FAQs and The Essentials of Obtaining PPP Loan Forgiveness
UPDATE: On June 5, President Donald Trump signed legislation to address restrictions on the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).
While further guidance and clarification from the SBA and Treasury are likely, here is a summary of the provisions that appear in the Paycheck Protection Program Flexibility Act.
Specifically, the law:
• Extends the covered period during which the loan may be used for forgivable expenses from eight weeks following disbursement of the loan to 24 weeks from loan disbursement or Dec. 31, 2020, whichever is earlier. Borrowers who received loans before June 5 may elect to continue using the eight-week covered period.
• Lowers the amount that must be spent on payroll costs from 75 percent to 60 percent. The new 60 percent threshold is now a cliff, meaning that borrowers must spend at least 60 percent on payroll or none of the loan will be forgiven.
• Extends the period in which employers may rehire or eliminate a reduction in employment, salary, or wages that would otherwise reduce the forgivable amount of a PPP loan to Dec. 31, 2020. However, the forgivable amount will be determined without regard to a reduction in the number of employees (compared to Feb. 15, 2020) if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees by Dec. 31, or (2) unable by Dec. 31 to return to the same level of business activity that existed before Feb. 15, 2020, due to compliance with federal requirements or guidance related to COVID-19.
• Replaces the six-month deferral of payments due under PPP loans with deferral until the date SBA pays the lender the amount of loan forgiveness. If a borrower fails to apply for loan forgiveness within 10 months after the last day of the covered period for forgiveness, the borrower must begin to make payments of principal, interest, and fees on its PPP loan.
• Establishes a minimum maturity of five years for new PPP loans as opposed to the current two-year maturity date. The five-year maturity takes effect on the date of enactment and will apply to any PPP loan made on or after June 5. Lenders and borrowers, however, may mutually agree to modify the maturity terms of prior-disbursed PPP loans.
• Eliminates a provision that makes PPP loan recipients who have PPP debt forgiven ineligible to defer payroll tax payments.
The final date to obtain a PPP loan remains June 30, 2020.
This law will likely be subject to additional guidance by SBA and Treasury. Small-business borrowers should have a firm understanding of the provisions above and any related guidance to ensure they meet the criteria for loan forgiveness.
FAQs - Are PPP loans eligible for loan forgiveness?
Yes, PPP loans are eligible for loan forgiveness—meaning you have no responsibility to repay the loan—if the funds are used for certain business expenses. It's also possible to receive forgiveness for a percentage of the loan vs. the entire loan amount. See "Is it possible to have some of my loan forgiven, but not all?" below.
What business expenses qualify for loan forgiveness?
To qualify for loan forgiveness, the funds must be used on one or more of the following expenses billed or incurred in the 8-weeks after you received your loan:
• Payroll costs, including benefits
• Interest on mortgage obligations, where the mortgage obligations originated before February 15, 2020
• Rent, under lease agreements in force before February 15, 2020
• Utilities, for which service began before February 15, 2020
What counts as payroll costs?
Payroll costs include:
• Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee)
• Employee benefits, including costs for vacation, parental, family, medical, or sick leave; an allowance for separation or dismissal; payments required for the provisions of group health care benefits, including insurance premiums; and payment of any retirement benefit
• Federal, state and local taxes assessed on the compensation of employees
• For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee
Is it possible to have some of my loan forgiven, but not all?
Yes. You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utility payments over the eight weeks after getting the loan. Payroll costs must represent at least 60% or the forgiveness amount.
You may also owe money if you do not maintain your staff and payroll, such as:
• Your loan forgiveness may be reduced if you decrease your full-time employee headcount.
• Your loan forgiveness may also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
• You may be able to avoid a reduction in forgiveness if you restore your full-time employment and salary levels by June 30, 2020.
How do I apply for loan forgiveness?
You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on an eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on forgiveness within 60 days.
What happens to loan proceeds that are not forgiven?
Proceeds that are not forgiven must be repaid pursuant to your promissory note, and can only be spent on the following:
At least 75% of the loan proceeds must be used for payroll costs.
The remaining 25% of loan proceeds may be spread across the following items only:
• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
• Mortgage interest payments (but not mortgage prepayments or principal payments);
• Rent payments; Utility payments; Interest payments on any other debt obligations that were incurred before February 15, 2020; and/or
• Refinancing an SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020, and April 3, 2020.
If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you could be subject to additional liability such as charges for fraud.
Here are additional links to the most-update information and resources from the SBA and Treasury Department:
You may be able to use the EZ form if you meet one of the following:
• Are self-employed and have no employees
• Did not reduce the salaries or wages of your employees by more than 25% and did not reduce the number or hours of your employees
• Experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of your employees by more than 25%
We’ll help you navigate the process, including whether you can use the new 3508EZ form.
PLEASE NOTE: We have combined both forms in the link below - if you qualify for the 3508EZ form you skip the other SBA Form 3508 PPP Forgiveness Application.
PLEASE NOTE: Your Paycheck Protection Program Loan Forgiveness Application will not be processed until all required supporting documents are uploaded and will be added to the queue for review.
ShareFile allows you to send us sensitive documents in a secure and encrypted fashion with no limitation on document size to the bank without making a trip to our brick and mortar location.
Providing Allied First Bank with any documents through this secure document upload, portal or through any other means does not create automatic government funding or guaranteed loans. Still, by submitting your documents through this secure portal you are added to the queue for us to review your documents with a staff member assigned to your file.
We hope this helps, if not please contact us for more information or answers to your questions.
(630) 554-8899 or CustomerService@AlliedFirst.com