Paycheck Protection Program Loan Forgiveness

NOTICE: The information on this page is listed here as a courtesy and is not definitive as requirements can change as new guidance is issued. As necessary, you should consult with your accountant and attorney for advice specific to your individual situation.

Paycheck Protection Program Loan Forgiveness Explained

Page Updated: 07/10/2020

  PPP Small Business Forgiveness Act

Trade associations representing thousands of small businesses, financial institutions, and employees have joined together to fully support S. 4117, the Paycheck Protection Program (PPP) Small Business Forgiveness Act. This bipartisan legislation would ensure that U.S. small business owners can focus their time, energy, and resources back into their business and communities instead of allocating significant time and resources into completing complex forgiveness forms. If passed, the PPP Small Business Forgiveness Act would allow PPP loans of $150,000 or less to be automatically forgiven once the borrower completes a one-page forgiveness document. 

  PPP Application Extension

On July 4, 2020 President Trump signed into law the extension for the The Small Business Administration's (SBA) Paycheck Protection Program (PPP), extending the program from the June 30 deadline for applying to August 8.

PPP Forgiveness Application

On June 17, 2020 The SBA and the The U.S. Department of the Treasury released a streamlined full PPP Forgiveness Application, and a new EZ version of the Forgiveness Application ( “EZ” Paycheck Protection Program Loan Forgiveness Application) that applies to borrowers who:

• Are self-employed and have no employees; OR
• Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
• Experienced reductions in business activity as a result of health directives related to Covid-19, and did not reduce the salaries or wages of their employees by more than 25%.

Our service provider is expected to open our new secure Loan Forgiveness Document Portal soon, now that the federal government has published the revised application and new EZ version. Your Commercial Relationship Manager can assist you in answering any questions regarding the forgiveness process.

PPP Flexibility Act

The Paycheck Protection Program Flexibility Act (PPPFA) signed into law on June 5, 2020 includes important new updates regarding the Paycheck Protection Program.

Here are some important things you need to know when requesting Paycheck Protection Program (PPP) loan forgiveness under the CARES Act. The recently enacted PPPFA has modified some of the original requirements, with a goal of making it easier for small businesses to qualify for forgiveness in the wake of coronavirus-related restrictions and guidelines that have delayed reopening for many businesses. PPP loans are eligible for full or partial forgiveness if the loan proceeds are used in accordance with forgiveness rules and guidelines, which have already been modified several times. Although it is the responsibility of the recipient of a PPP Loan to provide the bank with the necessary documentation to submit to the SBA to justify the amount of Loan Forgiveness, please know that your Commercial Relationship Manager will do everything possible to support you in navigating this process.

On June 22, 2020 the SBA issued a new interim final rule implementing regulation changes made to the PPP loan forgiveness process by the PPP Flexibility Act (PPPFA).‌ The rule conforms previous rules to reflect provisions of the PPPFA, including the covered period for forgiveness, non-payroll costs eligible for forgiveness, reductions in the forgiven amount and the timing of when borrowers must apply for forgiveness to avoid making payments. It confirms that borrowers may submit forgiveness applications any time on or before the loan matures, including before the end of the covered period, provided they have used all of the loan funds for which they wish to apply for forgiveness. The rule also incorporates exeptions in the PPPFA that preserve loan forgiveness for employers that made good-faith attempts to rehire employees or fill vacant positions (and retained a previous exemption for employers that have reduced employee hours and offered in good faith to restore them) or whose business could not return to normal because of public health directives.

What are the main changes to the PPP as specified in the PPPFA?

Small businesses that qualify for a PPP loan now have up to 24 weeks, or no later than Dec. 31, 2020, to use the money to qualify for loan forgiveness, which is an increase from the previous eight-week period. If your loan was funded prior to the passage of the PPPFA, your covered period is automatically extended to 24 weeks, but if you choose to follow the original eight-week period you have that option.

Another change modifies the requirements that at least 75% of the funds had to be used for payroll costs and 25% for certain other costs. Those numbers have now been shifted to 60% for payroll-related costs and 40% for expenditures on mortgage interest, rent, and utility costs.

Additionally, new borrowers will have five years to repay the loan, instead of two.

Who is responsible for documenting my eligible costs? As the loan recipient, you are responsible for documenting your eligible expenses.

When does 24-week the clock start? The 24-week covered period begins on the date your loan is funded.

Where do I submit my potentially forgivable expenses? At the end of the 24-week covered period, you will need to provide the necessary documentation to your lender when applying for loan forgiveness.

What documents will be required for forgiveness?

• Here is a list of the documents you’ll need:
  • Verification of full-time equivalent employees and their pay rates, including:
  • Payroll reports.
  • Payroll tax filings (Form 941).
  • Payroll, income and unemployment insurance filings from your state.
  • Verification of any health insurance and retirement contributions.
• Verification (payment receipts, account statements, canceled checks) of eligible utility, rent and mortgage interest payments
• You’ll need to certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible utility, mortgage interest and rent payments.

