The Treasury Department recently published Interim Final Rules on loan forgiveness. This article will give you some general guidance on how to seek loan forgiveness, as well as 3 important tips when applying.
The form to apply for forgiveness may be provided by your lender, or you can access it here. Your lender will review your application to determine whether you qualify for loan forgiveness. It is important that you complete the application correctly in order to avoid loan repayment or other penalties.
Tip #1: Make sure you report payroll expenses for the correct time period.
The current rules state that you must report payroll expenses for the 8 week “covered period.” In general, the covered period begins from the date of disbursement of loan proceeds from the lender. There is also an “alternative payroll covered period” which is the first day of the first payroll cycle in the covered period.
There is a bill that was passed in the House on May 27 which would, among other things, extend this 8-week window to use loan proceeds to 54 weeks. The bill would also push back the deadline to rehire works from June 30 to December 31, 2020, and it would extend the time borrowers have to repay a loan. For more information on the bill, check out this article by Forbes.
Tip #2: Correctly identify the “full time equivalent” employees you pay.
Your loan may be forgiven if you use the proceeds to pay full time employees during the covered period. A full time equivalent (FTE) employee, according to the Small Business Association (SBA) is one who works 40 hours or more, on average, each week. However, if you reduced the hours of full time employees, you can still use those expenses, but the amount of the loan that is forgiven will also be reduced.
If you paid an employee for less than 40 hours per week, you can choose to calculate the full-time equivalency in one of two ways. First, you can calculate the average number of hours the worker was paid per week during the eight-week covered period and divide that number by 40. If the worker was paid for 30 hours/week on average during the covered period, then on the forgiveness application that employee would be a FTE of 0.75.
The second option is to use a full-time equivalency number of 0.5 for employees who worked less than 40 hours per week during the covered period. Regardless of which option you choose, you must be consistent in how you apply the method to part time employees.
Tip #3 – Be patient and keep good records.
Your lender has 60 days from receipt of your loan forgiveness application to make a decision and submit that decision to the SBA. The SBA then has 90 days to review the loan or loan application and to remit the appropriate forgiveness amount (if any) to the lender. The SBA can determine during its review that the borrower was ineligible for the PPP loan initially, in which case the loan will not be forgiven. If a loan or portion of a loan is not forgiven, the borrower must repay the loan within the 2-year period.
All borrowers must retain PPP documentation for 6 years after the date the loan is forgiven. Borrowers must also permit representatives from the SBA of Office of the Inspector General to access their files upon request.
Need help?
We would be happy to guide you through the process or answer questions you may have. The U.S. Chamber of Commerce has also published a PPP forgiveness guide that you may find helpful.
Contact our Chicago area offices by calling 312-878-0155 for assistance with your PPP loan.