Business Banking
Paycheck Protection Plan Forgiveness

Paycheck Protection Plan Forgiveness

Details about the Paycheck Protection Program (PPP) continue to emerge and, in some cases, change. This information is not advice, is a summary provided as a courtesy only for our customers, and is based on the latest information from the Small Business Administration (SBA). Any of the listed requirements or details are subject to change, and any future instructions or interpretations from the SBA will supersede any information provided here. The most recent information about PPP loan forgiveness or the Coronavirus Aid, Relief, and Economic Security (CARES) Act may be found at SBA.gov and Treasury.gov. Each borrower is obligated to understand and abide by the SBA’s rules, and we encourage you to check those sites frequently for updated information.

Customers Bank does not offer tax or legal advice, and this information does not address all provisions of the CARES Act. Customers Bank recommends that borrowers consult their tax advisors and/or legal counsel with questions about PPP eligibility, the CARES Act, and how the borrower’s specific financial situation may impact the advisability of applying for a PPP loan or a borrower’s eligibility to qualify for forgiveness of a PPP loan.

How to Get Your PPP Loan Forgiven

Provisions

  • In seeking PPP loan forgiveness, you should be aware of the following PPP provisions that can reduce the amount of your loan forgiveness.
  • If you spend less than 75% of the PPP loan on payroll costs
  • Reduction of FTE of your employees when compared to the base period
  • Reduction of employee salary or wages to less than 75% of the base salary or wages of the employee during the prior quarter
  • Failure to use loan proceeds within the 8 weeks allowed for funding
  • Lack of detailed record keeping for forgivable expenses

 

Key Timelines

  • Loan origination and loan funding starts the 8-week Covered Period.
  • Submit documentation for allowable expenses during the covered period to your Lender.
  • Lender has 60 days from when you submit the Loan Forgiveness Application (yet to be issued) to review your documentation and approve with SBA oversight the portion of your loan that is eligible to be forgiven.
  • Unforgiven portion of a PPP loan will remain outstanding and due to the Bank until you pay it back subject to the following:
    • Interest and principal payments are deferred for 6 months from first draw date
    • Interest at 1% per annum over the 2-year term of the loan.
    • Remaining Loan principal required to be paid in full at 2- year maturity.

PPP Loan Forgiveness Guidelines

  • Forgiveness of allowable expenses is permitted during the 8-week period following the date of the PPP loan disbursement.
  •  Forgivable Expenses must be used to first pay payroll (Minimum of 75% of loan)
    • Wages, Salaries, Commission, Cash Tips, Other Similar Compensation
      • Employees must reside in United States
      • Cannot exceed $100,000 (Max of $15,385)
      • Vacation, Parental, Family, Medical, Sick Leave
      • Allowance for Dismissal or Separation
      • Health Benefits
      • Retirement Benefits
      • State & Local Taxes on Employee Compensation
      • Other Forgivable Expenses (not to exceed 25% of PPP funds) include
    • Covered mortgage obligation
      • Must be liability of borrower
      • Incurred prior to 2/15/2020
      • Real and/or personal property
      • Only interest portion allowed
    • Rent obligation
      • Lease in force prior to 2/15/2020
    • Utilities in service prior to 2/15/2020
      • Electricity, Gas, Water, Transportation, Telephone, Internet access

Documentation for Forgiveness

  • It is the borrower’s responsibility to maintain detailed and accurate records. Failure to do so will impact the ability for a portion or all of the loan from being forgiven.
  • Payroll Documentation:
    • Payroll Reports
      • 8 weeks from disbursement
      • 2/15/2020 – 6/30/2020
    • 1st & 2nd quarter 2020 IRS Form 941’s
    • IRS Form 1040, Schedule C, E or F
    • IRS Form 1065 or 1120-S / K1’s
    • Earnings by employee for most recent full quarter
  • Overhead Expense Documentation:
    • Real estate – Mortgage statements
    • Personal property – Loan statements
    • Rent – Lease & monthly payment
    • Utilities – Bill & monthly payment
    • Movement of funds: Cancelled check / wire transfer / electronic funds transfer, etc.

Special Situations for Sole Proprietors and Independent Contractors

  • Forgiveness Terms for Sole Proprietors and Independent Contractors:
    • Schedule C, Line 31, Net Income
    • Amount forgiven is 8/52 of line 31
    • Benefits not allowed for owners (IFR # 3)
    • Based on 2019 expenditures
    • Expansion not allowed
    • Other allowable expenses need utility bills, bank statements, electronic funds transfer, etc.
  • How Does PPP Forgiveness Work if you have an SBA EIDL Disaster Loan?
    • If included in loan, lender to pay SBA directly for refinance of EIDL loan
    • EIDL Advance not refinanced
    • EIDL Advance deducted from forgiveness amount
    • Borrower can have both PPP & EIDL but cannot be used for the same purpose

Recommendations on How to Prepare for Your PPP Loan Forgiveness

  • Set up a separate or new bank account to receive your PPP Loan proceeds.
  • Assemble your records showing how funds were spent, as they are being spent.
  • You will have to provide your Lender with evidence such as payroll reports and cancelled checks that the PPP funds were used for eligible purposes.
  • Determine NOW what your base FTE base number is
  • Determine NOW your average salary and wages per employee for 1Q20.
  • Complete your application for forgiveness and submit to your lender. Along with certification form. (PPP Loan Forgiveness Application will be sent soon)
  • If the full loan amount is not forgiven, decide whether to pay off the balance immediately or pay the loan off over the two-year maturity at a fixed rate of 1.00%. Additionally, All payments are deferred for 6 months; however, interest will continue to accrue over this period.

Finally, remember that Businesses are subject to criminal penalties for misrepresentation and false certifications under the Small Business Act.