• Matt Crumpton, Esq.

Make Sure You Get 100% Forgiveness of Your Payroll Protection Loan (With Calculator and Video)


After a very bumpy roll out with the first round of funding, the Payroll Protection Program seems to have hit its stride. By now most of the companies that have applied for loans have received them. While the program and the CARES Act itself have many flaws, on balance, PPP is a good thing because it is getting cash to small businesses that need it to survive.

The problem for small business owners is that the “free” money comes with some serious strings attached. The loan must be repaid if the rules for spending it are not followed. Those rules are fairly complex. To be able to comply with the rules you will need to follow a written plan and document it. I am here to help with that.

You can download the Crumpton Legal PPP Spending Plan Calculator below:

PPP Spending Plan
.xlsx
Download XLSX • 13KB

I will walk through the spreadsheet with you in the video below. This spreadsheet is created from the perspective of an employer. It is meant to be your plan.

What You Need Before You Get Started:

- At least an hour of free time

- Your PPP loan amount

- Your Current Weekly Wages

- Your Current Full Time Equivalents (or payroll reports)

- Payroll records from January 1-February 29, 2020 and from February 15, 2019 to June 30, 2019.

- Your utility bill amounts on average


How To Use The PPP Calculator Video:


Overview of Key Rules To Follow:

- 75% of the proceeds must be spent on payroll. You can spend more on payroll. But you must spend at least 75%. Up to 25% of the proceeds may be spent on rent, utilities or mortgage interest in the 8 week period.

- The measurement period is the 8 week period starting the day you receive the funds in your account.

- Do not reduce the pay of any individual employee by more than 25% during the 8 week period. If you hire a replacement, there is no special rule regarding what the replacement employee must be paid.

- You must maintain the same amount of full time equivalents during the 8 week period as you had during the previous period: your choice of January 1, 2020-February 29, 2020 or February 15, 2019-June 30, 2019. (See HUGE EXCEPTION below).

Huge Exception to Maintaining Same FTEs Rule:

As you can see there are many rules that must be followed to make sure your small business gets complete loan forgiveness. We have covered the nooks and crannies of the PPP law in previous posts. I want to focus on the most important provision of the law for business owners worried about getting loan forgiveness – the HUGE EXCEPTION in Section 1106(d)(5).


Other than spending in the wrong categories, the easiest way to end up owing money on PPP loans is to fail to staff the appropriate number of full time equivalents. It would be very hard for businesses that normally staff 9 FTEs but have cut back to 4 FTEs during Coronavirus to suddenly rehire 5 more FTEs (that the business does not need anyway). Is it fair to hold that against the business? Luckily, Congress did not think so.

That’s why Section 1106(d)(5) was included. It provides that if there is a reduction of FTEs (or a decrease in pay by more than 25%) between Feb 15, 2020 and April 26, 2020, then your loan amount IS NOT Reduced as long as you have reached the former FTE number or wage number by June 30.

In other words, you can wait until the week of June 30 to comply. You don’t have to comply right away. There is no requirement that you continue to staff at the same level after that. That means that, per the law, you can wait until June 30th to staff up. I would recommend that you staff up to the required FTE level by at least the last payroll period so that you can prove to the bank with payroll records that you had the appropriate FTE level.

In theory, you can let go of employees or staff down immediately after you prove to the bank that you reached the FTE level. One major caveat, however, the SBA has not issued any rules dealing with Section 1106(d)(5). So keep an eye out for that (or for a blog from me about it.)

One final point: the SBA issued a rule this week that if you try to rehire a formerly laid off employee under their former terms of employment and the employee turns down the job, the loss of that employee as a FTE is not counted against the business for PPP loan forgiveness.

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