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Paycheck Protection Program: Forgiveness
The Borrower's Guide to PPP Loan Forgiveness

Congratulations, now that you have secured your Paycheck Protection Program (PPP) loan funds, you can focus on growing your business. 

 

Last Updated 5/7/20 — Some business owners may want to utilize the loan forgiveness option under the PPP and in order to provide you with guidance on how to properly spend the PPP loan proceeds within the guidelines for the loan forgiveness option we have prepared the following information to explain the latest information available to help you navigate that process.  Please keep in mind, the PPP is new and the process for PPP loan forgiveness is still being developed by the SBA so the information below is not complete and subject to further developments as we get more information from the SBA on this option.   Please check back with us for any updates to this information.


If you still have questions after reviewing this information, please reach out to your SouthEast Bank banker who is the same individual who helped you through the loan application process and this banker will be your point of contact when you apply for loan forgiveness.

 

Here's What We Know


The funds from the PPP must be used for the following purposes if seeking forgiveness:

  • Payroll: salary, wage, vacation, parental, family, medical, or sick leave, health benefits
  • Mortgage interest: as long as the mortgage was signed before February 15, 2020
  • Rent: as long as the lease agreement was in effect before February 15, 2020
  • Utilities: as long as service began before February 15, 2020

 

Conditions for Loan Forgiveness:

  • Eight Weeks of Coverage: Eligible expenses are those that are incurred over eight weeks, starting from the day the PPP funds were disbursed to Borrower
  • The 75/25 rule: At least 75% of the loan must be used for payroll costs. Payments to independent contractors cannot be included in payroll costs
  • Staffing Requirements: Borrower must maintain employees on payroll
    • Calculation for Meeting Requirement:
      • Determine the average number of full-time equivalent employees for the following periods:
        • The 8-week period after initial loan disbursement to Borrower (A)
        • February 15, 2019 to June 30, 2019 (B1)
        • January 1, 2020 to February 29, 2020 (B2)
      • Calculate maximum of A/B1 and A/B2; if Borrower is a seasonal employer, calculate A/B1
      • If number is equal to or larger than 1, headcount is successfully maintained and requirement is met
      • If number is smaller than 1, headcount is not successfully maintained and forgivable expenses will be reduced proportionately

 

Pay Requirements: 

  • Borrower must maintain at least 75% of total salary
  • This requirement will be individually assessed for every employee that did not receive more than $100,000 in annualized pay in 2019
  • If the employee’s pay over the 8 weeks is less than 75% of the pay they received during the most recent quarter in which they were employed, the eligible amount for forgiveness will be reduced by the difference between their current pay and 75% of the original pay

 

Rehiring Grace Period: 

  • Borrower has until June 30, 2020 to restore full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020
  • Borrower does not have to rehire the same employees 
  • Rehired workers do not have to perform customary work duties
  • Borrower’s PPP forgiveness will not be reduced if borrower offers to rehire a laid-off employee and the individual rejects the job. The borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower

 

For the Self-Employed Borrower:

  • Self-employed Borrower is entitled to use the PPP loan to replace lost compensation due to the impacts of COVID-19
  • However, a self-employed Borrower is not entitled to use the full amount to replace pay
  • The Administrator, in consultation with the Treasury Secretary, has determined that it is appropriate to limit the forgiveness of owner compensation replacement for individuals with self-employment income who file a Schedule C to eight weeks' worth (8/52) of 2019 net profit
  • If self-employed Borrower has mortgage interest, rent, or utilities expenses, he or she must have claimed or be entitled to claim a deduction for those expenses on 2019 Form 1040 Schedule C in order to claim them for forgiveness

 

What we know about Loan Forgiveness:

