NEW! PPP Applications Extended Until August 8, 2020

Paycheck Protection Program (PPP)

LOAN FORGIVENESS GUIDE

PPP Flexibility Act was signed June 5, 2020 with significant changes to timing and flexibility. Read the comparisons between the CARES Act and Flexibility Act.

Up to 100% of the PPP loan is eligible for forgiveness. Read some of the latest clarifications below.

Read the most recent guidance from the SBA and Treasury to ensure that you maximize your loan forgiveness.

Some additional PPP links and resources.

On June 5, 2020, President Trump signed into law the Paycheck Protection Program Flexibility Act.  The new law makes significant updates and modifications to the original program created by the CARES Act signed in March 2020.   Based upon feedback from small business owners, the law is more flexible with regard to timing and usage of funds.   Please take a look at the information below as a guide as well as continue to monitor official sites as more clarification becomes available.

*Sources:  ADP, SBA.gov, Treasury.gov

**Information below is subject to change, please speak with professional for specific guidance and/or advice

PPP Loan Forgiveness Updates and Details

Click to expand and collapse each section

Provision

Original PPP Guidelines

(CARES Act)

New PPP Guidelines

(PPP Flexibility Act)

Extended  “covered period”

8- Weeks from the disbursement of the PPP loan.

The earlier of 24 Weeks from the disbursement of the loan  Or 12/31/2020

Note:  A borrower who received a loan before the PPP Flexibility Act’s enactment may elect to continue using the original 8-week covered period.

Reduced Minimum % spent on Payroll for forgiveness

75/25 rule At least 75% of funds must be spent on payroll costs and no more that 25% on allowable non-payroll costs, with partial forgiveness where less than 75% spent of payroll costs.

60/40 rule At least 60% of the PPP loan proceeds must be used for payroll costs to qualify for loan forgiveness and no more than 40% spent on allowable non-payroll costs.

Note:  The new 60/40 rule appears to be a “cliff’”, with no forgiveness is available if less than 60% of funds are spent on payroll.  However, members of Congress have already asked the administration to interpret it as just the level at which full forgiveness can be obtained, and have suggested a Technical Correction to the bill to make this change.

Extended deadline to rehire and reverse salary cuts of greater than 25%

A failure to rehire employees and/or reinstate salaries by 6/30/2020  triggers a proportional reduction in forgiveness eligibility.

A failure to rehire employees and/or reinstate salaries by 12/31/2020 triggers a proportional reduction in forgiveness eligibility.

Note:  The PPP Flexibility Act would exempt borrowers from proportional loan forgiveness due to a reduction in employees, if the borrower is able to document in good faith that for the period of February 15 to December 31, 2020, the borrower was unable to:  rehire employees who had been employed on February 15, 2020, or hire similarly qualified employees for unfilled positions by December 31, 2020; or

  • return to the same level of business activity at which the borrower was operating before February 15, 2020, due to compliance with federal requirements or guidance set forth between March 1 and December 31, 2020, relating to standards of sanitation, social distancing, or other worker or customer safety requirements related to COVID-19.

Extended Loan Maturity

2 Years for the portion of loan that isn’t forgiven

5 Years for the portion of loan that isn’t forgiven

Note: This change in loan terms is only mandatory as of the Act’s enactment and apply to any PPP loan made on or after such a date.  The Act also specifically allows (but does not require) lenders and borrowers to negotiate any term between 5 an 10 years for loans made prior to that date. 

Extended Period for Loan Deferral

6 months from the loan origination date

Date on which amount of forgiveness is remitted to lender, up to 10 months after the last day of the covered period

Note:  If a borrower fails to apply for loan forgiveness within 10 months after the last day of the covered period for PPP loan forgiveness, the borrower must begin to make payments of principal, interest, and fees on its PPP loan.

Removal of restrictions on  Payroll Tax (FICA) deferral

Employers can only defer payment of FICA due for the period of March 27, 2020 through date of PPP loan forgiveness

Employers can defer payment of FICA due for the period of March 27, 2020 through  December 31, 2020.

Note:  ½ of the deferred FICA taxes are due by 12/31/2021 and ½ are due by 12/31/2022.

What are permitted uses for PPP loans?

  • Payroll costs (as described below);
  • Interest on mortgage obligations, in force before February 15, 2020;
  • Rent, under lease agreements in force before February 15, 2020; and
  • Utilities, for which service began before February 15, 2020

How will the amount of loan forgiveness be determined? Can a PPP loan be fully forgiven

Yes, the amount of the loan can be fully forgiven as long as certain conditions are met. The specific amount will generally depend in part on what portion of the loan is used on eligible payroll costs and whether the employer has maintained staffing and pay levels during the covered period.

A loan may be fully forgiven if all the following three conditions are met:

  • The loan proceeds are spent, or qualifying costs are incurred, within the applicable covered period following receipt of the loan proceeds (unless using an Alternative Payroll Covered Period for payroll costs, described below).
  • At least 60 percent of the loan amount was used for eligible payroll costs, and no more than 40 percent was used for the other Loan Uses described above.

