Answering Questions About PPP Loan Forgiveness

What You Need to Know About PPP Loan Forgiveness 

answering frequently asked questions about PPP loan forgivness

The interesting thing about PPP loans that were given out to small businesses this summer because of the COVID-19 pandemic, is the fact that they can be completely forgiven if you match certain criteria. This naturally brings up lots of questions about the criteria. The Small Business Administration (SBA) and the Department of Treasury released a Frequently Asked Questions (FAQ) document to address questions about PPP loan forgiveness.

These questions and answers apply to both borrowers and lenders. While the full document can be found here, we thought it would be useful to sum up the points that would be of the most value to our customers.

Loan Forgiveness Payroll Costs

  • Payroll costs incurred during both the covered and alternative payroll covered period are eligible for loan forgiveness even if they are paid after the covered and alternative payroll covered period.
  • Payroll costs incurred before the covered period and paid during the covered period are eligible for loan forgiveness.
  • Borrowers are required to calculate payroll costs for partial pay periods if they use a payroll cycle of twice a month or less.
  • When calculating cash compensation, borrowers should use the gross amount (the amount before deducting taxes, employee benefits payments, and more).
  • Salaries/wages aren’t the only things covered by loan forgiveness, it also includes tips, commissions, hazard pay, and bonuses. Forgivable cash compensation is limited to $100,000 per employee annually.
  • Employer expenses for employee group health care benefits are eligible for payroll costs loan forgiveness if they are paid or incurred during the covered period or the alternative payroll covered period. Expenses for group health care benefits paid by employees are not eligible for loan forgiveness payroll costs.
  • Employer contributions to employee retirement benefits paid by the employer qualify as payroll costs eligible for loan forgiveness. This does not include retirement contributions deducted from employees’ pay or paid by employees. These costs are only eligible for loan forgiveness if they occurred during the covered period or alternative payroll covered period.

Loan Forgiveness for Nonpayroll Costs

  • Nonpayroll costs such as business mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs that were incurred before the covered period but paid during the covered period are eligible for loan forgiveness.
  • Nonpayroll costs incurred during the covered period qualify for loan forgiveness if they were paid on or before the next billing date, even if it is after the covered period.
  • A renewed lease payment or interest payment on a refinanced mortgage loan are both eligible for loan forgiveness if the lease existed before February 15th, 2020, and expired on or after February 15th, 2020.
  • Payment of transportation utility fees is eligible for loan forgiveness.
  • The entire electricity bill is eligible for loan forgiveness even if parts of it are charged separately. This includes supply charges, distribution charges, and other charges like gross receipts taxes.

Economic Injury Disaster Loan (EIDL)

  • If the borrower receives an EIDL advance, the SBA reduces the borrower’s loan forgiveness amount by the amount that they get from the EIDL advance.
  • If a PPP loan is not fully forgiven (including reductions in the forgiveness amount for an EIDL advance), then the borrower must repay the remaining balance due on the PPP loan. The lender is responsible for notifying the borrower about the amount remitted from the loan forgiveness by the SBA. They are also responsible for notifying the borrower about the date on which their first loan payment is due and must continue to service the loan. The borrower must repay the remaining balance of the loan by the PPP loan’s maturity date (either two years or five years). If a borrower is determined ineligible for a PPP loan for any reason, the SBA may seek repayment of the remaining PPP loan balance or follow other available remedies.
  • If a borrower received an EIDL advance larger than the amount of their PPP loan, then they will not receive any PPP loan forgiveness. This is because the amount of an EIDL advance is deducted from the amount of the PPP loan forgiveness. As stated above, the lender is responsible for notifying the borrower about the amount remitted from the loan forgiveness by the SBA. They are also responsible for notifying the borrower about the date on which their first loan payment is due and must continue to service the loan. The borrower must repay the remaining balance of the loan by the PPP loan’s maturity date (either two years or five years). If a borrower is determined ineligible for a PPP loan for any reason, the SBA may seek repayment of the remaining PPP loan balance or follow other available remedies.

 

If you have any more questions about PPP loan forgiveness, contact us! We’ll be happy to answer.