Paycheck Protection Program

Paycheck Protection Program Loan Forgiveness

The Paycheck Protection Program (PPP) Loan is a loan. The funds must be repaid to the lender. Congress and the SBA have, however, provided for potential forgiveness of the loan. The forgiven portion will not be paid back by the borrower. The federal government will pay the lender the forgiven portion in a lump sum. The unforgiven balance of the loan must be repaid at 1.0% interest.

In mid-June, Congress amended the PPP Loan triggering changes by SBA to the forgiveness application process. Customers Bank is still awaiting guidance and advices you to delay making a forgiveness application at the present time. You have plenty of time.

When you have spent your PPP Loan funds you may wait up until 10 months following the end of your “covered period” to apply for forgiveness. Federal law and program guidelines give lenders 60 days to process PPP Loan forgiveness applications and then the SBA has 90 days to review the lenders’ submittals. We do not expect the process to take five months, but your forgiveness approval will take some time. Payments of principal and interest are deferred for the 10-month waiting period and while forgiveness applications are under review.

To earn loan forgiveness, you must retain employees and you must spend at least 60% of the PPP Loan on payroll including taxes and benefits. Below are some generic FAQs to provide you with guidance and planning.

The program guidelines and federal applications are, however, changing frequently. We strongly recommend that you consult with your attorneys, CPAs, tax advisors, and financial consultants.

PPP borrowers with loans originated and serviced by Customers Bank will be contacted directly by the bank with more details and tools for the forgiveness application. Other lenders including Kabbage, Ready Capital, OnDeck and others will have separate PPP Loan Forgiveness applications and requirements. Please consult with them if they originated or will service your loan.

Click below to view our weekly PPP communication to our clients. If you are not our client, your lender might have other rules.

For more information about PPP Loan Forgiveness from Fintech originators and servicers, select your firm below:

Kabbage
Ready Capital
OnDeck

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FAQs

I am still waiting for my PPP Loan funding. Is there anything I can do to prepare for forgiveness?

Yes. Create a separate bank account in the name of the firm – identical to the name as used in your PPP Loan application and have the funds deposited in that account to create a clear record of the spending.

How long do I have to spend the funds I receive from a PPP Loan?

The original program required the funds to be spent within eight (8) weeks of funding, but recently the program was changed to allow borrowers to spend the funds by twenty-four (24) weeks from the funding date or December 31, 2020; whichever is earlier. The covered period is the election of the borrower.

I received my funding early in the program and just about spent all it to make the eight (8) week requirement. What should I do?

Spend the remaining funds in accordance with the loan requirements and apply for forgiveness soon. You don’t have to wait 24 weeks for forgiveness. Alternatively, if you spend the funds but do not apply for forgiveness immediately, your repayment schedule will be deferred although interest will accrue on the loan.

How soon can I apply for PPP Loan forgiveness?

You can apply at the conclusion of your Covered Period (8 weeks up to 24 weeks), or as soon as you have spent all of the funds.

How long will it take until I learn how much of my PPP Loan is forgiven?

It could be several months. Federal law and program guidelines give lenders 60 days to process PPP Loan forgiveness applications and then the SBA has 90 days to review the lenders’ submittals.

To earn loan forgiveness, how much do I have to spend on payroll?

To be eligible for full PPP loan forgiveness, the most recent legislation and SBA guidance require a borrower to spend at least 60% of the loan on payroll including health care benefits and employer-paid taxes. You can seek forgiveness for up to 24 weeks of payroll, limited to $46,154 per employee and not including owners. There are separate payroll limitations for owners.

Do I have to keep all of my workers in order to be eligible for PPP Loan forgiveness?

Yes. PPP Loan forgiveness will be reduced if there is a reduction in employees unless:

  • Rehired by December 31, 2020;
  • An individual refuses, in writing, an opportunity to return to work;
  • The employer is unable to hire the same or similarly qualitied employees; or
  • The employer can document “the inability to return to the same level of business activity as such business was operating at before February 15, 2020, due to compliance with requirements established or guidance issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration during the period beginning on March 1, 2020, and ending December 31, 2020, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID–19.”

