Important Details about PPP Small Business Loan Forgiveness

REVISED: June 10, 2020

Many things about the last few months have been scary. People are trying to stay healthy during a pandemic while keeping their families and loved ones afloat as the economy struggles. The Paycheck Protection Program (PPP) loans represent more than just a helping hand for some business owners. For some, this loan is the only reason their business—their family’s lifeline—has a future.

The feature that made these loans so attractive is the fact that the loans are eligible for “forgiveness.” This means that the borrower can be released from the obligation of repaying the balance of the loan if the funds are spent on specific things. In other words, borrowers can get up to 2.5 times their eligible monthly payroll costs covered without paying a cent. And, in this unprecedented time, this is the proverbial light at the end of the tunnel for many business owners.

Understanding the details of loan forgiveness
The terms of the PPP loan, even if it is not forgiven, are generous, to say the least—1% interest, paid back over 2–5 years, with payments deferred for six months and no other borrower or prepayment fees. But there are thousands of small business owners who would prefer not to have to pay this loan back if possible.

Mountain America Credit Union has the latest information as to what qualifications you will need to get your PPP loan forgiven. One caveat—the rules and requirements for being approved for PPP loan forgiveness have not been finalized absolutely and may be updated from what we have listed here. The government has made some changes or clarifications for forgiveness since the initial rollout. It is possible that they will do so again. The following are the details, as we understand them, as of the posting of this article:

1. What can my PPP loan be used for?

   To be eligible for PPP loan forgiveness, the funds must be used for very specific needs. If this money is used for items outside this list, forgiveness is forfeited.

    

   • Payroll—This includes salary, hourly wages, vacation time, 401(k) contributions, family medical/sick leave, other health benefits. A minimum of 60% of the loan must be used toward payroll and cannot include independent contractors.

      

   • Business mortgage interest—Your mortgage must have been signed prior to February 15, 2020.

      

   • Rent—Your rental agreement must have been signed prior to February 15, 2020.

      

   • Utilities—Service must have begun prior to February 15, 2020.

      

   These expenses are covered for an 8–24-week period, beginning on the date you received the loan funds from your lender.

    

   Depending on your payroll coverage, it may be in your best interest to adjust the payroll cycle to accommodate as many pay periods as possible. If you have questions about this, please contact your SBA lender.

    

2. What are the staffing requirements?

   You must maintain the number of employees on your payroll. Use the calculation below to see if you’ve met this requirement:

    

   • Determine the average number of full-time employees you had for the following time periods:

      

     1. The 8-week period following your initial loan disbursement.

         

     2. From February 15, 2019 through June 30, 2019.

         

     3. From January 1, 2020 through February 29, 2020

         

   • Divide A by B.

      

   • Divide A by C.

      

   • Use the largest number of the two. If you are a seasonal employer, you must divide by B.

      

   • If your result is equal to or larger than 1, you’ve successfully maintained your headcount and meet the staffing requirement for forgiveness. If, however, your result is smaller than 1, your forgivable expenses will be reduced proportionately.

      

   Forgiveness will not be affected by a reduction in employees if the borrower is able to document an inability to rehire individuals, to hire similarly qualified employees or to return to the same level of business activity it was operating at prior to February 15, 2020.

    

3. What is the salary/wage requirement?

   You must maintain at least 75% of the total salary/wage during the 8-week period for each individual employee who made less than $100,000 in annualized pay in 2019. If you have employees who received less than 75% of their normal pay, the loan forgiveness will be reduced proportionately.

    

4. What is the final date I can rehire employees?

   You have until June 30, 2020 to rehire any employees that were laid-off or furloughed. You must also pay any difference in pay greater than 25% by this same date to qualify for loan forgiveness.

    

5. How do I apply for PPP loan forgiveness?

   Your lender will reach out to all PPP loan recipients with instructions on how and where to apply for loan forgiveness. Once you have completed the application, you should receive a response from your lender within 60 days.

    

6. What documents are required to apply for PPP loan forgiveness?

    

   • Verification of all full-time employees on your payroll and their associated pay rates for the time period.

      

   • Payroll reports from your payroll provider.

      

   • Copies of filed payroll tax forms (Form 941).

      

   • Copies of filed income, payroll and unemployment forms from your state.

      

   • Verification of retirement and health insurance contributions.

      

   • Verification of eligible interest, utilities and rent payments.

      

Keep in mind, there is no one set of guidelines when it comes to qualifying for PPP loan forgiveness. Although this loan is overseen by the SBA, it is administrated by your lender. You may find that your lender requires additional documentation or that your process is different than your neighbor’s.

This is why it is so important that you understand all the rules for forgiveness from your lender and why you should check in during the forgiveness process to stay on track.

Mountain America is committed to guiding you forward in all your personal and business endeavors. We are proud to have helped so many members in securing this loan for their businesses during this uncertain time.

If you currently have a PPP loan with Mountain America and have questions, please contact our SBA team at sbaservicing@macu.com or 801-325-6440. If you have a PPP loan through another lender, please contact them directly.

*The rules and requirements for being approved for PPP loan forgiveness have not been finalized absolutely and may be updated from what we have listed here.