ppp loan forgiveness

Understanding PPP Loan Forgiveness

Paycheck Protection Program borrowers may be eligible for full or partial loan forgiveness. Understanding how to get your PPP loan fully or partially forgiven and completing the application properly can determine any repayment requirements after your deferment period.

CRF can help you work through the loan forgiveness process, including new changes mandated by new forgiveness rules. We will keep you updated as additional guidance from the SBA is received.

Requirements for Forgiveness

Your loan must be used (paid) for eligible purposes during the 24-week ‘covered period’. You should not exceed the December 31, 2020 deadline, even by a single day.

There is some leeway in the covered period when it comes to paying wages and salaries. If you are on a weekly or bi-weekly payroll, you can elect to use an alternative covered period in order to avoid splitting payroll periods. We discuss the alternative period below.

Application and repayment
Businesses have ten months from the end of the 24-week covered period to apply for forgiveness.

For loans received before June 5, 2020, these businesses can elect either the eight-week or 24-week covered periods for their forgiveness applications.

Repayment of unforgiven amounts will not start until after the forgiveness application is adjudicated.

Eligible payroll costs and calculations

  • At least 60 percent of your loan proceeds must be spent on payroll costs.
  • Salaries and wages during the eight-week period cannot exceed $15,384 per employee, or $100,000 per year.
  • Spending less on payroll costs may reduce or void loan forgiveness.
  • If it helps, you can start the 24-week period with the first payroll period following the funding of your loan. That can ease reporting, since it allows you to use regular payroll periods, consistent with your normal practice (this is called the ‘alternative covered proof’).

Generally, payroll costs include:

  • Wages and salaries
  • Health care benefits and health insurance premiums
  • Employer contributions to retirement accounts and pensions
  • State or local unemployment insurance costs

Get back to pre-pandemic employment levels at your business

You must keep or rapidly re-hire your employees through Dec. 31, 2020. Otherwise, your forgiveness amount will likely be lowered if your full-time equivalent (FTE) employment drops when compared to the first several months of 2020.

  • The forgiveness process will let you choose one of two base periods for calculating FTE employment.
  • If an employee declines to return to work, document the declination in writing. You can count that employee as “re-hired” on the forgiveness application form, if they could not be replaced.
  • There is a “safe harbor” if you reduced FTE employment between Feb. 15 and Apr. 26, 2020 but returned to mid-February FTE employment levels by June 30, 2020.
  • Businesses can avoid proportional reduction of forgiveness if:
    • The business can’t re-hire individual employees or replace them with similarly qualified employees.
    • The business can document an inability to return to the same level of business activity that existed before 2/15/20 due to complying with regulatory guidance from federal agencies related to sanitation, social distancing and other COVID-19 safety measures.

Other eligible purposes
Other than payroll costs, you may only spend PPP loan proceeds on the following eligible costs:

  • Rent payable to third parties for existing leases before Feb. 15, 2020
  • Utilities, including but not limited to water, electric, sewer and gas.
  • Interest on business debt if the debt pre-dates Feb. 15, 2020

After the six-month covered period, any loan balance (and accrued interest) that is not forgiven will become a 18-month term loan with an interest rate of 1% with monthly payments.

If you have received an Economic Injury Disaster Loan (EIDL) advance of up to $10,000, EIDL recipients must show that there is no duplication in the use of funds. Proceeds from EIDL funding will be deducted from the loan forgiveness amount on your PPP loan. Using your PPP loan for any ineligible purpose will reduce or void your loan forgiveness.

Preparing your forgiveness application

You will have 10 months from the end of the covered period to apply for forgiveness. Here are a few tips that will help you understand how forgiveness may apply to your PPP loan and aid you in preparing your documentation before you apply:

Keep current and accurate records.
Prepare a ledger or file of your eligible uses of your PPP loan proceeds. You will need to submit supporting documentation to CRF along with your request for forgiveness, which may include:

  • Copies of your lease and loan documents
  • Payroll registers or reports, along with actual or pro forma Form 941 reports. Contact your payroll service provider as soon as possible and ask for a PPP-compliant payroll report.

For loans over $2,000,000, your documentation must be forwarded to the SBA before determining what portion of your loan should be forgiven.

Additional Resources

CRF will help you stay updated on additional changes and extensions of the PPP rules. Take the time now to review and understand the requirements and the process for forgiveness as you proceed through the coming weeks.

All loans subject to credit approval and final guidance from the SBA on the Paycheck Protection Program. Funds are limited and subject to availability.

The characteristics of the SBA Paycheck Protection Program are from the Coronavirus Aid, Relief and Economic Security (CARES) Act, which was signed into law by President Trump on March 27, 2020.

The information provided is solely for general knowledge and does not provide any professional advice regarding tax, accounting, legal, financial, or any other professional service. PPP borrowers should contact their professional service providers for a complete understanding of the PPP program requirements and forgiveness processes.

SBA regulations regarding the PPP program are subject to further limitations and changes. Borrowers must follow current regulations and processes based on SBA guidelines. All terms and information are subject to change upon further guidance from the U.S. government.

Share This Page

Facebook Icon Twitter Icon Envelope Icon LinkedIn Icon