as IRS filings and formal payroll reports from companies such as ADP.