PPP Loan Forgiveness
Updated June 23, 2020
On June 5th, Congress approved changes to the PPP program that provide more flexibility in how to use your PPP funds and clarify aspects of the forgiveness process. How the PPP loan forgiveness process is going to work is evolving, and we update this page as more is known.
The key changes approved on June 5th:
- Give you the option of spending your PPP funds over 24 weeks, rather than 8 weeks, but no later than December 31, 2020. Eight and 24 weeks are the only choices.
- Reduce the minimum portion of your forgivable amount that must be spent on payroll from 75% to 60%.
- Extend the period when you don’t have to make loan payments until the SBA has adjudicated your forgiveness application. Previously the SBA had stated that banks have up to 60 days to process your forgiveness application, and the SBA may take an additional 90 days to approve or reject it. Of course each of the steps may take less than the maximum time allotted.
June 21 Update: The SBA has now published a revised forgiveness application and an “EZ” version many borrowers will be able to use. Links to the forms are at the bottom of this page. However, the new forms do not reduce the extensive documentation borrowers are required to submit. Here are some things you should focus on:
- You will need to document all of your expenses during your “covered period”, which began on the day your loan was funded and extends for your choice of either 8 weeks (56 days) or 24 weeks (168 days). The general rule is you need to prove you owed each expense, and then you need to prove you paid it. You will need copies of invoices, proof of payment, and if you have employees, employee-level payroll reports and quarterly federal and state payroll tax forms for every quarter included in your covered period. That means if your covered period extends into July, the earliest you could file a forgiveness application is after September 30, when your third quarter payroll tax reports become available. If it seems like this level of documentation is much higher than for the loan application, you are correct.
- If you reduce employees compared to the period of your choice of 2/15/19-6/30/19 or 1/1/20-2/29/20, your forgiveness amount will be reduced proportionately. In addition, you will need to keep records of hours worked and wage paid, for each employee, by week, for 1/1/2020 through the end of your 8 or 24 week covered period. However, if you rehire employees to the level you had on 2/15/2020 by the earlier of when you file your forgiveness application or 12/31/2010, you are relieved of this reduction (the FTE Reduction Safe Harbor).
- And/or if you reduce hourly wages more than 25% for any employee compared to the period 1/1/20-3/31/20, your forgiveness amount will be reduced proportionately. There is no safe harbor for wage reduction, other than the 25% leeway already provided.
Here are a few Questions and Answers that may be helpful.
1. When should I plan on submitting a forgiveness application? Generally, the earliest you could submit an application is eight weeks after your loan was funded, and if you have employees, not until you have your second quarter payroll tax forms. There is a way to file before your covered period has ended if you have spent all yout PPP money, but given the answer to Question 5 below, we do not recommend it. Now that the SBA has published their revised application, FNB Bank is adjusting our systems. By July 6 we will communicate more precisely our schedule for borrowers to electronic submit their forgiveness applications.
2. How long do I have to file my forgiveness application? We encourage you to submit it following the end of the last quarter in which you had covered payroll expenses. By rule you have 10 months from the end of your 8 or 24 week covered period to submit your application.
3. How will I submit my forgiveness application to FNB Bank? FNB will provide an online system for you to submit your application and upload your documentation. We will notify you when the system is available for your use. We anticipate opening it up to sole proprietors and partnerships with no employees first, as they will not have to wait for payroll tax forms.
4. How do I decide whether to use an 8 week or 24 week covered period? If you can spend all your PPP loan on allowable expenses in the 8 weeks, with at least 60% of the amount spent going to payroll costs, then by all means stay with 8 weeks. However, if using 8 weeks leaves you with a significant unforgiven amount, using the 24 week period allows to include your eligible expenses for all 24 weeks in the calculation. It is worth noting that if you choose 24 weeks, the proration of the forgiveness amount that results if you reduce employees or wages extends for that full 24 weeks. However, while your forgiveness amount might be prorated if you reduce employees, you are starting the calculation with 24-week amount that may be much greater than your PPP loan balance, so that you still get full forgiveness. One final point is that you can make the decision as to whether to use 8 weeks or 24 weeks after the fact. At the end of 24 weeks you can calculate your forgiveness using both methods and chose the one that is most advantageous. You just have to be willing to do all the record-keeping, which is considerable.
5. If it takes longer than hoped for my forgiveness application to be approved by the SBA, is it going to cost me more in interest expense? For the amount that is forgiven, the answer is “No”, because the SBA will pay the interest on the forgiven amount up through the day the forgiveness is approved and your FNB loan balance is reduced accordingly. If you have an unforgiven amount, it has been accruing interest at 1% per year since the day your loan was funded. Once your unforgiven amount is placed on monthly payments, that interest will be converted to principle in included in your payments.
6. Please remind me… what are eligible expenses?
- Payroll costs, including wages, health, wellness, and retirement benefits, and state and local payroll taxes (but not unemployment insurance costs).
- Mortgage interest (but not principal) on real or personal property required for the business, provided the mortgage was incurred before 2/15/2020.
- Business rent or lease payments for real or personal property required for the business, provided the contract was in force before 2/15/2020.
- Utility payments for electricity, gas, water, transportation, telephone, and internet access for which service was begun before 2/15/2020.
7. What else? Be patient (we may not have seen the last of the changes to PPP), and collect your documentation!