Q&A FOR PPP LOAN FORGIVENESS

PPP loan forgiveness

This is a Q&A for the PPP Loan Forgiveness Application form issued by SBA on May 18, 2020. The basic idea behind PPP loan forgiveness is that 75% of the original Payroll Protection Program loan must have actually been used for payroll during the 8-week Covered Period that began the day the PPP loan was received. The remaining 25% can have been used on things like mortgage interest, lease payments and utility payments. The application form is designed to calculate the actual use of funds and to identify how much of the PPP loan can be forgiven.

The entire PPP loan forgiveness process remains a work in progress. Some issues are clear, some remain unclear. In this post, we identify the parts of the loan forgiveness application that are reasonably clear, and highlight a few areas where clarification will likely be forthcoming in weeks ahead.

How much of A PPP loan can be forgiven?

Up to 100% of your PPP loan can be forgiven, depending on how you used the PPP funds during the Covered Period. 75% of the PPP loan must have been used to cover payroll expenses (see details below as to what qualifies as payroll expense). The remaining 25% must have been used for mortgage expense, lease payments or utility payments. If a company meets both these requirements, 100% of the PPP loan can be forgiven, up to $10 million.

what is the period for PPP loan forgiveness?

The PPP loan forgiveness Covered Period includes the 8 week (56 day) period beginning on the day the PPP loan was disbursed. However, Congress is already considering expanding the loan forgiveness period to 24 weeks. While this hasn’t yet happened, it is a safe bet that it will, sometime soon.

WHAT QUALIFIES AS “PAYROLL” EXPENSES?

Payroll Expenses include (up to a maximum of $15, 385 per employee during the Covered Period):
–gross salary, wages, commissions and tips
–various types of leave: vacation, parental, family, medical, or sick leave
–payments for separation or dismissal
–employer contributions for group health care and retirement plans
–payment of state and local taxes assessed on compensation of employees.

The total of payroll expenses (paid or incurred) during the 8-week forgiveness period must equal 75% of all expenditures of the PPP loan in order to receive full loan forgiveness.

WHAT ARE “NON-PAYROLL” EXPENSES?

Non-payroll expenses that qualify for loan forgiveness include payment of obligations that became due under the 8-week Covered Period for a mortgage interest, lease or utility service. However, in all cases the original contract must have been signed before Feb. 15, 2020. These non-payroll expenses can make up 25% of the PPP loan use of funds.

EXPENSE “INCURRED” vs. EXPENSE “PAID” DURING 8-WEEK PERIOD

Expenses “incurred” during the 8-week forgiveness period can be forgiven, even if not actually “paid” during the 8-week period. However, amounts of the PPP loan that were neither incurred nor paid during the 8-week period will not be forgiven.

WHAT IF OUR PAYROLL EXPENSES DO NOT MEET THE 75% THRESHOLD?

If your company did not spend 75% of its PPP loan on payroll during the 8-week Covered Period, your loan forgiveness will be reduced for each employee whose average pay (salary or hourly wage) during the 8-week period is less than 75% of their average pay from January 1 to March 31, 2020. The amount of the reduction in your loan forgiveness will be the equivalent of the amount each employee’s pay was reduced below 75% of their previous average pay.

However, this loan forgiveness reduction can by avoided by restoring each employee’s payroll amount such that the salary on June 30, 2020 is equal to or greater than an employee’s salary on Feb. 15, 2020.

WHAT ABOUT EMPLOYEES WHO WERE LAID OFF?

Your loan forgiveness will also be reduced if the average number of weekly full-time equivalent employees (FTEs) during the 8-week period is less than the average number of FTEs during the reference period that you choose. You can choose among the following reference periods:

–February 15 to June 30, 2019
–January 1 to February 29, 2020, or
–In the case of a seasonal employer a consecutive 12-week period between May 1 and September 15, 2019

WHAT IF we TRIED TO HIRE BACK LAID-OFF EMPLOYEES BUT THEY WOULDN’T RETURN?

As long as you can document a good-faith-effort to hire back reduced workforce the layoffs won’t count against your loan forgiveness.

Is there a Filing Deadline?

There is no clear filing deadline. The “expiration date” of the application is Oct. 31, 2020. It isn’t clear what the term “expiration date” means yet. But as with all such things, you should be applying for loan forgiveness as soon as possible.

What HAPPENS TO LOAN AMOUNTS NOT FORGIVEN?

For any loan amounts not forgiven, the original loan terms—two-year maximum loan at 1% interest rate with payments deferred for the first six months—will apply. There are no prepayment penalties or fees.

NEED HELP WITH THIS APPLICATION?

If you need help with this application, give us a call at (213) 600-2912 and ask for Kevin McBride. There is no fee associated with our assistance to you in this matter.

are there other relief programs currently offered by sba?

In addition to the Payroll Protection Program, the SBA offers three additional relief programs related to COVID-19:

Economic Injury Disaster Loan Emergency Fund.  Presently, this fund is available only for agricultural businesses, and only for up to $10,000. 

SBA Express Bridge Loans. This lending facility is available only to borrowers who currently have a relationship with SBA.  Loans are available for up to $25,000, and processing is expedited, given the previous lending history with SBA.

SBA Debt Relief.  SBA will pay 6 months of principal, interest, and any associated fees that borrowers owe for all current 7(a), 504, and Microloans in regular servicing status as well as new 7(a), 504, and Microloans disbursed prior to September 27, 2020. This relief is not available for Paycheck Protection Program loans or Economic Injury Disaster loans. Borrowers do not need to apply for this assistance. It will be automatically provided.