Are you eligible for loan forgiveness? What you need to know.

Library | 5/8/2020
What you need to know about PPP

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If you're a PPP loan recipient, you may be eligible to request loan forgiveness. We know that loan forgiveness is important to you and your business. Below we have included some guidelines to help you prepare for the forgiveness phase of your PPP loan.


What you need to know

The forgiveness portion of your loan will be determined by how the funds are spent over the 8-week period following the funding of your loan. We encourage you to keep precise records and statements of all expenses that meet the requirements outlined below. You will be required to submit supporting records of payments along with certification, should you decide to pursue loan forgiveness.
Please keep in mind, as the federal guidelines are still subject to change, so are the rules to determine forgiveness. We will do our best to keep you informed of any changes that may occur and you can also find additional information on PPP requirements applicable to your loan by visiting the SBA's website.


How you can qualify for loan forgivenessPPP

To qualify for loan forgiveness, you will have had to use your PPP loan for:

  • Payroll costs (as defined in the CARES Act – see below).

  • Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums.

  • Mortgage interest payments (but not mortgage prepayments or principal payments).

  • Rent payments.

  • Utility payments.

  • Interest payments on any other debt obligations that were incurred before February 15, 2020.

  • Refinancing an SBA Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.


What qualifies as payroll costs?

To qualify for loan forgiveness, it’s important to note that at least 75 percent of the PPP loan needs to used for payroll costs. As the borrower, you will have to document how the loan was used for payroll costs in order to determine the amount of forgiveness. Payroll costs consist of:

  • Compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the 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 separation or dismissal.

  • Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement.

  • Payment of state and local taxes assessed on compensation of employees.

  • Payment for an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation.


Is there anything that is excluded from the definition of payroll costs?

The CARES Act expressly excludes the following:

  • Any compensation of an employee whose principal place of residence is outside of the United States.

  • The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary.

  • Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020, including the employee’s and employer’s share of FICA (Federal Insurance Contributions Act) and Railroad Retirement Act taxes, and income taxes required to be withheld from employees.

  • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–127).


What happens if PPP loan funds are misused?

If you use PPP funds for unauthorized purposes, the SBA will direct you to repay those amounts. If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.


What happens to the PPP loan forgiveness amount if you laid off an employee, offered to rehire the same employee, but the employee declined the offer?

The SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation. To qualify for this exception, you must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented. You should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.


We’re here when you need us

Please keep in mind, as the federal guidelines are still subject to change, so are the rules to determine Forgiveness. We will do our best to keep you up to speed on any changes that may occur.  If you have any further questions about PPP Loan Forgiveness, please contact your Valley representative directly.

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