  • After 8 weeks, Borrower can submit a request to the lender for loan forgiveness
  • The request must include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations
  • Payroll reports from payroll provider
  • Payroll tax filings (Form 941)
  • Income, payroll, and unemployment insurance filings from state records
  • Documents verifying any retirement and health insurance contributions
  • Documents verifying eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements)
  • Borrower must have authorized representative to certify that (1) the documentation presented is true and correct and (2) the amount for which forgiveness is requested was used to retain employees, make interest payments on a covered mortgage obligation, make payments on a covered rent obligation, or make covered utility payments
  • Once request is submitted, the lender is required to make a decision to deny or accept forgiveness within 60 days. If Borrower is initially denied, lender may allow Borrower to provide additional documentation to reevaluate request 
  • If loan forgiveness is denied, outstanding balance will continue to accrue interest at 1% for the remainder of the 2-year period

 

U.S and Foreign Affiliates:

  • For purposes of the PPP’s 500 or fewer employee size standard, an applicant must count all of its employees and the employees of its U.S and foreign affiliates, absent a waiver of or an exception to the affiliation rules.  13 C.F.R. 121.301(f)(6).  Business concerns seeking to qualify as a “small business concern” under section 3 of the Small Business Act (15 U.S.C. 632) on the basis of the employee-based size standard must do the same

 

Non-Discrimination:

  • With respect to any loan or loan forgiveness under the PPP, the nondiscrimination provisions in the applicable SBA regulations incorporate the limitations and exemptions provided in corresponding Federal statutory or regulatory nondiscrimination provisions for sex-specific admissions practices at preschools, non-vocational elementary or secondary schools, and private undergraduate higher education institutions under Title IX of the Education Amendments of 1972, for sex-specific emergency shelters and coreligionist housing under the Fair Housing Act of 1968, and for adoption or foster care practices giving child placement preferences to Indian tribes under the Indian Child Welfare Act of 1978
  • SBA regulations do not bar a religious nonprofit entity from making decisions with respect to the membership or the employment of individuals of a particular religion to perform work connected with the carrying on by such nonprofit of its activities

 

Student Workers:

  • Student workers generally count as employees, unless (a) the applicant is an institution of higher education, as defined in the Department of Education’s Federal Work-Study regulations, 34 C.F.R. § 675.2, and (b) the student worker’s services are performed as part of a Federal Work-Study Program (as defined in those regulations) or a substantially similar program of a State or political subdivision thereof
  • Institutions of higher education must exclude work study students when determining the number of employees for PPP loan eligibility, and must also exclude payroll costs for work study students from the calculation of payroll costs used to determine their PPP loan amount
  • The Administrator, in consultation with the Secretary of the Treasury, has determined that a limited exception for work study is appropriate here
    • In particular, the Administrator recognizes that requiring institutions of higher education to count work study students towards employee headcount would result in an anomalous outcome in two respects. First, it would prevent some small educational institutions from receiving PPP loans due solely to their provision of financial aid to students in the form of work study
    • Second, it would result in the exclusion of small educational institutions whose part-time work study headcount dwarfs their full-time faculty and staff headcounts
  • Educational institutions that filed loan applications prior to the issuance of the regulation are not bound by this interpretation but may rely on it. Lenders may continue to rely on borrower certifications as part of their good faith review process

 

Special Circumstances to Remember:

  • Any borrower who does not believe that he or she meets the guidelines can return funds no later than May 14, 2020 and will then avoid any consequences due to a misunderstanding with regard to the recently stipulated necessity certification requirements
  • PPP loans in excess of $2 million will be audited for program compliance prior to any forgiveness consideration for the PPP loan
  • Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan
  • Expenses related to forgivable loan through the PPP will not be tax-deductible
     

Sources

https://www.federalregister.gov/documents/2020/04/15/2020-07672/business...
https://www.federalregister.gov/documents/2020/04/20/2020-08257/business...
https://www.home.treasury.gov/system/files/136/PPP--Fact-Sheet.pdf
https://www.sba.gov/sites/default/files/2020-04/Paycheck-Protection-Prog...
https://www.irs.gov/pub/irs-drop/n-20-32.pdf
https://www.bench.co/blog/operations/ppp-loan-forgiveness