PPP Loan Forgiveness

We’re here to help you figure out what qualifies for loan forgiveness and what you need to apply.

PPP Loan Forgiveness
What Is PPP Loan Forgiveness?

Paycheck Protection Program (PPP) loans, created under the CARES Act, allow for potential loan forgiveness on eligible costs incurred during a set 24-week period after a borrower’s PPP funds are disbursed, defined under the CARES Act as the “covered period.”

Can You Apply for Loan Forgiveness Directly Through the SBA?

You cannot. Lenders will be responsible for submitting forgiveness applications. The lenders are required, however, to get SBA approval for those applications.

How Do You Apply for Loan Forgiveness?

You must submit an application for forgiveness through the lender that is servicing the loan and provide:

  • Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and state income, payroll and unemployment insurance filings

  • Documentation verifying payments on covered mortgage obligations, lease obligations and utilities

  • Certification that documentation is true and correct, and that the amount that is being considered for forgiven was used in accordance with the Paycheck Protection Program’s  guidelines for use

The lender has 60 days from receipt of a completed application to submit a decision to the SBA.

Eligible Costs for Loan Forgiveness

According to SBA guidance, the following costs and expenses are eligible for loan forgiveness under the Paycheck Protection Program. These costs must be paid or incurred during the covered period.

  • Payroll costs incurred during the covered period or alternative payroll covered period

  • Mortgage interest payments on mortgages established prior to February 15, 2020 (Payments toward the mortgage principal are not eligible. Advance payments on mortgages are also not eligible.)

  • Business rent or lease payments for lease agreements established prior to February 15, 2020

  • Utility payments toward electricity, gas, water, transportation, telephone, or internet access, as long as service began prior to February 15, 2020 (Advance payments on utilities are not eligible.)

Payroll Changes That Affect PPP Loan Forgiveness

If a borrower has reduced the number of employees employed by the business or nonprofit or if salary has been reduced for employees, that will affect a borrower’s loan forgiveness eligibility.

What to Know if You Have Laid Off Employees

Under the Paycheck Protection Program Flexibility Act (PPPFA), the deadline for rehiring all full-time employees has been extended until December 31, 2020. The PPPFA also provided the following exceptions for rehiring employees by that date:

  • If your business/nonprofit was unable to rehire an individual included as an employee as of February 15, 2020.

  • If your business/nonprofit was able to demonstrate that you were unable to hire similarly qualified employees on or before February 15, 2020.

  • If your business/nonprofit was able to demonstrate an inability to return to the same level of business activity at which your business was operating before February 15, 2020.

The SBA has not released guidance on what will be required for a borrower to “demonstrate” that their business or nonprofit was unable to hire a “similarly qualified employee” or that they have been unable to return to the “same level of business activity” prior to February 15, 2020.

What to Know if You’ve Reduced Employee Salary

Reductions in employee salary may also affect your eligible forgiveness amount. The SBA has indicated that a reduction of 25% or more in the annual salary for employees who make less than $100k/year will reduce the loan forgiveness amount.

Payroll Limits for PPP Loan Forgiveness

When applying for a PPP loan, borrowers were only able to use a maximum annual salary of $100k for each employee. The SBA has indicated similar restrictions will be put into place for loan forgiveness. It is likely that a maximum payroll amount of $15k per employee will be eligible for loan forgiveness.

That amount is calculated based on 8 weeks of pay for an employee with the $100k salary cap. While the SBA has extended the length of time that borrowers may use the funds to 24 weeks under the PPPFA, the 8-week payroll cap for forgiveness eligibility remains intact. If use of the $15k cap is drawn out over 24 weeks due to a reduction in employee salary for employees earning $100k and above, it may affect forgiveness eligibility. More clarity on both of these points is needed from the SBA. We will update this page when they provide further guidance.

Do Payments for Payroll and Utilities Have to Be Made During the Covered Period to Count?

Not necessarily. The SBA guidance provides some leeway for borrowers, allowing for payments made outside of the covered period to be eligible for forgiveness as long as they’re incurred during the covered period.

For payroll expenses, costs are considered to be incurred the day the employee earns the pay. So if the earnings are incurred during the covered period but not paid until after the covered period, these costs may still be included in the application for forgiveness.

For eligible non-payroll expenses, you can include costs incurred during the covered period, even if the next billing date is not within the covered period.

How Much of Your PPP Loan Can Be Used for Non-Payroll Costs and Still Be Forgiven?

Eligible non-payroll costs must be limited to 40% or less of the total forgiveness amount.

How to Apply for Loan Forgiveness

Borrowers must apply for PPP loan forgiveness through the lender that made the PPP loan.

What Happens if You’re Not Approved for Loan Forgiveness?

If you’re not approved for loan forgiveness, your lender may request additional documentation. Otherwise, you will be required to repay the loan. The outstanding balance will continue to accrue interest at 1% over a 2-year or 5-year loan term. If you decide to repay early, you can do so without incurring any early payment penalties or fees.

All payments (principal, interest and fees) are deferred for 10 months after your loan is disbursed; however, interest will continue to accrue over this period.

Note:  We recommend waiting until guidelines are finalized and until the end of your 24-week Covered Period to apply for loan forgiveness. This gives you more time to accrue and track eligible expenses, which could help increase your loan forgiveness amount.

© 2020 by Everfund Commercial Capital, LLC

Everfund Commercial Capital, LLC

2200 Wilson Blvd, Suite 102-38

Arlington, Virginia 22201

  • LinkedIn
  • Facebook