PPP Loan Forgiveness

If you received the first and/or second draw of the PPP loan, you may be eligible for loan forgiveness.

All information regarding about the Paycheck Protection Program and PPP loan forgiveness is sourced from the Official Small Business Administration (SBA) site.

What is PPP Loan Forgiveness

Paycheck Protection Program (PPP) loans, created under the CARES Act, allow for potential loan forgiveness on eligible costs incurred during a set 24-week period after a borrower’s PPP funds are disbursed. Defined under the CARES Act as the “covered period.”

First Draw PPP Forgiveness Terms

First draw of the PPP loans may be eligible for borrowers to receive forgiveness if during the 8 to 24 week period following loan disbursement:

Employee and compensation levels are maintained
The loan proceeds are spent on payroll costs and other eligible expenses; and
At least 60% of the proceeds are spent on payroll costs

Second Draw PPP Forgiveness Terms

First draw of the PPP loans may be eligible for borrowers to receive forgiveness if during the 8 to 24 week period following loan disbursement:

Employee and compensation levels are maintained
The loan proceeds are spent on payroll costs and other eligible expenses; and
At least 60% of the proceeds are spent on payroll costs

Eligible Costs For Loan Forgiveness

Payroll Costs

Compensation in the form of salaries, wages, commissions or similar compensation up to $100,000
Compensation in the form of salaries, wages, commissions or similar compensation up to $100,000
Payment of cash tips or equivalent
Costs for vacation, parental, family, medical, or sick leave
Allowance for dismissal or separation
Costs of retirement benefits
Group vision, dental, disability, or life insurance
Payment of state or local taxes assessed on the compensation of employees

Healthcare

Healthcare costs related to the continuation of group healthcare benefits during periods of sick, medical, or family leave, as well as insurance premiums.

Mortgage/Rent

Mortgage interest payments (but not prepayment or payment of the mortgage principal)
Rent
Utilities

Expenditures

Covered expenditures such as business software or cloud computing services that facilitate:
- business operations
- product or service delivery
- the processing, payment or tracking or payroll expenses, human resources, sales, and billing functions
- accounting or tracking of supplies, inventory, records, or expenses
Property damage costs
Supplier costs
Covered worker protection expenditures

Simplified Forgiveness for Small Loans

The SBA officially announced that borrowers who received PPP loans of $150,000 or less will qualify for streamlined loan forgiveness automatically.

Borrowers will be required to submit a one-page certification that pertains:

Number of employees they were able to retain due to the loan
Estimated amount spent on payroll costs
Total loan amount

The record retention guidelines for these smaller loans has been reduced to 4 years for employee records and 3 years for compliance records.

Payroll Changes That Affect Loan Forgiveness

The forgiveness amount may be reduced if you have laid off employees or reduced their salaries. Therefore, to determine how much might be forgiven, you can use this calculation:

Your payroll cost multiplied by the average number of full-time employees per month for one of these 8-week periods:

February 15, 2019, through June 30, 2019
January 1, 2020, through February 29, 2020

Seasonal employers must use the period from February 15, 2019, through June, 30, 2019.

Reduction in Employee Salary

Reductions in employee salary may also affect your eligible forgiveness amount. For example, a reduction of 25% or more in annual salary (compared to their most recent full quarter) for employees who make less than $100k/year will reduce the loan forgiveness amount.

Re-employment & Restoring Wages

If you laid off employees or reduced payroll beginning February 15, 2020, you may eliminate the forgiveness reduction as long as you rehire the laid-off employees or restore payroll before applying for forgiveness.

Non-payroll Costs That Can Be Forgiven

Due to the SBA anticipating a high number of borrowers requesting PPP loan forgiveness, it is anticipated that no more than 40% of the forgiven amount may be for non-payroll costs.

What You Need For The PPP Forgiveness Application

Identification Information

The name of your business: business legal name, DBA, tradename (if applicable)
Business Tax Identification Number (TIN): Social Security number (SSN) or Employer Identification Number (EIN)

SBA PPP loan number

PPP Loan Information

Lender PPP loan number
Your PPP loan amount

Economic Injury and Disaster Loan (EIDL) Information

EIDL advance amount, if you received one

EIDL application number, if you applied

Payroll Information

Amount of employees at the time of your PPP application

Number of current employees (at the time you’re applying for loan forgiveness)

PPP loan disbursement date, aka the date you received funds from your lender
- Payroll schedule
- Cost of covered non-payroll expenses
- Supporting documentation for all
- The covered period, aka the date range for the 24 weeks eligible for loan forgiveness starts when you receive your PPP loan disbursement.

Documentation Required to Prove Employee Retention

The SBA requires the following documentation be provided as evidence that the borrower has met employee retention requirements:

Evidence that employees were kept on payroll or rehired once the loan was received

A calculation of the average monthly number of full-time equivalent employees for the covered period

Certification of Truth

An authorized representative of the business must certify that the documentation provided is true and that the amount forgiven was used according to the program’s guidelines.

If You're Not Approved, what then?

If you’re not approved for loan forgiveness, your lender may request additional documentation. Otherwise, you will be required to repay the loan. The outstanding balance will continue to accrue interest at 1% over the loan term. If you decide to repay early, you can do so without incurring any early payment penalties or fees.