Get the most out of your PPP LoanConnect with the information and expert support you need to apply for PPP Loan Forgiveness.
|
|
In Partnership with
PPP FORGIVENESS UPDATE
UPDATE AS OF JUNE 22nd: As a result of the Congressional bill that has now passed the Senate, the information on this page has been significantly revised. Please continue to stay tuned as we will continue to add / revise content based on new information.
Based on recent Bill:
- The 8 week Covered Period may be extended to 24 weeks for existing loans
- New loans automatically have up to a 24 week Covered Period BUT the period must end by 12/31/2020.
- The payroll requirement drops from 75% to 60%.
- The June 30 deadline to restore headcount has been extended to the earlier of the 24 week period or Dec 31.
- Two new exceptions to the headcount rule:
- Old version: Workers who were laid off could be excluded from calculations if they refused the offer to be rehired at same hours & wages. This remains in effect, plus…
- If a business is unable to find qualified employees to replace the laid off workers you may exclude the laid off worker(s) from the calculation
- If COVID19 related “operating restrictions” make it impossible to restore operations you may exclude the laid off worker(s) from the calculation. This is defined as “… adhering to safety, sanitation, and social distancing orders for customers or workers.”
- New loans automatically term to 5 years instead of 2 years. Existing loans may be extended to 5 years if the lender and borrower agree.
- The forgiveness application is now due 10 months after the end of the covered period.
- Organizations may now defer the employer portion of social security tax until December 31, 2020. Initially, the deferral was only allowed until loan forgiveness was granted.
- Unfortunately, the bill does not address whether funds used for forgiveness can be deducted for income tax purposes. We continue to watch other bills being discussed — some include provisions that would override the guidance the IRS released in April, stating forgiveness expenses would not be deductible for federal income tax purposes.
PPP FORGIVENESS WEBINAR SERIES
UPDATE AS OF JUNE 22nd: As a result of the Congressional bill that has now passed the Senate, the information in these webinars #1 & #2 is out of date. Webinar #3 is scheduled for July 9th at 12:30pm and will provided updated information including a review of the newly released application forms.
|
|
|
What are the terms of a PPP loan?
The PPP loan is a 1% interest rate loan that now matures in 5 years. Existing 2 year loans may be extended at the mutual agreement of the bank and borrower. Payments begin when the SBA provides a determination of forgiveness to the lending bank.
There is no prepayment penalty, meaning you can repay the loan at any time before the maturity date. There is no collateral or personal guarantee required. The PPP loans are 100% guaranteed by the SBA with no personal guarantees of payment to the SBA. Lenders are not allowed to collect fees from you or be paid out of the PPP loan proceeds.
What are the forgiveness eligibility rules for spending the loan proceeds?
Yes. PPP loans may be forgiven in their entirety (principal + interest) as long as:
When do funds need to be spent by?
Funds are required to be spent within 8 or 24-weeks from the day that they were deposited into your account (and before December 31, 2020). Any portion of the funds NOT spent within this period of time will not be eligible for forgiveness.
Why wouldn’t everyone use the 24 week covered period instead of the 8 week covered period?
This requires a case by case analysis. For some businesses, it may be difficult to spend all of the money in 8 weeks. However, the extended 24 week period creates a new risk because hours & wages must be maintained at a high level for longer. You may want to consider delaying your forgiveness filing until you can analyze both the 8 and 24 week scenarios.
Where can I find the applications and instructions?
The forms can be found on the SBA PPP Forgiveness web page or use the links below:
Form 3508, Instructions
Form 3508 EZ, Instructions
Who will be verifying the paperwork documentation and when?
Based on new IFR, the lender has 60 days from date of receipt to issue a decision to the SBA. Once the lender issues it’s decision, the SBA has up to another 90 days to review the file.
When is my application for loan forgiveness due? Should I file as soon as possible?
The forgiveness application is due 10 months after the end of the covered period.
We suggest that you wait to file, with due consideration given to the 1% interest on any unforgivable portion of the loan, as additional guidance and change may be coming. Also, make sure that your bank is ready to receive the application! The bank is mandated to submit to the SBA within 60 days.
What documentation is required for the Forgiveness Application?
DOWNLOAD OUR PPP FORGIVENESS APPLICATION CHECKLIST.
