What you need to know about PPP forgiveness 

July 1, 2020

While some recipients of the Paycheck Protection Program (PPP) may be breathing a sigh of relief at the extended covered period implemented by the PPP Flexibility Act (passed on June 5), borrowers should be taking a proactive approach to preparing documentation and developing a strategy for their forgiveness application. Since the program’s implementation, several pieces of updated guidance have been released and the program itself was extended in an effort to make the program more flexible for borrowers who are still navigating a complicated marketplace. This may create some confusion in what expenses count, what time period to use, and how to calculate FTEs. (Don’t worry if you haven’t kept up with all the updates – we’re here to help.) 

Know that, loan forgiveness isn’t just about having all of your documentation ducks in a row – it also requires a strategy for how you leverage certain expenses in your business and when. Also important to consider is that whether you received your loan before or after June 5 can have an impact on what elements of the updates are available to youBelow is a rundown of what you need to consider when it comes to your PPP forgiveness application documentation and strategy including how the date of your loan plays into your options.  

Know your time period 

Originally, the PPP included a covered period of 8 weeks from loan disbursement, but the update made by the Flexibility Act extended that provision to the earlier of 24 weeks from the date of loan disbursement or Dec. 31, 2020. Recipients of loans prior to June 5 can choose to stay with the 8-week covered period.  

Also important to note is that an update made in the May 23 interim final rule allowed for the payroll term to begin with the first payroll period following loan disbursement to allow for varying payroll schedules.   

Know your eligible costs 

A few key points must be considered when it comes to how the loan funds are spent on both payroll and non-payroll expenses to achieve maximum forgiveness. 

First, the PPP Flexibility Act updated the minimum of 75% of costs spent on payroll to 60% of costs must be spent on payroll to allow greater leeway for employers to achieve forgiveness. These costs are calculated on a sliding scale so that partial forgiveness is allowed if the 60% is not achieved provided certain conditions are met. Certain safe harbors (outlined below) protect employers who are not able to meet the 60% mark. Eligible payroll costs include: 

  • Salary and wages 
  • Separation or dismissal pay 
  • Employee benefits related to group health care coverage and retirement 
  • State and local taxes assessed on payroll 
  • Wages paid to independent contractors/sole proprietors (pro-rated amount of a $100,000 annual salary) 

Non-payroll costs may make up the other 40% of the loan. For non-payroll expenses, costs may be paid or incurred during the loan period. This greatly expands the expenses that may be covered. Eligible non-payroll costs include: 

  • Interest payments on business mortgage on real or personal property (Advance payments on interest are not an eligible expense) 
  • Business rent on real or personal property under lease 
  • Business utility payments including electricity, gas, water, transportation, telephone, or internet (incurred, in force, or in service before Feb. 15) 

We can assist with calculating all of your eligible costs for the application. 

Know your FTE employee requirements 

Different from the Affordable Care Act, the PPP calculates FTEs by the average number of hours paid per week per employee divided by 40 and rounded to the nearest tenth. This formula is included in the forgiveness application, and we can help you calculate this.  

The Flexibility Act updates included giving employers until Dec. 31, 2020, to restore employees to Feb. 15 levels, instead of the previous deadline of June 30, 2020. (It is unclear if employers who received loans prior to June 5 are eligible for the extended date.) Additionally, several safe harbors were put in place for employers who are unable to restore employment levels including: 

  • Inability to rehire an individual after a good faith effort who was an employee as of Feb. 15, 2020. 
  • Inability to hire similarly qualified employees on or before Dec. 31, 2020. 
  • Inability to return to same level of business activity prior to Feb. 15, 2020, due to restrictions imposed by HHS, CDC, and OSHA guidelines. 

All safe harbors must be documented in writing to be considered valid.  

Know your loan terms 

All loan forgiveness applications must be submitted through your lender, but we can help you complete the application with supporting documentation. If you received an Economic Injury Disaster Loan (EIDL) grant, that will need to be factored into your forgiveness calculations.  

For any loan amount that is not forgiven, some deadlines have been updated. 

  • Loan payments may be deferred for the earlier of 10 months after the last date of the covered period or when the SBA remits the loan forgiveness funds to the lender. This is updated from the previous provision of 6 months. 
  • Loan maturity for loans originating after June 5 is 5 years. 
  • Loan maturity for loans originating prior to June 5 require mutual agreement between borrower and lender to extend to 5 years, otherwise maturity is 2 years. 

Lenders have 60 days to decide on your loan forgiveness, and the SBA then has 90 days. The SBA may review any loan of any size, but you can appeal within 30 days if it doesn’t meet forgiveness and you and your CPA believe it should. More guidance is expected.  

Achieving maximum forgiveness is the ultimate goal, and your documentation and strategy for timing will be essential to meeting this goal. Do not leave your application up to chance. We are here to help you develop a strategy, prepare documentation, and work through any issues or challenges you may encounter in the process.  Contact us for assistance.