PPP Loan Forgiveness FAQs
You have plenty of time, but make sure to document everything. Per the Paycheck Protection Program Flexibility Act, if you do not request forgiveness within 10 months after the last day your selected Covered Period, you will be required to begin making payments, as discussed above.
The Covered Period? The Eight-Week Covered Period? The 24- Week Covered Period? The Alternative Payroll Covered Period?
These are really important terms that will determine what records and information you’ll need to document your Forgivable Expenses:
- The Eight-Week Covered Period (sometime 8-Week Covered Period), contained in the original PPP guidelines, is the 56 calendar days (eight weeks) following the date your PPP Loan was funded.
- The 24-Week Covered Period is the 168 calendar days (24 weeks) following the date your PPP loan was funded. It was introduced in the PPP Flexibility Act to help businesses qualify for forgiveness who needed more than eight weeks to meet the programs requirements for forgiveness.
- The Covered Period means either the Eight-Week Covered Period or the 24-Week Covered Period, as applicable.
- The Alternative Payroll Covered Period allows you to adjust the relevant Covered Period for eligible payroll expenses – but not for eligible non-payroll expenses – to match your typical payroll cycle. You must use a bi-weekly pay schedule or a more frequent pay schedule to use this Alternative Payroll Cover Period. If your PPP loan was funded in the middle of a typical payroll cycle, you may elect to start the Covered Period for forgivable payroll expenses on the first day of the next typical payroll cycle, which becomes the first day of the Alternative Payroll Covered Period (either eight-week or 24-week).
You can apply for loan forgiveness any time following the eight-week Covered Period or 24-week Covered Period. If you do not request loan forgiveness within 10 months after the end of your 8-week Covered Period or 24-week Covered Period, you will be required to commence making principal and interest payments on your loan at that time.
The full principal amount of a PPP Loan plus accrued interest may be forgiven if the following conditions are met:
- All PPP Loan proceeds were used for Forgivable Expenses;
- At least 60% of the Forgivable Expenses are used for Payroll Costs over the Eight-Week Covered Period, the Eight-Week Alternative Payroll Covered Period, the 24-Week Covered Period or the 24-Week Alternative Payroll Covered Period (as applicable to your PPP loan);
- There is no reduction in FTEs when comparing the average weekly number of FTEs during the Eight-Week Covered Period, the Eight –Week Alternative Payroll Covered Period, the 24-Week Covered Period or the 24-week Alternative Payroll Covered Period (as applicable) to FTEs in the FTE Reference Period, unless any reduction is restored on or before December 31, 2020; and
- There is no reduction in salaries (or wages) by more than 25% for any employee that received compensation from the borrower at an annualized rate of less than or equal to $100,000 for all pay periods in 2019 when comparing the employee’s average annual salaries (or wages) during the applicable Covered Period or applicable Alternative Payroll Covered Period (as applicable) to the employee’s average annual salaries (or wages) during the first quarter of 2020, unless such reduction is restored on or before December 31, 2020.
Example: Assuming no reductions in FTEs or salaries after February 15, 2020, if a borrower received a $100,000 PPP Loan, and spent $100,000 on forgivable expenses during the applicable Covered Period or applicable Alternative Payroll Covered Period, and if 60,000 (60%) of those expenditures were for payroll costs and the remaining 40,000 (40%) were for other forgivable expenses, then the full $100,000 would be forgiven, assuming no EIDL loan advances were given.
Forgivable payroll costs include:
- The following payments, up to a $100,000 annualized rate per employee or partner,
- Salaries, hourly wages, commissions, similar compensation (i.e. bonuses and hazard pay);
- Any guaranteed payments (or other payments subject to self-employment income) to a partner of an LLC and the partner’s corresponding tax liability associated with such payments; and
- Any other amounts paid to owners who are owner-employees, self-employed individuals, or general partners, as long as the amount does not exceed the lesser of (i) $15,385 for an Eight-Week Covered Period or Eight-Week Alternative Payroll Covered Period, or $46,155 for 24-week Covered Period or 24-Week Alternative Payroll Covered Period; or (ii) the Covered Period equivalent of their applicable compensation for 2019.