(1) Payroll Records – Required payroll records include:
a. Bank account statements or 3rd party payroll service provider reports;
b. Tax forms (or equivalent 3rd party payroll service provide reports) confirming: (i) payroll tax filings and (ii) State quarterly business and individual employee wage reporting and unemployment insurance tax filings;
c. Proof of employer contributions to employee health insurance and retirement plans included in the forgiveness amount.
(2) FTE – Required FTE records showing the average FTE on payroll during the tested time period.
(3) Non-payroll Records – Proof that the relationship existed prior to February 15, 2020: (i) business mortgage interest payments; (ii) business rent or lease payments; and (iii) business utility payments.
(4) Documents Required to be Maintained, but not Submitted with the Application –
a. Supporting documents for all of the numbers entered on the Forgiveness Application and worksheet (Form 3508 or 3508EZ)
b. All documents and records supporting the PPP Loan Application
c. If using the EZ form because of interruption to operation: Documentation supporting that the Borrower was unable to operate at the same level of business activity due to compliance with requirements established or guidance issued related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
The documentation listed under this item (4) must be retained by the borrower for 6 years after the date the loan is forgiven or repaid in full, and the borrower must permit authorized representatives of the SBA to access such files upon request.
What qualifies as a payroll expense?
1099 contractors may not be included in the company payroll calculation.
For a sole proprietor filing for forgiveness: wages, commissions, income, or net earnings from self-employment, are capped at $100,000 on an annualized basis.
NOT eligible at this time:
What are the requirements around headcount?
You must maintain the number of Full Time Equivalent (FTE) employees on your staff. Or, rehire them by June 30, 2020.
If a business reduces the number of FTE during the covered period after the PPP loan has been disbursed, the forgiveness amount is reduced by a ratio. This ratio is the number of FTEs during the covered period divided by the number of FTEs during a prior period. You can choose one of the following time periods. You are allowed to choose whatever is best for you.
What are the requirements around salary levels?
You must maintain 75% of the salary or wages for FTE that make less than $100,000.
For this calculation, you will only look at FTEs that make less than $100,000. You will need to calculate this per employee. For each employee, you must maintain salary or wages to within 75% of the total before the covered period. The reduction in loan forgiveness is the amount of money required to return the compensation level to at least 75% of the pre-covered period.
During what time frame must expenses have been incurred to be eligible?
The forgiveness covers expenses incurred during the 8 or 24-week period following the receipt of loan proceeds. The date February 15 refers to when the relationship with the vendor must have been in place. For example, if you would like pay your electric bill with forgivable PPP loan money, the account with the electric company must have been set up before February 15.
What should I do if I believe that my loan size is incorrect?
We do not believe that there will be a penalty for any miscalculations on loan sizing as the Treasury & SBA have implied that accuracy is measured against “best efforts.”
Too big – If you have been allocated too large a loan, and you do not wish to convert to a 1% loan, set the money aside for repayment.
Too small – There may not be recourse available, but we suggest having a discussion with the bank about your specific situation.
The PPP loan is a 1% interest rate loan that now matures in 5 years. Existing 2 year loans may be extended at the mutual agreement of the bank and borrower. Payments begin when the SBA provides a determination of forgiveness to the lending bank.
There is no prepayment penalty, meaning you can repay the loan at any time before the maturity date. There is no collateral or personal guarantee required. The PPP loans are 100% guaranteed by the SBA with no personal guarantees of payment to the SBA. Lenders are not allowed to collect fees from you or be paid out of the PPP loan proceeds.
What are the forgiveness eligibility rules for spending the loan proceeds?
Yes. PPP loans may be forgiven in their entirety (principal + interest) as long as:
- The loan proceeds are allocated to eligible expenses.
- The funds are spent within the 8 or 24-week time period (before December 31, 2020) following the loan disbursement.
- Employee headcount and compensation levels are maintained
When do funds need to be spent by?
Funds are required to be spent within 8 or 24-weeks from the day that they were deposited into your account (and before December 31, 2020). Any portion of the funds NOT spent within this period of time will not be eligible for forgiveness.
Why wouldn’t everyone use the 24 week covered period instead of the 8 week covered period?
This requires a case by case analysis. For some businesses, it may be difficult to spend all of the money in 8 weeks. However, the extended 24 week period creates a new risk because hours & wages must be maintained at a high level for longer. You may want to consider delaying your forgiveness filing until you can analyze both the 8 and 24 week scenarios.
Where can I find the applications and instructions?
