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PPP Loan Practices to Consider



Rödl & Partner Tax Matters Vol 2020 – 7, published April 30, 2020, updated on January 28, 2021


The Paycheck Protection Program (PPP) was created as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act which was signed into law on March 27, 2020. Businesses could begin to apply for PPP loans on April 3 with banks and other lending institutions. Many business have already had their applications approved and/or received their PPP loan proceeds. For those business that have successfully received approval or funding, we would recommend that the following practices be considered for the next several weeks in order to have the documentation for and to maximize the debt forgiveness portion of the process:

  1. Consider opening a separate bank account in which to deposit the PPP funds and from which to pay all expenses that are expected to qualify for forgiveness. In general, amounts paid for payroll costs, rent, utilities, and mortgage interest on real or personal property debt obligations during the covered period qualify to be forgiven. Any amount of the original funding that exceeds the amount that is ultimately qualified to be forgiven will continue to be considered a loan.
  2. For any payroll costs that exceed $100,000 of annual salary for any individual employee, consider paying the amount in excess of $100,000 out of a different bank account (from the one mentioned in item 1 above) since these amounts will not qualify as forgivable amounts for purposes of the forgiveness calculation.
  3. Keep in mind that, although rent, utilities, and mortgage interest are qualified expenditures for purposes of the loan forgiveness calculation, payroll costs must equal or exceed 60% of the amount that is ultimately forgiven.
  4. As with any business decision that is made, overall economic and operational issues should drive the decision as to whether to utilize and how best to utilize the PPP funds. While the ability to receive forgiveness of much or all of the loan proceeds is a very important factor in the process of deciding how to utilize the funds, there may be other operational or economic factors that might cause some businesses to utilize a portion of the funds in other ways.
  5. For mortgage payments, consider writing separate checks for the principal and interest portions of the mortgage payment. If a separate bank account has been set up for the PPP funds, the interest portion of the payment can be made out of this account since the principal portion does not qualify for forgiveness.
  6. Keep track of the number of full-time equivalent employees on payroll and pay rates for the covered period. This documentation would include payroll tax filings reported to the IRS and states. The number of full-time equivalent employees should be tracked each pay period during the covered period.
  7. Maintain invoices, cancelled checks, and payment receipts for all mortgage interest, rent and utilities paid during the covered period.
  8. Determine your full-time equivalent employee headcount for the periods from February 15, 2019 through June 30, 2019 and from January 1, 2020 through February 29, 2020. The lower of the full-time equivalent headcount for these two periods will be the baseline for determination of the percentage of the loan proceeds that can be forgiven. The business’s average full-time equivalent headcount during the covered period is divided by the lower of the full-time equivalent headcount for the two periods shown above and multiplied by the overall loan proceeds to determine the amount that can be forgiven.
  9. Determine your full-time equivalent employee headcount at February 15, 2020. If economically and operationally feasible, consider rehiring enough employees by June 30, 2020 so that your June 30, 2020 full-time equivalent headcount equals or exceeds your February 15, 2020 full-time headcount. If a company can achieve this goal, then they can ignore the calculation in item 8 as companies that “restore” their full-time equivalent employee headcount will not be subject to the proportionate reduction calculated in item 8.
  10. For employees with annual salaries less than $100,000, compare each employee’s salary and wages during the during the covered period to their salary/wages during the most recent full quarter that the employee was employed. If any employee has a greater than 25% decrease in compensation, then the difference for each employee in excess of 25% is not forgivable. If economically and operationally feasible, consider paying these employees an additional bonus or commission during the covered period to avoid this loan forgiveness reduction.
  11. For employees who have had their salaries reduced by more than 25% during the covered period, consider restoring their salaries to February 15 levels by June 30, 2020 to avoid the loan forgiveness reduction provisions in item 10 above.
  12. Borrowers have 10 months after the covered period to submit loan forgiveness documentation to the lender.

We would expect that additional guidelines will be posted with respect to the details of the provisions above. As significant additional guidelines are posted, we will update this client letter on our website.


This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

We have made reasonable efforts to ensure the accuracy of the information contained in this publication, however this cannot be guaranteed. Neither Rödl Langford de Kock LP nor any of its subsidiaries nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at user's risk.

Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

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Copyright © April 2020 Rödl Langford de Kock LP
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