5 Things Your Staffing Firm Needs to Know About Your PPP Loan
Last time updated: 11 April, 2023
Last time updated: 11 April, 2023
Last updated on April 11th, 2023 at 01:35 pm
Since then, thousands of small businesses including staffing firms signed up for the loan, which functions as a grant as long as you use the funds a certain way – namely, for payroll, mortgage interest, rent and utilities during your covered period. If your expenses do not qualify, you have five years* to pay back the money at 1% interest.
Now that you have your PPP Loan, as a staffing owner you might have some questions about how you can use the loan and be eligible for forgiveness. Based on conversations with our clients, here are 5 things every staffing owner should know about your PPP Loan.
The PPP is not just a low interest loan – it is meant specifically for payroll and other critical business expenses. You are able to spend the PPP on four main categories: payroll, utilities, rent, and mortgage interest. If you use the money outside those strict guidelines, you could be subject to scrutiny.
Eligible expenses include:
In contrast, expenses that are not eligible include: compensation of an individual employee in excess of $100,000 per year annualized; taxes imposed or withheld under chapters 21, 22, or 24 of the Internal Revenue Code during the covered period; any compensation of an employee whose principal place of residence is outside of the United States; and qualified sick and family leave wages already covered under the Families First Coronavirus Response Act.
The overarching idea of the PPP loan is that they are a loan in name only – once you have the money, the amount spent over your covered period on payroll, mortgage interest, rent and utilities may be eligible to be completely forgiven. Additionally, the forgiveness is tax free unlike other cancelled debt.
To maximize forgiveness, the Paycheck Protection Program Flexibility Act requires that 60% of the loan proceeds must be used for payroll costs and payroll-related expenses. 40% may be spent on the certain non-payroll expenses outlined above.
Any portion of a PPP loan that isn’t forgiven must be repaid at an interest rate of 1%. It will be deferred until the date that SBA remits the forgiveness amount to the lender.
There are certain factors you should be aware of that may lead to a reduction in your forgiveness amount.
Any business that receives a PPP loan may be audited. There are three areas the SBA may focus on when it comes to audits:
So, the lesson here be careful to stay compliant and don’t treat the PPP as “free money”! Work with your trusted legal and financial advisors when necessary.
As federal stimulus packages including the PPP begin to run out, many staffing companies will be left trying to find new working capital solutions. While the PPP was helpful, in many cases only postponed the financial pain of lost revenue due to the effects of COVID.
It’s important to consider cash flow and liquidity options for the future, especially in light of the financial uncertainty of this current moment. You won’t always be able to count on government stimulus packages, so you want to know your options – the most popular in this industry being bank financing and accounts receivable financing. You can find more information about the options by downloading the Essential Guide to Financing Your Staffing Firm.
We hope this information was helpful to you as you navigate the current economic climate. If you want to discuss options for financing when PPP money runs out, contact us anytime with questions.
*Loans granted after June 5, 2020 are now subject to a minimum maturity of 5 years. Borrowers that received their loan before then may work with their lender to extend maturity date.
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