How is my workforce base-line measured in order for me to be eligible for PPP Loan forgiveness?

The borrowers may elect to measure their baseline employee count as the average number of FTE employees on payroll per month employed by the PPP borrower between February 15, 2019 and June 30, 2019. However, a borrower can also elect to use the average FTE from January 1, 2020 through February 29, 2020 as the baseline for measuring employee retention.

In the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve week period between May 1, 2019 and September 15, 2019.

What does it mean if my full PPP Loan is not forgiven?

The PPP Loan is an actual loan that must be repaid, less the portion that is forgiven. If the SBA approves forgiveness of a large portion of your loan, but not all of the loan, the remaining balance must be repaid. For example: if you borrowed $100,000 and the SBA approves forgiveness for 90% of the loan, you would have to repay 10% or $10,000.

What is the interest rate on my loan and how long will that rate apply?

PPP Loans are a fixed rate loan at 1.0% per year for the life of the loan. The original term of these loans was 2 years but the federal government has provided the option to extend the loan to 5 years with mutual agreement of borrower and lender.

When do I have to start making payments on my PPP Loan?

Payment of principal and interest is deferred until the lender receives payment of the forgiven portion of the loan; or for 10-months after the end of the covered period if there was no application for forgiveness.

Are there pre-payment penalties if I pay-off my PPP Loan early?

No. You can pay the unforgiveness balance of your PPP Loan immediately, or faster than the amortization schedule with no penalty.

What happens to my SBA EIDL Disaster Loan Advance?

The SBA EIDL Disaster Loan Advance will be subtracted from the forgiven amount.

Are there caps on the amount of loan forgiveness available for owner-employees and self-employed individuals’ own payroll compensation?

Yes. For borrowers that received a PPP loan before June 5, 2020 and elect to use an eight-week covered period, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at eight weeks’ worth (8/52) of 2019 compensation (i.e., approximately 15.38 percent of 2019 compensation) or $15,385 per individual, whichever is less, in total across all businesses. For all other borrowers, the amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation is capped at 2.5 months’ worth (2.5/12) of 2019 compensation (i.e., approximately 20.83 percent of 2019 compensation) or $20,833 per individual, whichever is less, in total across all businesses.

Are health care benefit payments eligible expenditures for PPP Loan forgiveness?

Payments to purchase health care benefits for employees are eligible expenditures for PPP Loan forgiveness, but payments for health benefits for firm owners are not eligible for forgiveness.

What kind of documentation will I need to earn forgiveness of my SBA PPP Loan?

SBA Forgiveness Application and Schedule A

SBA Form 3508

OR

SBA Form 3508EZ

The SBA Form 3508EZ is intended for PPP borrowers who are a self-employed individual, independent contractor, or sole proprietor who had no employees at the time; or borrowers who made few or no changes to employment, hours and wages before and during the covered period. See instructions for details on eligibility.

Payroll Documentation

Depending on your application, you may need to submit the following:

Bank account statements or third-party payroll service provider reports Documenting the amount of cash compensation paid to employees.

Documentation can include IRS Form 1040, Schedule C, E or F; IRS Form 1065 or 1120-S / K1’s.

Payroll Tax Documentation

Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period – typically IRS Form 941. Quarterly state wage reporting business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.

Health Care & Retirement Benefits Documentation

Employer Contributions to employee health insurance and retirement plans Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount (PPP Schedule A, lines (6) and (7)).

FTE Documentation

The average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019; OR the average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020 and February 29, 2020; OR in the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve week period between May 1, 2019 and September 15, 2019.

The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11.

Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period.

Nonpayroll Expenses – Mortgage Interest

Business mortgage interest can be documented with a copy of the mortgage lender’s amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or mortgage lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.

Nonpayroll Expenses – Rent

Business rent expenses can be documented with a copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.

Nonpayroll Expenses – Utilities

Business utility payments can be documented with a copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

Evidence in Business

Documentation showing business was in operation and had employees at 2/15/20 include tax records, payroll records, bank statements, employee benefits records.

For more details, visit the US Treasury’s website.