PPP Loan Forgiveness: Part 1
PPP Loan Forgiveness: Part 1
Because of its importance, the next several issues will address several of the topics dealing with PPP loan forgiveness, as well as, provide you access to resources that can help you in the process.
PPP Loan Use Revisions
As a reminder, back in June Congress loosened the rules to make it easier to achieve full loan forgiveness, the two biggies being 60% (was 75%) of the loan must be spent on payroll costs and an option to use the loan proceeds over 24 weeks (was 8 weeks). This issue will cover some of the broader, more generic questions, we are receiving. The next issue will explore several of the specifics you may encounter.
Where do I file for forgiveness? Although the SBA ultimately approves forgiveness, your application will be filed with your lender.
What is the deadline for filing? Ten months after the last day of your covered period. The covered period is either 24 weeks or 8 weeks (see below) from the date of loan funding, which is the length of time you can use to spend the PPP funds.
Who determines my covered period and how? You do, sort of. If your PPP loan was received on June 5 or later, the 24-week period to use the funds, is automatic. Loans before June 5 can elect to use the original 8-week period to spend the funds.
IMPORTANT NOTE: SBA guidance is clear that self-employed persons without payroll need to use the 24-week option to achieve full forgiveness.
I spent all of my PPP funds before my 8-week or 24-week period is over. Should I file early? Be careful here. Your forgiveness amount may be reduced if your business has not restored a significant (25%) drop in employee payroll and/or employee counts by the time of filing. In this case, the SBA guidance warns borrowers that apply early for loan forgiveness that they may forfeit a safe-harbor provision allowing them to restore salaries or wages by Dec. 31. NOTE: more on this in the next issue.
What documents will I have to provide? Your lender will specify the type of documentary evidence you will need to provide as proof of PPP spending, but the instructions to SBA Form 3508 provide vivid examples of what you will need.
What is defined as employee compensation? All forms of cash compensation paid to employees, including tips, commissions, bonuses, hazard pay, and vacation pay.
Compensation: Gross or net? In calculating payroll spending, use the gross amount before deductions for taxes, employee benefits payments, and similar payments.
Are there any other payroll-related costs? Yes. Amounts paid by the employer for employee health premiums and employee retirement matching, as well as, any state or local tax paid by the employer are forgivable (i.e. state unemployment).
What non-payroll costs can be forgiven? Interest payments on business property along with business rent and utility payments. Speaking of rent….
Watch out for rent payments to a related party. “Related party” being the key word here. PPP funds used to pay rent on property owned by related parties are forgivable only up to the amount of interest expense paid on the property during the same period of time. If there is no mortgage on the property, then PPP funded rent payments to a related party are not part of the forgiveness calculation.
The Small Business Administration's (SBA) Q&A’s
