What We Currently Know About PPP Loan Forgiveness

What Are the Basic Rules of Processing PPP Loan Forgiveness?

PPP Loan Proceeds

PPP loan proceeds (plus accrued interest on the loan) are forgivable as long as they are expended on the following expenses incurred and paid during the eight-week period starting the day the proceeds are deposited to the borrower’s account from the lender.
1) payroll costs
2) utilities
3) rent 
4) mortgage interest
However, please be advised amounts spent on these items outside of the eight-week window are not forgivable, and payroll expenditures must account for 75 percent of the loan forgiveness amount, and non-payroll costs cannot be more than 25% of the amount forgiven

Understanding Eligible Payroll Cost

Eligible payroll costs include salary, gross wages and tips, up to $100,000 of annualized per employee (or $15,385 maximum per individual), plus benefits for employees. Employee benefits include healthcare expenses, retirement contributions and state taxes imposed on employee payroll paid by the employer. 

  • All utilities, rent and mortgage interest must be in effect as of Feb. 15, 2020.
  • All eligible expenses must be “incurred and paid” during the eight-week period. 
  • The eight-week period for qualifying expenses begins on the date that the lender makes its first disbursement of PPP loan proceeds into the borrowers account. More notably, according to the new IFR on Disbursements, the lender must make a one-time, full disbursement of the loan no later than 10 calendar days from the date of loan approval. 

PPP Forgiveness Qualifications

PPP forgiveness can be reduced based upon a head-count reduction formula and a salary-reduction formula, which are admittedly complicated and still in need of further clarification.  Here’s a quick overview of the current requirements:

Maintain employments levels for the eight-week period from the loan origination date or by June 30, 2020, for the average number of full-time equivalents employees per month to, at recipient’s election, either  

  • the average number of full-time equivalent employees per month from Feb. 15, 2019, and ending on June 30, 2019 or 
  • the average number of full-time equivalent employees per month from Jan. 1, 2020, and ending on Feb. 29, 2020; 

Additionally, maintain wages/salaries on each individual employee

  • for the eight-week period from the loan origination date or
  • by June 30, 2020, with a salary that at no time during any pay period in 2019 was greater than $100,000 on an annualized period, and at least 75 percent of what that individual employee’s wage/salary was in the most recent full quarter prior to the origination date of the loan.  

An employee who rejects an offer of rehire will be excluded from the recipient’s calculations for employment level and wages/salaries for forgiveness reduction as long as the recipient made a good faith, written offer of rehire and the employee’s rejection of such offer is documented. Employees who also reject an offer of reemployment may forfeit eligibility for continued unemployment compensation. 

Working With Lenders 

A recipient must request forgiveness and will work with its lender on its loan forgiveness application and the documentation required under the CARES Act and the upcoming Forgiveness IFR, which will be necessary to obtain forgiveness. An example loan forgiveness application has not been made available to date.  In preparation, please be aware that: 

  • Lenders may require supplemental information and documentation, in addition to what is in the forthcoming SBA guidance and the expected example loan forgiveness application. 
  • In addition to its PPP application certifications, a recipient will need to certify its forgiveness application.

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