Some have asked why this cap on non-payroll related loan forgiveness is a big deal under the #PaycheckProtectionProgram, so I’m going to do a quick thread explaining how the 25% cap changes the math dramatically for small businesses.
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Let’s say a business let go of half its staff in March, received the PPP loan in April, rehired back to pre-COVID levels in June. Under the statute, the entire loan amount could be forgiven. Sounds good, right?
Wrong! Per Treasury, the forgiveness amount would be 47% lower.
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Wrong! Per Treasury, the forgiveness amount would be 47% lower.
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Or say, instead of layoffs, that same business cuts salaries by 20% in March, gets the loan in April, and retains all staff through June 30. Again, the entire loan should be forgiven per statute.
With the 25% cap on non-payroll $, only 85% gets forgiven.
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With the 25% cap on non-payroll $, only 85% gets forgiven.
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These are just two of many conceivable scenarios in which the non-statutory cap on loan forgiveness could significantly reduce the intended level of benefit to a recipient business.
The Administration should scrap this approach and stick with what Congress promised.
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The Administration should scrap this approach and stick with what Congress promised.
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