PPP Loan Forgiveness FAQs
Earlier this month, the Flexibility Act was passed which amended the rules regarding Paycheck Protection Plan (PPP) loan forgiveness. With the Act, the Small Business Administration (SBA) has issued revisions to the prior Interim Final Rules that impact the loan forgiveness application process.
This week, the SBA has posted revised PPP loan forgiveness application forms. Our developers are working to make changes to our online application portal to accommodate these recent revisions. Dependent upon your disbursement date, you may soon receive an email with a link and directions for the application process.
In the meantime, please review the revised information regarding the current status of the program:
- LOAN TERMS: For loans made before June 5, 2020, the maturity is two years.
- COVERED PERIOD: The Flexibility Act extended the "loan forgiveness covered period" from 8 weeks to 24 weeks beginning on the date the PPP loan was disbursed. However, if a PPP loan was made before June 5, 2020, the borrower may elect to use the eight-week period beginning on the date the PPP loan was disbursed.
- DEFERRAL PERIOD: The Flexibility Act also extended the payment deferral period to up to approximately 10 months.
- USE OF FUNDS: The minimum amount of the loan proceeds needed to be spent on payroll was reduced from 75% to 60%, with the maximum amount of funds available for other expenses increasing from 25% to 40%.
- EMPLOYEE REHIRE: Extension of the Safe Harbor date to rehire employees from June 30, 2020, to December 31, 2020. The Safe Harbor rules state that if employees are rehired by December 31, 2020, their salaries count towards forgiveness and the borrower is not penalized. In addition, there was an easing of the rehire requirements, but additional guidance is needed to provide details.
Have there been changes to the PPP?
Yes, several recent changes have been made to the program. They include: extending the timeframe to use funds from eight weeks to 24 weeks, and requiring businesses to use 60% of the funds on payroll (before, it was 75%). Additionally, small business owners have until December 31, 2020, to rehire employees to qualify for full forgiveness. The 1% interest rate on the loans remains the same. At this time, we are pending additional SBA guidance as to how these changes will be implemented.
As a part of the changes to the PPP, will I need new loan documentation?
We are awaiting for the SBA to issue guidance on this and will update our FAQs when the information is made available.
Can I roll an EIDL into my PPP loan?
A PPP loan must be used to refinance the full amount of the EDIL Loan when:
- The PPP Borrower received funds from the EIDL loan from January 31, 2020 through April 3, 2020; and
- The PPP Borrower used the EIDL loan funds to pay payroll costs.
Additionally, if you received an advance of $10,000 for example, you will be able to retain that amount as a grant. An EIDL Loan may not be refinanced with a PPP loan when the PPP Borrower received the EIDL loan before January 31, 2020 or after April 3, 2020.
I already have a PPP loan. Can I apply for an additional PPP loan?
The regulation states borrowers can only apply for one PPP loan per business entity they own. If the borrower has a business with multiple locations and each location has its own Tax ID or EIN, then they could apply for a loan for each entity.
Can I submit one loan forgiveness request for related entities with different PPP loans?
As each entity has a separate loan number, each will require a separate loan forgiveness request.
How does a borrower have their entire PPP loan forgiven?
The borrower will not be responsible for any loan payment if:
- The borrower uses all loan proceeds for forgivable purposes, and
- Employee and compensation levels are maintained.
The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest provided funds are used for covered expenses. At least 60% of the loan forgiveness amount must be attributed to payroll costs. Not more than 40% of the loan forgiveness amount may be attributable to non-payroll costs.
If my loan is not fully forgiven, will the interest due be on the total loan amount or on the unforgiven portion of the loan?
With the passage of the PPP Flexibility Act, there have been some changes to the deferral period. Under the Act, the deferral period for borrower payments of principal, interest, and fees and PPP loans has been extended to the date the SBA remits the borrower’s loan forgiveness amount to the lender. As such, we are awaiting for the SBA and Treasury Department to issue guidance regarding the implementation of the Act’s changes and how they will impact borrowers.
When can I apply for PPP loan forgiveness?
