Maximizing Forgiveness of Your PPP Loan
We want to support our business customers who received a Paycheck Protection Program (PPP) loan by providing information and reminders about the program. The information below is based on guidance from the Small Business Administration (SBA) and reflects recent updates to the program through the Paycheck Protection Program Flexibility Act (Flexibility Act), which was signed into law on June 5, 2020.
The updates include:
- Term Increased to Five Years
- Extended Deferment Period
- Covered Period Extended up to 24 Weeks
- 75% Payroll Requirement Lowered to 60%
- Businesses Have Until December 31 to Return to Full Employment
Please note that there are still uncertainties about the program, and the SBA is expected to release additional guidance. Current information can be found on the SBA's Paycheck Protection Program webpage.
Under the Flexibility Act, the covered period during which borrowers can qualify for loan forgiveness has been expanded from eight weeks to 24 weeks from the date on which they received their loan funds. However, businesses that received their PPP loan prior to June 5 still have the option to continue using the original eight-week covered period. During your covered period, follow these tips to help achieve the maximum amount of PPP loan forgiveness:
1. Know What Expenses Are Eligible for Forgiveness.
Only certain business expenses are eligible for forgiveness, so make sure that you use your PPP loan funds for approved uses. These include:
- Salaries, wages, commissions, tips, and bonuses, including severance pay (typically found on IRS Form W-3, excluding contractor pay and owner draws) – up to $100,000 in annualized compensation. For businesses that are continuing to use the initial eight-week covered period, this limit equals $15,385 in compensation for each employee living in the U.S. and, for owners, it is the lesser of $15,385 or eight weeks of annualized 2019 pay. If using the 24-week covered period, this equals $46,154 in compensation for each employee or up to $20,833 for business owners (2.5 months of annualized 2019 pay up to $100,000)
- Employer-paid state and local taxes (typically found on IRS Form W-3)
- Any paid leave (vacation, parental, family, medical, or sick leave, typically found on IRS Form 940 or 944), excluding leave covered under the Families First Coronavirus Response Act (FFCRA)
- Employer-paid group health benefit contributions (excluding owners)
- Employer-paid retirement contributions (excluding owners)
- Interest on business mortgages if the mortgage agreement was in force before February 15, 2020
- Payments for rent or leases on real-estate or personal property if the agreements were in force before February 15, 2020
2. Use Your Funds Within 24 Weeks or by December 31 (Whichever Is Earlier).
Under the Flexibility Act, expenses eligible for forgiveness must be paid for or incurred, within 24 weeks of the day you received your loan. Businesses that received their PPP loan before this law was enacted also have the option to use the original eight-week covered period to make use of their PPP funds.
For payroll costs only, you have the option to begin the covered period for forgiveness either on the date you received your PPP loan funds or on the first day of the next payroll period following the date you received your PPP loan funds.
3. Restore FTE Employment Level and Employee Compensation by December 31, 2020.
To maximize forgiveness, you must restore your full-time equivalent (FTE) employment level by December 31, 2020 (or by June 30, if you received your loan prior to June 5 and have chosen to use the original eight-week covered period). Note that there are exceptions for employees who voluntarily resigned, requested a reduction in hours, or declined to be rehired, or for businesses that can document, in good faith, that they were unable to fill open positions due to an inability to hire or rehire qualified employees or because business activity was impacted due to compliance with government safety guidelines.
You also need to restore salaries and hourly wages on an employee-by-employee basis to near their previous levels by December 31, 2020 (or by June 30, if using the initial eight-week covered period). If you reduced any employee's average salary or hourly wages by more than 25%, you need to bring them back to within 25% of their previous amount. This does not apply to employees who make more than $100,000.
4. Use No More Than 40% of PPP Funds for Non-Payroll Expenses.
Borrowers must spend at least 60% of the loan proceeds on payroll costs to qualify for full loan forgiveness. If you do not spend 60% of the funds on payroll costs, you must reduce your loan forgiveness request so that the payroll costs constitute 60% of the total forgiveness amount.
5. Create a System for Tracking Your PPP Spending.
Talk with the person who pays your bills. Make sure they know what expenses should be paid with PPP loan funds. Some businesses have opened a separate business checking account for PPP loan funds, which they are using to pay for eligible expenses. If you are not doing this, consider establishing separate ledger accounts for expenses that you pay using PPP loan funds.
6. Collect and Organize Your Paperwork.
The SBA's PPP Loan Forgiveness Application requires businesses to provide documentation verifying the eligible expenditures. If you haven't started already, we encourage you to begin gathering:
- Payroll tax filings (typically, Form 941)
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings
- Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans
- Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks; or lender account statements from February 2020 through one month after the covered period
- Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks; or lessor account statements from February 2020 through one month after the covered period
- Business utility payments: Copy of invoices from February 2020 and those paid during the covered period, and receipts, cancelled checks, or account statements
To apply for Forgiveness, you must meet the requirements of the program and complete one of the forms below and all other required documents.
If you have any questions, or concerns, we are here for you. You can email our Business Banking team at [email protected] or contact us at (844) 772-4722.
Please note that this is a general overview of the Paycheck Protection Program and does not constitute legal, tax or other professional advice. The rules under the program are subject to change. You should consult qualified professionals regarding the program.