    Example: If a small business seeks 100% forgiveness on a loan for $50,000, at least $30,000 must be for payroll costs during the applicable covered period following disbursement of the loan. No more than $20,000 may be for the other Loan Uses described above.
  • Staffing and pay levels must be maintained during the applicable covered period immediately following disbursement of the loan

What is the period within which I must spend my loan proceeds to obtain full loan forgiveness?

To obtain full forgiveness, loan proceeds must be spent during the 24-week period immediately following disbursement of the loan or by December 31, 2020, whichever is earlier (the Covered Period).  If you received your loan prior to June 5, 2020, you may choose the 8-week period following disbursement of your loan as your Covered Period. Also, if you pay your employees on a biweekly or more frequent schedule, you may choose to begin the covered period on the first day of the first pay period following disbursement of the loan (“Alternative Payroll Covered Period”) for qualifying payroll costs only.

How will the determination of whether my business has maintained staffing levels be made?

To determine whether staffing levels have been maintained, the average number of full-time equivalent employees (FTEEs) during the Covered Period or Alternative Payroll Covered Period will be compared to one of two time periods. Borrowers may either use the period from February 15 through June 30, 2019 or January 1 through February 29, 2020. For instance, if the employer had 20 FTEEs from February 15 through June 30, 2019 and 18 FTEEs from January through February 2020, the borrower would most likely choose the latter time period since it may be more advantageous. If the number of FTEEs during the Covered Period or Alternative Payroll Covered Period is lower than the time period chosen, the amount of loan forgiveness may be reduced proportionately.

Seasonal employers may compare the average FTEEs employed during the Covered Period or Alternative Payroll Covered Period to either period listed above or to any consecutive twelve-week period between May 1 through September 15, 2019.

Note that your forgiveness amount will not be reduced by a failure to maintain staffing levels during the Covered Period or Alternative Payroll Covered Period if (a) your average FTEEs between February 15 and April 26, 2020 is lower than your FTEES as of February 15, 2020, and (b) you restored the level of FTEEs by December 31, 2020 to be equal or higher to the FTEE levels as of February 15, 2020.

When calculating the amount of loan forgiveness, how will the determination of whether my business has maintained pay levels be made?

Repayment of part of the loan may be required if an employee’s average annual salary (for salaried employees) or average hourly rate (for hourly employees) are reduced by 25% or more during the Covered Period or Alternative Payroll Covered Period compared to the period of January 1 though March 31, 2020.

However, if (a) a given employee’s wage levels (annual salary level for salaried employees and hourly wages for hourly employees) between February 15 and April 26, 2020, are lower than as of February 15 and (b) you restore the wage levels by December 31, 2020 to be same or higher than as of February 15, 2020, there will be no reduction in forgiveness based on that employee’s wage levels.

Note: When comparing wage levels to determine if your loan forgiveness amount will be reduced, employees who earned wages or a salary at an annualized rate of more than $100,000 in any pay period of 2019 aren’t considered.

My company previously laid off an employee, but later offered to rehire the employee. If the employee declined the rehire offer, will my PPP loan forgiveness amount still be reduced?

Loan forgiveness will not be reduced based on an inability to rehire employees if the employer can document (1) written offers to rehire individuals who were employees of the organization on February 15, 2020; or (2) an inability to hire similarly qualified employees for unfilled positions by December 31, 2020.

Additionally, forgiveness will not be reduced for failure to maintain employment levels if the organization is able to document an inability to return to the same level of business activity as existed prior to February 15, 2020, due to compliance with COVID-19-related guidance for sanitation, social distancing, or worker or customer safety requirements from the Health and Human Services (HHS), the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA) between March 1 and December 31, 2020.

The SBA has suggested that the documentation required above would be satisfied if an employer made a good faith, written offer of rehire at the same salary/wages and for the same number of hours, the employee rejected the offer of rehire, and the employer notified the applicable state unemployment insurance office of the employee’s rejection of rehire within 30 days. Employees who are terminated for cause, voluntarily resign, or voluntarily request and receive a reduction of hours may also be excluded from the FTEE reduction calculations.

How are payroll costs defined under the PPP?

Under the PPP, payroll costs generally include:

  • Employee gross pay including salary, wages, commissions, bonuses, and tips, capped at the annualized value of $100,000 for the length of the applicable Covered Period or Alternative Payroll Covered Period. For employers who received loans prior to June 5, 2020, and choose to use an 8-week Covered Period, this limit is $15,385, which is the 8-week value of the annualized $100,000 cap.
  • All employer state and local taxes paid on employee gross pay, such as state unemployment insurance and employer-paid state disability insurance (in applicable states).
  • Employer-paid healthcare benefits, including insurance premiums.
  • Employer-paid retirement benefits, including defined-benefit or defined-contribution retirement plans and employer 401(k) contributions.

Note: The definition of payroll costs excludes employer federal taxes, workers compensation premiums, payments to independent contractors, and payments to employees for leave covered under the Families First Coronavirus Response Act.

