CARES Act: What Just Happened? Week of April 27, 2020

Kranz receives frequent updates on the CARES Act and how businesses are responding to impacts of the COVID-19 through communications with our consultants, valued clients, partner banks, and legal and tax service providers. In our commitment to keeping you informed, we will be sharing this information on a regular basis.

PPP Loan Forgiveness: Insights and Best Practices

On April 30th, Kranz’s, Rachel Fierberg, hosted Koffee with Kranz with special guests Gabriel Torre, Squar Milner, and Rob Lopez, Justworks. The group discussed and shared perspective on:

  • Insight on monitoring qualified expenditures
  • Details on accounting best practices as they relate to loan and associated forgiveness
  • Documentation and submission to the SBA lender

If you would like a copy of the deck or to view the recording, please click here to access.


On Wednesday, April 29 the Small Business Administration released Payroll Protection Program Loans FAQs, a revision to the PPP FAQs they had previously released April 26. This Q&A is shown below along with other broadly applicable Q&As from the document. You can also access the SBA FAQ page directly here.

Recently Asked Questions

How long do I have to spend the money?
Eight weeks. The clock starts when the loan is funded. These eight weeks are referred to as the “covered period”.

Can I delay receipt of the money so that the clock will start later?
No. The intent of the program is to help businesses make payroll now, not later. Under the CARES Act lenders are required to fund all or part of the loan within ten days of its approval.

Do I need a separate bank account to track PPP proceeds and their use?
There is no requirement to have a separate bank account however it is recommended as a best practice.

What if I have already laid off my employees?
The intent of the program is for you to be able to keep paying all employees their regular pay whether they are working or not. Consult with your employment law attorney as you consider the terms for rehiring any employees to restore your FTE count.

For determining the loan forgiveness amount how is the $100,000 wage limit applied in the 8-week period?
For a company that pays weekly, wages paid to an individual in an amount over $1,923 ($100,000/52) would be excluded. For a company that pays bi-weekly, wages over $3,846 ($100,000/26) to any one person in one pay period would be excluded. If you are on anything other than a weekly pay period consider switching to weekly so that you maximize the payroll costs incurred within the 8-week covered period.

What is rent, and does related party rent count?
CARES Act does not specify whether rent is for real or personal property so it would be acceptable to include both. However, you can only include rent paid under a leasing agreement in force (signed) before February 15, 2020. Capital leases are excluded because they are a financing agreement and not a leasing agreement.

What utilities are included?
Payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020. A “transportation utility” has been interpreted to mean fuel costs for business vehicles.

What interest expense is included?
Interest on loans secured by real or personal property that were in effect before February 15, 2020. If your line of credit is secured by real or personal property, then the interest paid on the line would be included.Q. Can I avoid forgiveness reduction?
Yes, if you eliminate the reduction in FTEs and eliminate the reduction in wages by June 30, 2020.

For loan forgiveness, if you don’t satisfy 75% rule for the payroll, rent and utility cost will not be forgiven as well? In other words, is spending 75% of the loan on payroll the prerequisite for loan forgiveness?

CARES Act directs the SBA to provide clarification of the process around calculating the forgiveness amount 30 days after the act was passed. That would mean by April 26. But those instructions have yet to be provided. With that said the current presumption is that any failure of the applicant to spend at least 75% of loan funds on payroll, or to retain staff levels, (the two measurement benchmarks specified in the Act) will just reduce the amount of the loan forgiven. Not hitting either benchmark does not mean that the forgiveness opportunity is fully lost.

What documentation will I have to provide to support my forgiveness calculation?
Calculations for FTEs, payroll tax filings (Form 941 and payroll registers), verification of payment (canceled checks, bank statements), account statements, bills, etc. We recommend keeping a spreadsheet of all eligible expenses as they are incurred and filing copies of the supporting documentation in a special folder. A copy of the bank statement with eligible expenditures highlighted would also be helpful to support any EFT payments. The SBA is clear on this point: no documentation = no forgiveness.

If you don’t care about the loan being forgiven, can you use the fund for any purpose? For example, can you park it in a money market account until when you need it later?

As part of the PPP loan application process the applicant is required to certify that current economic uncertainties make the loan necessary to continue operations, and also that the funds will be used in accordance with terms of the CARES Act. One of these terms is that loan funds are used during the eight week “covered period” and, secondly that they are used for payroll, rent, lease and utilities. Failure to abide by these certifications would likely lead to financial and perhaps criminal penalties.

Can I pay an employee on payroll even though the employee is unable to work because of shelter-in-place restrictions and will those payments be eligible for forgiveness?

Yes, however, the employer will be incurring federal payroll taxes during this period which cannot be included as part of the forgiveness amount calculation.

What is the deadline for submitting a PPP loan application and subsequent request for loan forgiveness?

Applications must be submitted no later than June 30, 2020. Although subject to change in forthcoming SBA guidance the current due date for submitting forgiveness requests is December 15, 2020.

What if I pay my utilities with my business credit card?
Keep track of what you have charged to the credit card that is an eligible covered cost and make sure you apply a cash payment from the proceeds to the credit card bill before the end of the 8-week period.

Do I account for my covered costs during the 8-week period on a cash or accrual basis?
There is no guidance yet on whether the covered costs are to be included on a cash or accrual basis. The cash basis will be easier to support on your forgiveness application.

What if my payroll costs during the 8-week period use up 100% of my loan proceeds? Is this ok or do I have to spend some of the money on rent, utilities, and interest?
It is acceptable to spend 100% of the proceeds on payroll costs. The only SBA restriction is that at least 75% of the proceeds have to be spent on payroll costs.

What if I do not spend 100% of the loan proceeds on covered costs?
Guidance from the SBA on this is expected. The expectation is that you’ll have two options: (a) repay the excess immediately and reduce the loan amount or (b) keep the excess and repay it within the two-year loan period.

What happens if I don’t follow the rules for use of proceeds?
The SBA can charge you with fraud in addition to making you repay the misused amounts.

Is the forgiven amount considered taxable income?

How do I apply for forgiveness?
Lenders are responsible for processing of loan forgiveness requests and will provide details on this is handled. We recommend you stay in close touch with them but remember that you have until the middle of December to submit your loan forgiveness request.

When will I know if my forgiveness application has been approved?
The lender has 60 days to review and either approve or deny the application.

What are the terms of the loan (the portion that is not forgiven)?
1% and the term is two years. No collateral, no personal guarantee required, and no prepayment penalties.

How does the loan amount not forgiven get repaid?
Principal and interest payments on the PPP loan are automatically deferred for six months but the lender is authorized to extend the deferral for up to a year. During the deferral period, interest accrues.

Additional Resources

National Venture Capital Associations (

U.S. Treasury

Small Business Administration

Live Update from Pitchbook on COVID-19 Impacts to PE/VC