You Applied For a Loan, Now What?

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new PPP rules

If you have applied for government funded loans such as the EIDL and PPP loans and are now waiting for the money, here are some things to keep in mind.  If you haven’t yet applied see the info at the end of this article.

The following are suggestions by CPA Gordon T. Gassner, President of Gassner & Company, in a presentation sponsored by Orca Design & Manufacturing on Friday.

We are going to focus mainly on the Paycheck Protection Plan (PPP) loan.

When you receive your loan money, it is suggested you put it in a separate bank account because you will need to account for how that money is spent in order to receive full loan forgiveness.  Remember, the PPP gives you 2.5 months of payroll as a forgivable loan, but that money must be spent on payroll and business expenses.

For full forgiveness of your PPP loan money, the funds must be spent for items including payroll, pensions, interest and expenses for payroll costs, employee vacations and sick leave, group insurance, rent, utilities, and interest on mortgage payments.   Only 25 percent of the funds can be spent on non-payroll costs as noted.

Gordon Gassner, CPA
Gordon Gassner, CPA Offers Tips on PPP

If you are using PPP money for rent, the lease has to be dated prior to February 2020. And any loan money going towards utilities has to be for utilities that started before February 15, 2020.

What happens if you don’t spend all the money in the 8 weeks or spend it differently than above?  Then that part of the loan is not forgiven and the terms of the loan are 1 percent over 2 years.

Once you receive the PPP money, you can defer payment on the loan for six months. So before any payments are due, you can get the loan forgiven.

There are a few other requirements for loan forgiveness.  You are required to retain the same number of employees. You can use one of two periods to determine your base number of employees: either February 15, 2019 to June 30, 2019 or January 1, 2020 to February 29, 2020.

Thirty hours equals one full time employee.  If you have two part time workers, each with 15 hours a week, that counts as one full time employee.  You can reduce your employee’s wages but only by up to 25 percent during your PPP loan period through June 30.  If you have an employee making $100K and you reduce his salary to $80K, that’s fine.  But if you reduce it to $70K, that reduces the amount of your loan forgiveness.  So be careful, not to cut anyone’s wages by more than 25 percent.

At the end of the 8-week period, borrowers must submit an application to their bank certifying how the money was spent. reports that the banks then have a 60-day period to approve the application.

The forgiven loan money is not considered taxable income at the federal level.

According to Todd Ramsey of Ramsey Consulting Group, if you are granted both an EIDL and PPP loan you can roll over the EIDL loan into the PPP loan as the PPP is a 2 year loan at only 1 percent versus the EIDL 30 year loan at 3.75 percent.

Additional Facts:

A sole proprietor without employees can apply for the PPP and  submit his own earnings as payroll.  So if you own your own shop and don’t have employees, you can still apply for the loan.  If you earned $100K you can apply for a loan of $20,833.   You calculate your wage by net business revenue minus expenses, or what you put on your Schedule C in your tax forms.  (But the gross amount is capped at $100K per year). Gassner said, to the best of his knowledge, that money is completely forgivable under the PPP, no matter how you spend it, as it is considered your paycheck.  For more information on applying as a sole proprietor without employees see Fast Company here.

It was said originally that 1099 employees could be part of your payroll for the PPP.  It was ultimately decided that 1099 employees should not be included in your payroll as they can apply for their own loan as a sole proprietor instead.

Here is an article that may also be helpful:  5 Things That every PPP Borrower Should Do After Receiving a Loan


I Haven’t Yet Applied for a Loan

If you have not yet applied for a loan, your options are here (scroll down the page)

If you are applying for the PPP, here are some tipsThe sooner you apply the better, as the funds are limited. The official deadline is June 30, 2020.

You must apply for the PPP through a bank, ideally, the bank that holds your business accounts.  But if that is not possible, here is a list of other participating banks.


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