Paycheck Protection Program. When to apply and what is covered

Paycheck Protection Program. P&L for a small restaurant and calculation of how it works

Wonder how to calculate how many weeks the Paycheck Protection Program will cover and when to apply? Here is an example of a small business.

Jenny owns a small restaurant. Her revenue is $100,000 per month. Now it’s zero. One part of the Paycheck Protection Program works as a grant (she doesn’t have to repay it). This article is about how she can maximize what the grant will cover.

1. Payroll ($33K)

Jenny employs 19 people. Her average monthly payroll is $33K. The expenses covered through the PPP are hourly wages, salaries, paid sick & medical leave and health insurance.

2. Loan ($81K)

The loan is 2.5 times monthly payroll. Thus, the loan will be for $81K ($33K x 2.5).

3. Other covered expenses ($17K)

The loan will also cover rent ($9K), utilities ($1K) and interest on the loan she used to buy the business ($6K).

4. Total covered expenses ($50K)

Her total covered expenses are $50K (Payroll plus Other covered expenses) and the loan is for $81K. Therefore, it will last 5–6 weeks.

What will not be covered by the grant

Jenny spends $5K in critical fixed expenses which will not be covered by the grant. That includes insurance, Professional Fees (CPA) and Repairs and Maintenance.

Jenny also spends $6K in variable expenses. That includes cleaning, dry cleaning, advertising and miscellaneous. Small businesses operating those types of services have pointed our their revenue has dropped by 90%.

When should Jenny apply?

Since it seems that she can only get 6 weeks of payroll expenses because the rest will be used for rent, utilities, and mortgage, Jenny should take these 3 factors to decide when to apply:

1. The covered loan period is from February 15, 2020, to June 30, 2020.

2. Borrowers can choose which 8 weeks they want to count towards the covered period.

3. If total payroll expenses decrease by more than 25 percent, loan forgiveness will be reduced by the same amount.

Therefore, Jenny may be better off waiting and getting the loan in May, when restaurant sales may have recovered. If she does the payroll on Fridays, she could use the payrolls for the eight weeks from May 8th to June 26th.

The Profit & Loss shown here is material from one of the Finance classes I teach at NYU. A presentation on How to make and use a Profit & Loss and Balance Sheet/Cash Flow is here.




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