PPP Loan Forgiveness1
The United States Small Business Administration (the “SBA”) administers the Paycheck Protection Program (“PPP”). To date, over $500 billion has been loaned to borrowers under the PPP by thousands of approved lenders across the country. The United States Treasury Department announced yesterday that the SBA will begin forgiving loans granted under the PPP as early as this week.
The rules governing PPP loan forgiveness are set forth in a series of Interim Final Rules published by the SBA. These rules generally provide that a loan is forgivable if a borrower used at least 60% of the loan proceeds for eligible payroll costs during the Covered Period.2 Non-payroll costs, including mortgage interest, real property lease payments and utilities are also eligible for forgiveness.
Unfortunately, the rules for loan forgiveness continue to change as the SBA issues evolving guidance. Many PPP lenders are not accepting loan forgiveness applications at this time. Other lenders have not yet finalized the platform for borrowers to submit such applications. Further, PPP loans below a certain dollar threshold ($50,000) will be forgiven with a simple certification from the borrower rather than a formal application.
So what now …
Borrowers are anxious to have their PPP loans forgiven, so now is the time to assemble the information needed for the loan forgiveness application. For example, borrowers should gather the following:
- SBA PPP loan number (the number assigned to the loan by the SBA);
- Lender PPP loan number (the number assigned to the loan by the lender);
- Employee headcount at the time of the loan application and at the time of the proposed forgiveness application;
- PPP loan disbursement date;
- EIDL advance amount (the amount, if any, of the Economic Injury Disaster Loan (“EIDL”) received by the borrower);
- The Covered Period for the PPP loan;
- The total eligible payroll costs paid or incurred during the Covered Period;
- The total eligible non-payroll costs paid or incurred during the Covered Period;
- The total amount of loan forgiveness reductions (e.g. EIDL advance amount, annualized compensation exceeding $100,000 per employee, FTE reductions, etc.); and
- Documentation supporting the payments referenced above (e.g. payroll reports, tax forms, cancelled checks, etc.)
Once this information has been assembled, borrowers should consult with their PPP lenders to determine the timing for submission of the loan forgiveness application, as well as the manner in which the application is to be submitted to the lender. Treasury Secretary Steven Mnuchin is encouraging borrowers to request loan forgiveness now if they are ready instead of waiting for additional legislation.
1 This bulletin is for informational purposes only and should not be construed as legal advice. This bulletin is issued as of October 1, 2020.
2 The Covered Period is either (i) the 24-week period beginning on the PPP loan disbursement date, or (ii) if the borrower received its PPP loan prior to June 5, 2020, the borrower may elect to use an 8-week period.