Do all payroll costs need to be paid within the Covered Period or Alternative Payroll Covered Period?

No. The latest guidance from the government indicates that borrows are eligible for forgiveness for payroll costs paid and payroll costs incurred, but not yet paid, during the Covered Period or Alternative Payroll Covered Period. Payroll costs are considered paid on the date of distribution of paychecks or origination of an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid within the Covered Period or Alternative Payroll Covered Period must be paid by the next regular payroll date to be counted for forgiveness purposes.

What happens if I use less than 60 percent of the PPP loan on payroll costs?

The Paycheck Protection Program Flexibility Act provides that “ to receive loan forgiveness under this section, an eligible recipient shall use at least 60% of the covered loan amount for payroll costs, ...”. This implies that 60% may be a minimum threshold. Consequently, it is possible that if the 60% measure is not met, none of the PPP loan will be eligible for forgiveness. Additional guidance from the Treasury Department may clarify whether the failure to meet the 60% threshold will result in a proportionate reduction in forgiveness, or denial of any forgiveness.

However, because PPP loan amounts were calculated to cover eight weeks of payroll costs, it is believed that borrowers should have sufficient time to spend 60% of PPP loan proceeds on payroll costs over the expanded 24-week covered period.

How do I apply for loan forgiveness? How long will it take?

You can apply for loan forgiveness through the lender that is servicing the loan. Lenders have 60 days to make a decision on loan forgiveness. The SBA has issued a loan forgiveness application, which can be found here.

Loan Forgiveness Checklist

The SBA has issued a loan forgiveness application, which can be found here. Guidance on loan forgiveness is evolving and rules may change, so check back for updates. To help you maximize the forgivable amount, consider these steps:

In the 8 weeks following receipt of the loan...

  • Maintain staffing levels.
  • *If applicable, reverse any reductions in staffing levels by December 31, 2020.
  • Maintain pay levels.
  • **If applicable, reverse any reduction to an employee’s pay by December 31, 2020.
  • Only use the PPP loan for permitted uses:
    • Payroll costs (as described below);
    • Interest on mortgage obligations, incurred before February 15, 2020;
    • Rent, under lease agreements in force before February 15, 2020; and
    • Utilities, for which service began before February 15, 2020.
  • Spend the loan proceeds, or incur qualifying costs, within of the applicable Covered Period or Alternative Payroll Covered Period.. To obtain full forgiveness, loan proceeds must be spent during the 24-week period immediately following disbursement of the loan or by December 31, 2020, whichever is earlier (the Covered Period). If you received your loan prior to June 5, 2020, you may choose the 8-week period following disbursement of your loan as your Covered Period. Also, if you pay your employees on a biweekly or more frequent schedule, you may choose to begin the covered period on the first day of the first pay period following disbursement of the loan (“Alternative Payroll Covered Period”) for qualifying payroll costs only.
  • Use at least 60% on payroll costs during the Covered Period or Alternative Payroll Covered Period. Payroll costs include:
    • Employee gross pay including salary, wages, commissions, bonuses, and tips, capped at the annualized value of $100,000 for the length of the applicable Covered Period or Alternative Payroll Covered Period. For employers who received loans prior to June 5, 2020, and choose to use an 8-week Covered Period, this limit is $15,385, which is the 8-week value of the annualized $100,000 cap.
    • All employer state and local taxes paid on employee gross pay, such as state unemployment insurance and employer-paid state disability insurance (in applicable states).
    • Employer-paid healthcare benefits, including insurance premiums.
    • Employer-paid retirement benefits, including defined-benefit or defined-contribution retirement plans and employer 401(k) contributions.

      If less than 60 percent of loan is used on payroll costs, the loan (and interest) may not be forgiven and might need to be repaid.
  •  

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Need More Information?

Visit our KSDT COVID small business page or download our Information Guides below.

{Please note that the information provided below was based upon the time of publication and subject to change}

Small Business Loan Summary

This informational guide is designed to summarize the key Emergency Loan Programs available to small businesses, such as:

*Information as of 4/1/2020, subject to change

  • Florida Bridge Loan
  • Paycheck Protection Program {Please see PPP Flexibility Act updates 6/5/2020}
  • Emergency Injury and Disaster Loans (EIDLs)

Coronavirus Aid, Relief and Economic Security Act (CARES)

This informational guide is designed to summarize the key provisions of the CARES Act available such as:

*Information as of 4/1/2020, subject to change

  • Recovery Rebates
  • Tax Relief [Individuals/Business]
  • Emergency Loan Programs
    • {Please see PPP Flexibility Act updates 6/5/2020}

Families First Coronavirus Response Act (FFRCA)

This informational guide is designed to summarize the key provisions of the FFRCA Act available such as:

*Information as of 4/1/2020, subject to change

  • FMLA Expansion
  • Emergency Paid Sick Leave
  • Tax Credits for Emergency Paid Sick and FMLA Leave