How do the loan numbers break down? Small businesses were eligible to borrow 2.5 times their average monthly payrolls costs, but the amount could not exceed $10 million. To maximize forgiveness, at least 60% of the loan must be used for payroll costs, plus health and retirement benefit costs.

The SBA and the Treasury Department have clarified some confusion about partial loan forgiveness under the PPPFA by stating that if a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.

Up to 40% can be spent on approved expenses such as utilities, mortgage interest or rent. Any amount above this percentage will not count toward forgiveness.

Money used for other purposes will not qualify for forgiveness.

What eligible costs should I be tracking?

• Payroll costs: These costs include:
  • Salary and wages (not to exceed $100,000 for any individual employee as prorated during the covered period), commissions and other compensation.
  • Cash tips
  • Retirement contributions
  • Parental, family, medical or sick leave
  • Payments for vacation
  • Group health care coverage, including insurance premiums
  • Separation or dismissal allowance
  • State and local payroll taxes
• Utilities: You can include the costs of the following services if established before Feb. 15, 2020 – Electricity, water, gas, internet, telephone, and fuel costs for business vehicles.
• Mortgage interest: If mortgage was signed prior to Feb. 15, 2020.
• Rent: If leasing agreement was in effect prior to Feb. 15, 2020.

How should I record my expenses?  You should keep careful records for all qualifying forgiveness expense To track expenses, it may be beneficial to use a separate business checking account to ensure that "other" business expenses are not intermingled with qualified PPP expenses. The bank statements of separate PPP-designated accounts will clearly show the funds that were used for eligible covered expenses.

What are the top considerations for PPP loan forgiveness? Employee retention and salaries or wages paid to employees are the primary considerations. It is important that you maintain your staff headcount and compensation levels to maximize loan forgiveness.

How will I know if I’ve met my staffing requirements? A reduction in the number employees will affect the amount of your loan forgiveness. You can take the number of full-time equivalent employees you had between either Feb. 15 and June 30, 2019, or Jan. 1 and Feb. 29, 2020, and compare that number to the number of FTEs you had during the covered 8-week period after your loan was funded. If during your coverage period you have equal to or more employees than your comparison period, that would meet the requirement for forgiveness. If you have fewer, your forgivable expenses will be reduced.

For seasonal businesses, you can use average monthly payroll for the period between Feb. 15, 2019, or March 1, 2019, and June 30, 2019.  An applicant that was not in business from February 15, 2019 to June 30, 2019 may use the average monthly payroll costs for the period Jan. 1, 2020 through Feb. 29, 2020.

What if I need to rehire employees to qualify for loan forgiveness? You have until Dec. 31, 2020, to restore your full-time employment and meet compensation requirements, but the new legislation offers an exception for borrowers who lose FTEs. It allows that if between Feb. 15 and Dec.31, 2020, the amount of loan forgiveness won’t be reduced if the borrower, in good faith, is able to document any of the following circumstances:

• An inability to rehire someone who was an employee of the business on Feb. 15 or being unable to hire a similarly qualified person.
• The business was unable to return to the same level of activity as it was operating at before Feb. 15th due to compliance with requirements or guidance from Health and Human Services Department, the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period between March 21 and Dec. 31, 2020, related to the maintenance of standards for sanitation, physical distancing, or any other worker or customer safety requirement related to COVID– 19.

What if I decreased employee wages? If an employee is earning $100,000 annually or less and their pay is reduced by more than 25%, the amount of forgiveness will be reduced by the difference between their coverage period pay and 75% of their comparison period pay.

For example, if an employee was earning $24,000 during the 24-week comparison period, but earns only $15,000 during the PPP covered period you’d calculate it like this:

$24,000 x .75 = $18,000

            $18,000 - $15,000 = $3,000 (not qualified)

                        $15,000 - $3,000 = $12,000 (forgivable amount)

What happens if I’m not OK’d for PPP loan forgiveness? If you do not qualify for any forgiveness based on the documentation you provide, the amount of your outstanding PPP loan balance will need to be repaid over the term of the loan at a 1% interest rate from the time the loan was funded. Under the PPPFA , principal and interest are allowed to be deferred until the date the lender receives the forgiveness amount from the SBA.

My existing PPP loan is for two years, can that be changed? While new borrowers will have five years to repay their loans, previous borrowers only had two. The PPPFA allows that to be changed to five years if the lender and borrower agree.

What about forgiveness for sole proprietors and independent contractors? For your loan to be forgiven, you must have spent at least 60% of the funds on payroll costs, which include an amount for owner compensation based upon 2019 net earnings. The remaining amount, which cannot exceed 40% of the loan, must be spent on interest on a mortgage, a loan secured by personal property used in the business, rent, and utilities. To the extent that these expenses are incurred in connection with a home office, only the tax-deductible portion will apply. These expenses much have occurred within the 24 weeks after the loan is funded.

The most recent information about PPP Loan Forgiveness may be found at SBA.gov and Treasury.gov