Earlier this month, the Flexibility Act was passed which amended the rules regarding Paycheck Protection Program (PPP) loan forgiveness. With the Act, the Small Business Administration (SBA) has issued revisions to the prior Interim Final Rules that impact the loan forgiveness application process.
As such, changes are being made to our online loan forgiveness application to accommodate these recent revisions. The long form 3508 is ready and our developers are working on the completion of form 3508EZ. Nonetheless, we are awaiting procedures from the SBA on how to submit the completed forgiveness application for SBA processing. Once this guidance is issued, you will receive an email with directions for the application process. Links to the online application will be sent in order of your disbursement date.
There are two PPP loan forgiveness applications: the 3508 and the 3508EZ. Which one is right for me?
Form 3508EZ applies to borrowers who meet any one of these three criteria:
- Applied for the PPP loan as self-employed, an independent contractor or a sole proprietor with no employees.
- Did not reduce salary or wages for any employee by more than 25% during the covered period (or alternative payroll covered period) compared to the period between January 1, 2020 and March 31, 2020, and did not reduce the number or hours of their employees between January 1, 2020 and the end of the covered period (excepting laid-off employees who refused an offer to return).
- Did not reduce salary or wages for any employee by more than 25% during the covered period (or alternative payroll covered period) compared to the period between January 1, 2020 and March 31, 2020 and was unable to operate during the covered period at the same level of as before February 15, 2020 as a result of health directives related to COVID-19.
What is the general process to obtain loan forgiveness?
To receive loan forgiveness, a borrower must complete and submit the Loan Forgiveness Application (SBA Form 3508, SBA Form 3508EZ, or lender equivalent) to its lender (or the lender servicing its loan). As a general matter, the lender will review the application and make a decision regarding loan forgiveness.
- The lender has 60 days from receipt of a complete application to issue a decision to SBA.
- If the lender determines that the borrower is entitled to forgiveness of some or all of the amount applied for under the statute and applicable regulations, the lender must request payment from SBA at the time the lender issues its decision to SBA.
- SBA will, subject to any SBA review of the loan or loan application, remit the appropriate forgiveness amount to the lender, plus any interest accrued through the date of payment, not later than 90 days after the lender issues its decision to SBA.
- If applicable, SBA will deduct EIDL Advance Amounts from the forgiveness amount remitted to the Lender as required by section 1110(e)(6) of the CARES Act.
- If SBA determines in the course of its review that the borrower was ineligible for the PPP loan based on the provisions of the CARES Act, SBA rules or guidance available at the time of the borrower’s loan application, or the terms of the borrower’s PPP loan application (for example, because the borrower lacked an adequate basis for the certifications that it made in its PPP loan application), the loan will not be eligible for loan forgiveness.
- The lender is responsible for notifying the borrower of the forgiveness amount.
- If only a portion of the loan is forgiven, or if the forgiveness request is denied, any remaining balance due on the loan must be repaid by the borrower on or before the two-year maturity of the loan.
- If the amount remitted by SBA to the lender exceeds the remaining principal balance of the PPP loan (because the borrower made scheduled payments on the loan after the initial deferment period), the lender must remit the excess amount, including accrued interest, to the borrower.
- The general loan forgiveness process described above applies only to loan forgiveness applications that are not reviewed by SBA prior to the lender’s decision on the forgiveness application.
In a separate interim final rule on SBA Loan Review Procedures and Related Borrower and Lender Responsibilities, SBA describes its procedures for reviewing PPP loan applications and loan forgiveness applications.
What documentation will I need when I submit my loan forgiveness request?
Based on your disbursement date, you will receive a link to our online PPP loan forgiveness application. Below is a list of some of the documentation you will need to provide as part of the forgiveness application process.
Payroll Costs: Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:
- Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
- Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
- Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
- Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount.
Non-Payroll Costs: Documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period.
- Business mortgage interest payments: Lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments; or copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period.
- Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
- Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.
Number of Employees: You will need to provide the total number of employees at the time you are applying for loan forgiveness.
You must retain all such documentation for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of SBA, including representatives of its Office of Inspector General, to access such files upon request.
