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Can a PPP loan be forgiven?
Yes. PPP loans (the full principal amount and any accrued interest) may be forgiven, meaning they do not have to be repaid. Remember if you do not apply for forgiveness, you will have to repay the loan. You will do this directly with your lender and they are required to process your request within 60 days.
It is understood that you will be eligible for full forgiveness if you follow a few guidelines:
When do you start to apply the 8 week period for using your loan?
The actual 8 week period can start on one of two dates:
The PPP loan disbursement dates will vary based on when it is approved and acted upon so the period is different for each borrower. For example, say you choose April 14, 2020. That 8-week period ends on June 08, 2020 based on option 1.
What is the structure of a PPP loan?
The PPP loan is a 1% interest rate loan that matures in 2 years*. There will be no prepayment penalty, meaning you will be able to repay the loan at any time before the maturity date. There is no collateral or personal guarantee required. All loans will be processed by third-party lenders under delegated authority of the SBA, and the lenders are permitted to rely on the certifications of the borrowers in order to determine eligibility of the borrower and the use of loan proceeds.
The PPP loans are 100% guaranteed by the SBA with no personal guarantees of payment to the SBA. Lenders are not allowed to collect fees from you or be paid out of the PPP loan proceeds.
How do I get my Total Payroll Costs for 8 weeks after I get the loan?
This is the total payroll you will incur during the 8 weeks after you receive your PPP loan, which may include wages, salary, cash tips, commissions, retirement benefits, health insurance and/or sick pay, PTO, employer assessed State and local taxes.
Compensation earnings are capped at $100,000 yearly per employee.
How do employees that make over $100,000 annually affect my loan forgiveness?
Employees that makes an annual salary of over $100,000 in 2019 are removed from the loan forgiveness calculation.
What if I can't maintain the number of Full-Time Equivalent (FTE) employees?
If you can’t maintain the number of Full Time Equivalents (FTE) employees, then you’ll see a decrease in the amount of loan forgiveness you will be eligible for. For example, a 20% drop in FTEs results in a 20% decrease in the amount of the loan forgiveness.
However, there is an exception for rehires. Reductions in employment or salary that occur between Feb 15, 2020 and April 26,2020 will not reduce the amount of loan forgiveness if you eliminate the reduction in employees or the reduction in wages by June 30, 2020.
Do I need to rehire the same employees?
There is no requirement for an employer to rehire the same employees. However, you do need to restore the average number of full-time equivalent employees as before.
How do I get the number for Rent for 8 Weeks after I get the loan?
This is the rent you will incur during the 8 weeks after you receive your PPP loan. The agreement must have been in effect prior to 2/15/2020. You can use up to 25% of the loan forgiveness amount to pay these costs during the covered period.
How do I get the number for Utilities for 8 Weeks after I get the loan?
These are the utility expenses you will incur during the 8 weeks after you receive your PPP loan.
Eligible utilities need to business related utilities that were in place on February 15, 2020 (electricity, gas, water, transportation, telephone, or internet access).
You can use up to 25% of the loan forgiveness amount to pay these costs during the covered period.
UPDATE [April 18, 2020]: A “transportation utility” has been interpreted to mean fuel costs for business vehicles.
How do I get the number for Interest on Covered Mortgages for 8 weeks after I get the loan?
This is the interest on covered mortgages you will incur during the 8 weeks after you receive your PPP loan. For mortgages in effect prior to 2/15/2020. You can use up to 25% of the loan forgiveness amount to pay these costs during the covered period.
What is Total Loan Amount Forgiven?
This is the total amount of your PPP loan that is forgivable if you pass 2 specific tests to ensure that you are in compliance with the loan requirements. This is a sum of your payroll and other expenses that were forgiven.
What is the eligible amount of loan forgivable for payroll?
This is the amount of your PPP loan for payroll that is forgivable if you pass 2 specific tests to prove compliance with the loan requirements.
What is the eligible amount of loan forgiveness for other expenses?
This is the amount of your PPP loan for other expenses that is forgivable if you pass 2 specific tests to ensure that you are in compliance with the loan requirements. This is at most 25% of the total PPP loan amount.
What is Total Amount Not Forgiven?
This is the total amount of money that will be not be forgiven based on how you have allocated the money. As a reminder, if you do not use the whole loan, whatever is not used will also be included as money that will need to be repaid.
How does a reduction in headcount change my loan forgiveness amount?
If a business reduces the number of full time employees during the covered period after the PPP loan has been disbursed, the forgiveness amount is reduced by a ratio. This ratio looks at the number of FTEs (Currently, we think this means those that are working over 30 hours) during the covered period over the number of FTEs during a period before this covered period. For this period before the covered period, you can choose one of the following for the time period. You are allowed to choose whatever is best for you.
Whatever this ratio is (it cannot be greater than 1), you will multiply this by your loan forgiveness amount to get the reduction. There is a caveat. This can be forgiven if you are able to get to pre-covered period levels by June 30, 2020 no matter when your covered period ends. We are not sure how this correction will work.
How do I calculate my FTEs?
To figure out the number of FTEs during the covered period, for each employee, calculate the average number of hours paid per week and divide by 40. The maximum for each employee is capped at 1.0. So if you have an employee working 40 hours a week, that employee will be assigned 1.0.
How does a reduction in wages or salary change my PPP loan forgiveness amount?
For this calculation, you will only look at FTEs that make less that $100,000. You will need to calculate this per employee. For each employee, you must maintain salary or wages to within 75% of the total before the covered period. Your reduction in loan forgiveness will be reduced by the amount of money required to get to the salary or wage during the covered period to at least 75% of the pre-covered period.
If my total loan amount cannot be forgiven, what should I do?
There are many stipulations to ensure that the PPP loan that you are being given by the SBA will be forgiven. These stipulations were created to incentivize people that receive the loan to retain employees and their wages. But, while forgiveness is an important aspect to the loan, as a reminder, the loan is a 1% loan with a 2 year payback period. So, please consult with the legal and financial professionals that you work with to understand how this may be beneficial for your business.
When do I need to apply for loan forgiveness?
You will not have to make any payments for six months follow the date of disbursement of the loan. However, the 1% interest rate begins immediately. You essentially have 4 months after your 8 weeks covered period to apply for loan forgiveness before you have to start paying back the principal of your loan.
Who are we?
We are financial professionals, small business consultants, business owners, and technologists from Coast who have applied for these loans either for ourselves, or on behalf of clients, friends, and family. We want to share what we have learned to help you understand what funds may be available for you, how to apply for those funds, what documents you will need, and hopefully help you avoid pitfalls along the way. We are not being compensated in any way for this, we are simply providing information as an act of support for all of the small business owners out there.
We will do our very best to keep the information up to date but please remember that instructions are being clarified and refined on a daily basis. The top of the page will show when the page was last updated.