- Cash tips or equivalent payments;
- Payments for vacation, parental or family leave, or sick or medical leave;
- Payments for any group health insurance coverage (including the employer’s portion of any premiums or the employer’s contributions to a self-insured, employer-sponsored group health plan, but excluding
- Any pre-tax or after tax contributions by employees, and
- Any health care costs attributable to owners or general partners, unless such persons are also classified as employees and are covered under the borrower’s general health insurance plan);
- Employer contributions to retirement plans (but excluding any retirement plan costs attributable to owners or general partners, unless such persons are also classified as employees and are covered under the borrower’s general retirement plan);
- Employee's portion of federal payroll taxes;
- Payments for separation or dismissal of the employee; and
- State and local taxes assessed on compensation (e.g., state unemployment insurance tax).
There are 5 exclusions related to payroll costs:
- Cash compensation in excess of $100,000 per employee or partner on an annual basis (i.e., any amounts paid to an employee or partner during the eight-week period that are in excess of $15,385 for Eight-Week Covered Period or Eight-Week Alternative Payroll Covered Period, or $46,155 for 24-week Covered Period or 24-Week Alternative Payroll Covered Period);
- Employer's portion of any federal income tax, FICA, non-US employee payroll costs (and other taxes imposed under Sections 21, 22 or 24 of the Internal Revenue Code);
- Qualified medical/sick leave under Section 7001 of the Families First Coronavirus Response Act;
- Compensation to an employee whose principal place of residence is outside the USA;
- Payments to independent contractors or other 1099s.
No. However, business mortgage interest payments do qualify, including interest on business loans secured by real estate or personal property.
No you cannot pay independent contractors with SBA PPP funds and still be forgiven as they don't qualify as forgivable payroll or non-payroll costs. However, independent contractors have until June 30, 2020 to apply for their own PPP Loans.
You have until December 31, 2020 to return your employment levels to the level at which they were on February 15, 2020. SBA has provided Safe Harbor protections if you are unable to rehire individuals (on the condition that you retain proper documentation of the inability to rehire).
You're allowed to terminate people for cause without penalty. If an employee resigns voluntarily or reduces their hours voluntarily, you're also not penalized.
Will my PPP loan forgiveness amount be reduced if I laid off an employee, offered to rehire the same employee, but the employee declined the offer?
No. If a former employee is offered and declines a documented good faith offer for the same number of hours and at the same wage, the interim final rule says that PPP loan forgiveness amount will not be reduced.
Any portion of your PPP loan that is determined to not be eligible for forgiveness will be converted to a term loan and your business must repay the principal and interest on the amount of the unforgiven portion prior to the applicable maturity date. The Bank will notify you the amount that is not forgiven and the due dates and amounts of your monthly payments necessary to fully repay the loan over the remaining term of your loan.
Who pays the interest on my loan during the selected Covered Period and while my forgiveness application is being reviewed?
The SBA will reimburse the Bank for the interest expense during this period (the deferral period) on the forgiven portion of your PPP loan. You will be required to pay interest on any unforgiven portion of your PPP loan, with principal and interest payments starting from the date the SBA remits payment of the forgiven portion of your PPP loan to the Bank. If you do not apply for forgiveness within 10 months after the end of your selected Covered Period, you will be required to start making principal and interest payments on the entire amount of your PPP loan.
Under the original PPP legislation, if your PPP loan was approved by the SBA prior to June 5, 2020, the repayment period is two years from the date of initial disbursement of your PPP loan proceeds. Under the PPP Flexibility Act the repayment period is 5 years from the date of initial disbursement of your PPP loan if your PPP loan was approved by the SBA on or after June 5, 2020. However, the Flexibility Act permits banks to offer a term of five years for loans approved prior to June 5, 2020. At Bank of the West, when you submit your application for forgiveness, we will ask you which loan term you prefer for any unforgiven portion of your loan if your PPP loan currently has a two year maturity.
It is to your advantage to apply for forgiveness, but you are not required to apply. If you do not submit an application for forgiveness within 10 months of your funding date, the deferment period will end at that time. The Bank will notify you of the due dates and amounts of your monthly payments necessary to fully repay the loan over the remaining term of your loan.
Yes. There is no prepayment penalty.
Your lender has 60 days after your completed forgiveness application has been submitted to review and submit your forgiveness application to the SBA. The SBA has stated that it will then review and inform the Bank of its final decision on your forgiveness application within 90 days after submission to the SBA. Within five days after the SBA has either remitted to the Bank the amount of the forgiven portion of your loan (which may be all or a portion of your PPP loan) or informed the Bank that it has denied the application for forgiveness, the Bank will notify you of the SBA’s decision.