What Was PPP Loan Forgiveness?

Paycheck Protection Program (PPP) loans, created under the CARES Act, allowed for potential loan forgiveness on eligible costs incurred during a set 24-week period after a borrower’s PPP funds were disbursed, defined under the CARES Act as the “covered period.” Applications for forgiveness were due within 10 months of the disbursement date.

Simplified Forgiveness for Smaller Loans

Borrowers that received PPP loans of $150,000 or less used a streamlined forgiveness application and automatic forgiveness.

Borrowers submitted a one-page certification listing:

• Number of employees they were able to retain because of the loan
• Estimated amount spent on payroll costs
• Total loan value

The record retention guidelines for these smaller loans was reduced to 4 years for employee records and 3 years for compliance records.

Eligible Costs for Loan Forgiveness

The following costs and expenses were eligible for loan forgiveness under the Paycheck Protection Program. These costs must have been paid or incurred during the covered period.

• Payroll costs:
  • Compensation in the form of salaries, wages, commissions or similar compensation up to $100,000
  • Payment of cash tips or equivalent
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for dismissal or separation
  • Payment of retirement benefits
  • Group vision, dental, disability, or life insurance
  • Payment of state or local taxes assessed on the compensation of employees
• Healthcare costs related to the continuation of group healthcare benefits during periods of sick, medical, or family leave, as well as insurance premiums.
• Mortgage interest payments (but not prepayment or payment of the mortgage principal)
• Rent
• Utilities
• Interest on any other debt obligations incurred before February 15, 2020
• Refinancing an SBA EIDL received between January 31, 2020, and April 3, 2020
• Covered expenditures such as business software or cloud computing services that facilitate:
  • business operations
  • product or service delivery
  • the processing, payment, or tracking of payroll expenses, human resources, sales, and billing functions
  • accounting or tracking of supplies, inventory, records, or expenses
• Covered property damage costs
• Covered supplier costs
• Covered worker protection expenditures

Payroll Changes That Affected PPP Loan Forgiveness

The forgiveness amount may have been reduced for employers that laid off employees or reduced their salaries with forgiveness calculated as follows:

Payroll cost multiplied by the average number of full-time employees per month for one of these 8-week periods:

• February 15, 2019, through June 30, 2019
• January 1, 2020, through February 29, 2020

Seasonal employers used the period from February 15, 2019, through June, 30, 2019.

What to Know if You Reduced Employee Salary

Reductions in employee salary may have also affected your eligible forgiveness amount. A reduction of 25% or more in annual salary (compared to their most recent full quarter) for employees who made less than $100k/year reduced the loan forgiveness amount.

What if You Brought Back Employees or Restored Wages?

Employers that laid off employees or reduced payroll beginning February 15, 2020, may have been permitted to eliminate the forgiveness reduction as long as they rehired the laid-off employees or restored payroll before applying for forgiveness.

How Much of Your PPP Loan Can Be Used for Non-Payroll Costs and Still Be Forgiven?

Due to the SBA anticipating a high number of borrowers requesting PPP loan forgiveness, it is anticipated that no more than 40% of the forgiven amount may be for non-payroll costs.

How Small Businesses Applied for Loan Forgiveness

PPP loan forgiveness applications were coordinated through lenders.

What Happened If a Small Business Wasn’t Approved for Loan Forgiveness?

In cases of non-approval, lenders may have requested additional documentation. Otherwise, the borrower was required to repay the loan with the outstanding balance accruing interest at 1% over the loan term.