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Peoples State Bank

Maximize Your PPP Loan Forgiveness

Note: The recently signed PPP Flexibility Act includes changes to the PPP loan program.

  • More time – Current PPP loan borrowers can choose to extend the eight-week period to 24 weeks, or they can keep the original eight-week period.
  • More flexibility – The payroll expenditure requirement drops from 75% to 60%, meaning that borrowers must spend at least 60% of the forgiveness amount on payroll. (The SBA and Treasury Department clarified that borrowers will remain eligible for partial loan forgiveness under the 60% payroll requirement while the language in the bill indicates there would be no forgiveness if payroll is less than 60 percent.)
  • Workforce levels – Borrowers have until December 31, 2020 to restore their workforce levels and wages to the pre-pandemic levels required for full forgiveness.
  • Full forgiveness – Previously, borrowers could exclude from those calculations employees who turned down good faith offers to be rehired at the same hours and wages as before the pandemic. The new bill allows borrowers to adjust because they could not find qualified employees or were unable to restore business operations to February 15, 2020 levels due to COVID-19 related operating restrictions.
  • Payment time – Current PPP loan borrowers can extend their loan up to five years if the lender and borrower agree, with the interest rate remaining at 1%. 
  • Payroll taxes – The bill allows businesses that took a PPP loan to also delay payment of their payroll taxes, which was prohibited in the original language.

Critical planning and documentation now will put your business far ahead when applying for PPP loan forgiveness. The burden falls on business owners to comply with the intended use of the money and to track all monies used. Borrowers must use the funds predominantly (at minimum 60%) for payroll. It’s crucial for borrowers to track and record expenses to apply for forgiveness. If your PPP is through Peoples, expect to turn in receipts, registers, reports, etc., to verify how your PPP funds were used.

HOW DOES THE LOAN FORGIVENESS WORK?

A borrower is eligible to apply for loan forgiveness equal to the amount spent on the following items during the Covered Period* beginning on the date of the origination of the loan:

  • Payroll costs (using the same definition of payroll costs used to determine loan eligibility)
  • Interest on the mortgage obligation incurred in the ordinary course of business
  • Rent on a leasing agreement in force before Feb. 15, 2020
  • Payments on utilities (electricity, gas, water, transportation, telephone, or internet)
  • For borrowers with tipped employees, additional wages paid to those employees

*Covered Period is either (1) the 24-week (168 day) period beginning on the PPP Loan Disbursement Date, or (2) if the borrower received the PPP loan before June 5, 2020, the borrower may elect to use an 8-week (56 day) Covered Period. In no event may the Covered Period extend beyond December 31, 2020.

Learn more on maximizing forgiveness with these tools:

WHAT IS NEEDED AND WHEN CAN I APPLY FOR LOAN FORGIVENESS?

SBA and Treasury issued a new document that states a borrower may submit a loan forgiveness application at any time on or before the maturity date of the loan, including before the end of the Covered Period if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. If the borrower applies for forgiveness before the end of the Covered Period and has reduced any employee’s salary or wages in excess of 25 percent, the borrower must account for the excess salary reduction for the full 8-week or 24-week Covered Period, as required elsewhere in the rules. 

If the borrower does not apply for loan forgiveness within 10 months after the last day of the Covered Period, or if the SBA determines the loan is not eligible for forgiveness (in whole or part), the PPP loan is no longer deferred, and the borrower must begin payments. If this occurs the lender must notify the borrower of the date the first payment is due. 

Here are the items you'll need to get started on the forgiveness process:

  • Documentation verifying the number of employees on your company payroll and pay rates for the Covered Period
  • Documentation including checks images, payment receipts, transcripts of accounts, payroll registers or other documents verifying payments for covered purposes
  • Borrower attestation that the documentation is true and correct and that the amount for which forgiveness is requested was used to retain employees or other qualified expenses
  • Any other documentation the SBA deems necessary

The SBA and Treasury Department have released the PPP Loan Forgiveness Application and instructions. The document informs borrowers how to apply for forgiveness of their PPP loans, consistent with the CARES Act. The form and instructions include:

  • Options for borrowers to calculate payrolls costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles
  • Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the Coverd Period after borrowers received their PPP loan
  • Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness
  • Statutory exemptions from loan forgiveness reduction based on rehiring by December 31, 2020
  • The new exemption for borrowers whose good faith, written offers to rehire workers were declined

The SBA has provided a new EZ Form and instructions for some PPP borrowers to use. The qualifications for using the new EZ Form is based on meeting one of these criteria:

  • Applied for the PPP loan as:
    • Self-employed
    • Independent contractor
    • Sole proprietor with no employees
  • Did not reduce salary or wages for any employee by more than 25%, and did not reduce the number or hours of your employees (except laid-off employees who refused an offer to return)
  • Did not reduce salary or wages for any employee by more than 25% during the covered period and experienced reductions in business activity as a result of health directives related to COVID-19

Loan size is not a consideration in determining whether you qualify for the EZ Form.

Please watch for future updates as we expect to receive more specific Information from the SBA for borrowers on completing the application.

WHAT COULD CAUSE A LESSER AMOUNT TO BE FORGIVEN?

  • Employee count – If the number of employees at December 31, 2020 is less than what was recorded on the application, forgiveness amounts may be impaired. The Department of Treasury FAQs above provide detail on how to document previously laid-off employees who were re-offered a position but declined to return to work. This will not be held against you.  
  • Wage levels – Any wage reduction of an employee, by more than 25% when compared to the most recent full quarter during which the employee was employed, may impair forgiveness.  
  • Misused funds – Any funds not used for eligible purposes will not be forgiven and could harm your overall forgiveness.

Paycheck Protection Program Tools

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PPP Loan Forgiveness Application

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PPP Forgiveness Guide

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Qualifying Payment Documentation Spreadsheet

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