Understanding the Paycheck Protection Program

If your business received a Paycheck Protection Program (PPP) loan as a result of the 2020 CARES Act, you may be eligible for loan forgiveness. However, many business owners don’t understand how to calculate their loan forgiveness amount, which can hold up their application. Read on for a brief overview of what the Paycheck Protection Program is and how forgiveness is calculated in San Francisco, CA.

What is the Paycheck Protection Program?

The CARES Act of 2020 was a response to the global COVID-19 pandemic, which has put immense strain on businesses across the nation. As you undoubtedly know by now, thousands of businesses have shuttered since the lockdowns have disrupted life as we once knew it.

The PPP offered fully-forgivable loans to small business owners so they’d be able to keep their employees on the payroll. As long as you meet the following requirements, your loan will be forgiven:

  • Qualifying payroll and non-payroll expenses: Business owners must use the loan amount for qualifying payroll and non-payroll expenses over the course of 24 weeks from the first disbursement. 60 percent of the loan must go toward payroll and associated expenses, while the remaining 40 percent can go to qualifying other expenses, like mortgage, rent and utilities.
  • Full-time equivalent employee levels: The owner must maintain FTE employee levels and rehire any employees that were laid off or furloughed. Exceptions apply if health guidance or rehiring rejections prevented this.
  • No wage reduction over 25 percent: Finally, employers must not reduce wages by more than 25 percent of the amount the employees made from January to March 2020—or, they can bring the wages back up by the end of the loan period.

If your business could not or did not follow these guidelines, the forgivable amount is reduced.

How is the Paycheck Protection Program calculated in San Francisco, CA?

To determine how much of your loan is forgivable, you’ll need to get out your business records and the PPP worksheets to determine whether your business upheld the guidelines. This can be done on your own, or with the help of a forensic accountant. For example, you’ll need to weigh your payroll and qualifying non-payroll expenses, your FTE employee levels and any wage reductions that occurred.

To calculate the amount that will be forgiven, you’ll need to do a little math. The formula is:

[(Payroll + qualifying non-payroll costs)Wage reduction amounts] x FTE reduction quotient.

You’ll get the smallest amount forgiven between the answer to that equation, the PPP loan amount or 60 percent of your payroll costs.

If the idea of doing this math seems overwhelming to you, a forensic accountant can help. Gather and organize your business paperwork before your appointment, including your PPP paperwork and worksheets. Your accountant can help you determine what kind of forgiveness eligibility you’re entitled to.

For help with your PPP loan forgiveness in San Francisco, CA, call Medina & Company Consulting, Inc. today. We’re forensic accountants with over a decade of industry experience, and look forward to assisting you.