SBA Releases PPP Loan Forgiveness Guidelines

May 21, 2020
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Many small businesses have applied for Paycheck Protection Program (PPP) loans to cope with the financial impact of COVID-19. Many non-essential businesses were forced to shut down per government orders, while many others had to reduce staff and other expenses just to get by during leaner times. When the CARES Act was passed into law, small business owners throughout the country rushed to apply for their PPP loans—with the important promise that a good percentage of these “loan” funds could ultimately be forgiven.

The big question that has been weighing on the minds of all small business owners who received PPP loans was if they would be eligible for loan forgiveness. Early on, the Small Business Administration (SBA) released some basic guidelines as to what the loan funds could and couldn’t be spent on, but there was still a lot of gray area.

On May 15, we finally got more information when the SBA released its official PPP loan forgiveness application and instructions. This has provided much more clarity and offers more specific loan forgiveness guidance.

Let’s take a look at some of the key provisions and information required in the PPP loan forgiveness application:

PPP Loan Amount

As outlined in the original CARES Act, forgiveness is limited to the principal amount of the PPP loan and does not include any accrued but unpaid interest.

Covered Period

This is perhaps the most interesting part of the updated PPP loan guidelines. What is referred to as the “covered period” is the 8-week forgiveness eligibility period that generally begins on the date when the loan disbursement was received. There now appears to be some latitude for certain expenses, including those paid during the covered period (but incurred before the period began) and those paid after the covered period (but incurred during the covered period). The point here is to carefully study the application and guidelines before submitting your information. You may be eligible for more loan forgiveness than you think.

Alternative Payroll Covered Period

In addition to the new provisions above, there may be some flexibility in how you choose your 8-week covered period. This is specifically in relation to payroll costs. You could choose an “alternative payroll covered period” that actually starts on the first day of the first pay period after the disbursement date, not starting on the disbursement date itself.

Payroll Incurred or Paid

Payroll paid or incurred during the covered period will be eligible for PPP loan forgiveness.

Paid: Borrowers are generally eligible for forgiveness for the payroll costs paid or payroll costs incurred during the 8-week period. Payroll costs are considered paid on the day that paychecks are distributed or the borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned.

Incurred but not paid: Payroll costs incurred but not paid during the borrower’s last pay period of the 8-week period are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, costs must be paid during the 8 weeks.

The $100,000 pro-rata cap still applies along with other definitions of “payroll expenses” as outlined in the original Payroll Protection Program.

Nonpayroll Expenses

Regarding any rent/lease payments, business mortgage interest and utility costs that may be eligible for forgiveness, these expenses will be based on cash payments made during the original 8-week covered period.

FTEE Provisions and Employee Exclusions

There are some updated guidelines on full-time equivalent employees (FTEEs), safe harbor provisions, wage reductions and attempted rehire exclusions. We won’t get into all the finer details here because there are a lot of variables to understand. As a small business owner seeking PPP loan forgiveness, you will want to study the guidelines and follow the application carefully in order to get as much of your funds forgiven as possible.

Do not go into submitting your PPP loan forgiveness application uneducated and uninformed. Do your due diligence to understand all the guidelines and submit the necessary financial documentation. You will have to be patient as there are so many small business owners out there in the same boat as you, who are also seeking financial relief and loan forgiveness, and they will also be submitting their applications at the same time.

It also pays to work with a financial advisor who knows all the details of PPP loan forgiveness, understands how your business operates and can help you better navigate the application process. For all your small business financial guidance and support, contact Illumination Wealth today. Our team is here to help you during these uncertain times.