The forms can be found on the SBA PPP Forgiveness web page or use the links below:
Form 3508, Instructions
Form 3508 EZ, Instructions
Who will be verifying the paperwork documentation and when?
Based on new IFR, the lender has 60 days from date of receipt to issue a decision to the SBA. Once the lender issues it’s decision, the SBA has up to another 90 days to review the file.
When is my application for loan forgiveness due? Should I file as soon as possible?
The forgiveness application is due 10 months after the end of the covered period.
We suggest that you wait to file, with due consideration given to the 1% interest on any unforgivable portion of the loan, as additional guidance and change may be coming. Also, make sure that your bank is ready to receive the application! The bank is mandated to submit to the SBA within 60 days.
What documentation is required for the Forgiveness Application?
DOWNLOAD OUR PPP FORGIVENESS APPLICATION CHECKLIST.
(1) Payroll Records – Required payroll records include:
a. Bank account statements or 3rd party payroll service provider reports;
b. Tax forms (or equivalent 3rd party payroll service provide reports) confirming: (i) payroll tax filings and (ii) State quarterly business and individual employee wage reporting and unemployment insurance tax filings;
c. Proof of employer contributions to employee health insurance and retirement plans included in the forgiveness amount.
(2) FTE – Required FTE records showing the average FTE on payroll during the tested time period.
(3) Non-payroll Records – Proof that the relationship existed prior to February 15, 2020: (i) business mortgage interest payments; (ii) business rent or lease payments; and (iii) business utility payments.
(4) Documents Required to be Maintained, but not Submitted with the Application –
a. Supporting documents for all of the numbers entered on the Forgiveness Application and worksheet (Form 3508 or 3508EZ)
b. All documents and records supporting the PPP Loan Application
c. If using the EZ form because of interruption to operation: Documentation supporting that the Borrower was unable to operate at the same level of business activity due to compliance with requirements established or guidance issued related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.
The documentation listed under this item (4) must be retained by the borrower for 6 years after the date the loan is forgiven or repaid in full, and the borrower must permit authorized representatives of the SBA to access such files upon request.
What qualifies as a payroll expense?
- Salary, wages, commissions, and tips
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal
- Payments required for the provisions of group health care benefits including insurance premiums
- Payment of any retirement benefit
- Employee Federal Withholding Tax
- State Unemployment & Disability Insurance
1099 contractors may not be included in the company payroll calculation.
For a sole proprietor filing for forgiveness: wages, commissions, income, or net earnings from self-employment, are capped at $100,000 on an annualized basis.
NOT eligible at this time:
- Employer Portion - FICA
- Employer Portion - Medicare
- Workers’ Comp – likely NOT eligible
What are the requirements around headcount?
You must maintain the number of Full Time Equivalent (FTE) employees on your staff. Or, rehire them by June 30, 2020.
If a business reduces the number of FTE during the covered period after the PPP loan has been disbursed, the forgiveness amount is reduced by a ratio. This ratio is the number of FTEs during the covered period divided by the number of FTEs during a prior period. You can choose one of the following time periods. You are allowed to choose whatever is best for you.
- Using 2019 Information –the average number of FTEs from February 15, 2019, through June 30, 2019
- Using 2020 Information –the average number of FTEs from January 1, 2020, to February 29, 2020
- Seasonal Businesses must use the average number of FTEs from February 15, 2019, through June 30, 2019
What are the requirements around salary levels?
You must maintain 75% of the salary or wages for FTE that make less than $100,000.
For this calculation, you will only look at FTEs that make less than $100,000. You will need to calculate this per employee. For each employee, you must maintain salary or wages to within 75% of the total before the covered period. The reduction in loan forgiveness is the amount of money required to return the compensation level to at least 75% of the pre-covered period.
During what time frame must expenses have been incurred to be eligible?
The forgiveness covers expenses incurred during the 8 or 24-week period following the receipt of loan proceeds. The date February 15 refers to when the relationship with the vendor must have been in place. For example, if you would like pay your electric bill with forgivable PPP loan money, the account with the electric company must have been set up before February 15.
What should I do if I believe that my loan size is incorrect?
We do not believe that there will be a penalty for any miscalculations on loan sizing as the Treasury & SBA have implied that accuracy is measured against “best efforts.”
Too big – If you have been allocated too large a loan, and you do not wish to convert to a 1% loan, set the money aside for repayment.
Too small – There may not be recourse available, but we suggest having a discussion with the bank about your specific situation.