How is the forgiveness amount calculated?
Use the SBA loan forgiveness form to calculate the amount of loan forgiveness. The actual amount of loan forgiveness depends, in part, on payments made over the twenty-four-week period following the disbursement of loan funds, including:
- The total amount of payroll costs,
- Payments of interest on mortgage obligations incurred before February 15, 2020,
- Rent payments on leases dated before February 15, 2020, and
- Utility payments under service agreements dated before February 15, 2020, and
- Retention of fulltime equivalent employees.
How will employment levels and employee retention be calculated for forgiveness?
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if:
- Full-time headcount declines, or
- Salaries and wages decrease.
The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:
- Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles.
- Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the 24-week period after receiving their PPP loan
- Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
- Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring by December 31, 2020.
- Exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.
How much of the loan forgiveness must be attributable to payroll costs?
As updated with the passing of the PPP Flexibility Act, at least 60% of the loan forgiveness amount must be attributed to payroll costs. Not more than 40% of the loan forgiveness amount may be attributable to non-payroll costs.
Are payroll costs incurred, but not paid, during the covered period eligible for forgiveness?
Payroll costs incurred but not paid during the Borrower’s last pay period of the Covered Period or
Alternative Payroll Covered Period are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period (or Alternative Payroll Covered Period).
- Payroll costs are considered paid on the day that paychecks are distributed or the Borrower originates an ACH credit transaction.
- Payroll costs are considered incurred on the day that the employee’s pay is earned.
Count payroll costs that were both paid and incurred only once. For information on what qualifies as payroll costs, see Interim Final Rule on Paycheck Protection Program posted on April 2, 2020 (85 FR 20811). For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period.
Are salary, wages, or commission payments to furloughed employees; bonuses; or hazard pay during the covered period eligible for loan forgiveness?
Yes. The CARES Act defines the term “payroll costs” broadly to include compensation in the form of salary, wages, commissions, or similar compensation.
- Furloughed Employees. If a borrower pays furloughed employees their salary, wages, or commissions during the covered period, those payments are eligible for forgiveness as long as they do not exceed an annual salary of $100,000, as prorated for the covered period.
- Inability to Work due to Public Health, Low Demand. Borrowers may continue paying their employees even if those employees are not able to perform their day-to-day duties, whether due to lack of economic demand or public health considerations.
- Hazard Pay and Bonuses. If an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation.
Can PPP loan funds be used for temporary staffing or for an employee hired to replace a regular employee who was out for the CARES Act?
Temporary employees do not count as employees of a company that hires them through a temp agency. The temp agency would be their employer and would count as an employee on the agency’s payroll. As of today, we have no additional guidance that allows PPP funds to be used for temporary employees. As the borrower, you can use the funds for whatever you deem appropriate. However, funds used for costs other than payroll of your employees, rent, interest on mortgages, and utilities, may not be forgiven.
I have an employee who received 80 hours of pay due to their positive COVID-19 result as per the CARES Act requirements. May I continue to pay them with PPP loan funds and remain compliant with the loan terms?
If the employee is paid with sick leave under the Families First Coronavirus Response Act (FFCRA), it should not be counted as part of the payroll costs you (the employer) are paying with funds from the PPP loan as it is specifically excluded from the definition. If you continue to have the employee on payroll they recuperate, the funds from the PPP loan can continue to be used to cover their salary or any other sick leave not covered by the FFCRA.
If I had some employees resign, will my loan forgiveness amount be reduced?
If employees voluntarily resigns, are fired for cause, or voluntarily requests a schedule reduction this will not be counted against the employer. If this happens, you may count such employees at the same full-time equivalency level before the FTE reduction event when calculating the reduction penalty. However, you may be required to provide documentation upon request. We strongly recommend you keep documentation to support the employee’s resignation. You may choose to rehire and replace the employee if you like, but this must be done by December 31, 2020.
Can I avoid a loan forgiveness amount reduction if I restore reductions made to employee salaries and wages or FTE employees by December 31, 2020?
Yes. If the borrower eliminates these reductions by December 31, 2020 or earlier, the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required in this program.