Paycheck Protection Program Loan Forgiveness
The promise of loan forgiveness has driven hundreds of thousands of small businesses and individuals to apply for a loan under the new Paycheck Protection Program (PPP). However, it's important to remember that loan forgiveness is not automatic. Below we provide a few guidelines to keep in mind in order to receive the maximum amount of loan forgiveness possible once your application for the PPP loan has been approved and the funds reach your bank account.
- The clock starts now! You have eight weeks from the date the loan arrives in your bank account to use these dollars for the appropriate purposes. The Treasury and SBA have clarified the guidance to indicate that at least 75% of the loan must be used toward payroll costs while the remaining 25% may be used for eligible mortgage interest, lease, and utility obligations.
- Move the money! Although not required, we recommend opening a new business account with your bank and moving these funds directly into it. This will ensure that all the money is accounted for and expended properly. This will also simplify the "paper trail" should you need to track down cancelled checks or other transaction details when requesting forgiveness.
- Funding forgiveness! Although we anticipate that each bank or lender will have their own precise guidance on procuring loan forgiveness, a certain amount of documentation will be required. You should expect to provide the following support to substantiate your request for loan forgiveness:
- Payroll reports showing how much you spent to keep employees on payroll. Remember that 75% of the amount forgiven must have been spent on payroll costs.
- If you've already laid off employees, you can still request loan forgiveness if you bring back your payroll to February 15 levels before June 30. But remember, these employees must be on your payroll during the eight weeks immediately following receipt of the loan in order for them to receive compensation during the eight-week loan forgiveness window.
- We have not received any guidance that the employees on your payroll at June 30 must be exactly the same people at February 15. In fact, the Treasury and SBA only address "headcount", "full time equivalent employees", and "salary levels" in a broad sense. Thus, at this point, it appears that the primary criteria when determining payroll headcount and salary levels are that the amount of full-time equivalent employees remain the same and their salaries do not decrease by more than 25%, not necessarily that the individual people are the same. This is subject to change as the Treasury and SBA continue to provide additional guidance.
- Cancelled checks, receipts, account transcripts, and other bank-specified documentation may be used to corroborate mortgage interest, rent, and utilities paid. Invoices and utility bills will provide additional comfort that the checks and receipts trace back to approved business expenses. We recommend photocopying each check before mailing and attaching it to the corresponding invoice to ensure there is no difficulty locating either piece of support when applying for forgiveness.
Once the eight-week period has ended, you should file for forgiveness with the bank as soon as possible. The banks have 60 days after the application is submitted to determine loan forgiveness. Keep in mind that no payments on the loan are due for six months from loan inception. This hiatus provides ample time to move through the eight-week period and ride out the additional 60-day forgiveness process without concern for making any payments. The loan has a two-year repayment term, with a fixed 1% interest rate, thus any amount not forgiven will need to be repaid relatively quickly after the bank determines the unforgiven portion of the loan, if any.
Please feel free to reach out at any time with additional questions you might have. We are happy to help in any way we can!
2100 Gardiner Lane, Suite 207 | Louisville, KY 40205
502-459-8100 phone | 502-459-5773 fax
|
