PPP Loan Forgiveness Frequently Asked Questions
These FAQs are meant to provide a high level summary of the forgiveness guidelines, but for detailed information we recommend you read the:
We strongly encourage you to consult with your advisors to complete your application accurately.
The answers contained in these FAQs are for informational purposes only, are general in nature, and should not be relied upon or construed as legal, accounting or tax advice. Please keep in mind this information is changing rapidly and is based on our current understanding of the programs. It can and likely will change. Although we will be monitoring and updating this as new information becomes available, please do not rely solely on this for your financial decisions. Nav is not responsible for and provides no warranty as to the accuracy of this content. We strongly encourage you to consult with your lawyers, CPAs and Financial Advisors.
What Expenses May Be Eligible For Forgiveness?
Three overarching rules apply to how you must use PPP funds if you hope to have them fully forgiven:
- You must spend them on specific expenses, namely payroll as well as certain nonpayroll expenses that include business rent, mortgage interest and utilities,
- You must spend them during the appropriate time period which is generally equivalent to the eight weeks after you get the loan or the alternative covered period (see below), and
- At least 75% must be spent on payroll expenses, and up to 25% may be spent on nonpayroll expenses.
Read on for more information.
What Payroll Expenses Qualify?
Section 1102 of the CARES Act states that payroll includes:
- Salary, wages, commissions or similar compensation,
- Payment of cash tips or equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips),
- Payment for vacation, parental, family, medical, or sick leave;
- Allowance for dismissal or separation;
- Payment required for the provisions of employee benefits including insurance premiums (employer cost);
- Payment of any retirement benefit (employer cost);
- Payment of State or local tax assessed on the compensation of employees.
It does not include:
- The compensation of an individual employee in excess of an annual salary of $100,000, as prorated for the covered period;
- Any compensation of an employee whose principal place of residence is outside the United States;
- Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.
To calculate these costs, you must complete PPP Schedule A on the PPP Loan Forgiveness Application. You’ll find a detailed employee worksheet on page 9 of the application. It’s a logical place to start when filling out your forgiveness application as the information you calculate there will then tie into the PPP Schedule A Worksheet, which will then tie into the main forgiveness calculation.
When Do I Have to Spend PPP Funds to Qualify for Forgiveness?
Generally the time period you have to spend PPP funds starts when you get the loan and ends eight weeks later. But there is a little leeway since payroll periods may not exactly match that period. So you’ll need to know the dates of two periods you may use to calculate your forgiveness.
The first is the Covered Period. It starts the date you get your PPP funds (the disbursement date) and ends 56 days later. For example, if you received your PPP loan proceeds on Monday, April 20, the first day of the “covered period” is April 20 and the last day of the covered period is Sunday, June 14— 56 days later. You’ll enter these dates on the first page of the application:
Covered Period: _________ to __________
The second period is called the Alternative Payroll Covered Period. It’s described this way in the PPP forgiveness application:
For administrative convenience, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan disbursement date.
“For example, if the Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26, the first day of the alternative payroll covered period is April 26 and the last day of the alternative payroll covered period is Saturday, June 20.”
You’ll enter the dates for the Alternative Covered Period (if applicable) on the first page of the application as well.
Alternative Payroll Covered Period, if applicable: _________ to __________
Keep in mind as you go through the application process:
- If you decide to use the alternative payroll covered period, use that whenever the application references “the Covered Period or the alternative payroll covered period.”
- However, if the application states “the Covered Period’ only, make sure you use that time period.
If you still find this confusing, talk with your accountant, advisor or payroll administrator. You will also find an example on page 10 of the Interim Final Rule.
What Nonpayroll Costs May Be Forgiven?
You can apply for forgiveness of certain nonpayroll costs for the covered period:
- Business mortgage interest payments for any business mortgage obligation on real or personal property incurred before February 15, 2020. Do not include prepayments.
- Business rent or lease payments for real or personal property during the covered period, pursuant to lease agreements in force before February 15, 2020.
- Business utility payments during the covered period for business utilities for which service began before February 15, 2020. Under the CARES Act, utility includes payment for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access.
According to the Interim Final rule: “A nonpayroll cost is eligible for forgiveness if it was:
- paid during the covered period; or
- incurred during the covered period and paid on or before the next regular billing date, even if the billing date is after the covered period.”
Eligible payroll costs may not exceed 25% of the loan forgiveness amount.
What Reduces Forgiveness?
Generally forgiveness may be reduced if you reduce headcount (number of employees) and/or reduce salary or wages by more than 25% during the covered period or the alternative covered period as compared to the reference periods of February 15, 2019 to June 30, 2019; January 1, 2020 to February 29, 2020; in the case of seasonal employers, either of those two periods or a consecutive twelve-week period between May 1, 2019 and September 15, 2019 when calculating average FTE equivalency. These formulas are specific and spelled out in detail on the PPP Schedule A Worksheet so be sure to refer to it.
In addition, there are circumstances under which you may avoid a reduction in forgiveness:
- You made a good-faith, written offer to rehire an employee and they rejected it, or your employee was fired for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours.
- You reduced FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and then restored FTE employee levels by not later than June 30, 2020.
Again, refer to the PPP Forgiveness Application for detailed instructions.
How Do I Apply for PPP Forgiveness?
You apply through your lender. You’ll need to fill out the current SBA PPP Forgiveness Application but your lender may provide an electronic version. You will also need to supply the documentation required and listed on page 10 of the application. Your lender has 60 days to process your forgiveness application.
What Happens to Amounts Not Forgiven?
Any amounts not forgiven become a loan at 1% with a two-year repayment term.
Can I Pay My Employees Bonuses or Hazard Pay?
Yes, according to the Interim Final Rule which states, “if an employee’s total compensation does not exceed $100,000 on an annualized basis, the employee’s hazard pay and bonuses are eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation.”