Requirements For PPP Loan Forgiveness
The requirements to have your PPP loan forgiven are pretty lenient. That doesn't mean that it is not important to understand and follow the requirements so that you are not stuck paying back all or a portion of the loan.
1. The Loan Must Be Used As Directed
There are clear directives as to how the loan may be used.
- Payroll costs
- Capped at $100,000 annually per employee
- State and local payroll taxes
- Benefits for employees (retirement plans, health insurance, severance pay, vacation time, medical leave, family leave)
- Self-employed people do qualify and this would include self-employment wages and draws not more than $100,000/annually
- Mortgage Interest
- For mortgages taken on before February 15, 2020.
- Documentation must show the mortgage interest was paid (receipts, statements, canceled checks).
- For rental lease agreements in effect before February 15, 2020.
- Documentation must be used to show these funds were used toward this expense (receipts, statements, canceled checks)
- For utilities agreed to before February 15, 2020.
- Again, documentation must be used to show these funds were used toward this expense as described above.
75% of the loan must be used to cover payroll costs. The remaining 25% may be used toward mortgage interest, utilities, and rent.
Costs will need to be proven by submitting documentation. See below for a list of acceptable documentation:
- Tax forms: 941 Quarterly tax filings and 944 Annual tax filings
- Payroll Registers: Should be from the last 12 months
- Business Bank Statements: Should be from the last 12 months
- Independent contractors may use a 1040 Schedule C and/or 1099 tax forms
- Independent contractors may also use income and expense reports.
Ask your lender for other acceptable documentation.
2. Funds Must Be Spent Within 8 Weeks
The loan you received was calculated with eight weeks of payroll in mind. In order to be forgiven, they must be spent within eight weeks of receiving the loan. If you are unable to spend all the funds within this period, forgiveness can still be claimed on any other portion that meets the requirements listed above.
3. Costs Incurred During the Eight Weeks May Also Be Included
If you have costs that are incurred during this period, they are also eligible for forgiveness. So, if you have a payroll period during the eight-week period, but the pay date is after this period, you may use this payroll because the work was completed during the eight week period.
4. You Must Maintain Your Full-Time Staff
If you have twenty employees, you must keep twenty employees, If employees are laid off during this time, you may rehire and the loan allows somet time for this. We have until June 30, 2020 to restore the original staff headcount. You will be required to pay back all or some of your loan if you fail to maintain staff based on these guidelines.
5. Payroll Must Be Maintained
The cost of payroll must be consistent with your application. If salary decreases or increases, you may be required to pay back a portion of the loan. Salary may not be decreased for any full-time employee earning less than $100,000 by more than 25%. If salaries had to be cut as a result of financial difficulties between February 15, 2020 and April 26, 2020, you have until June 30, 2020 to restore these wages.
What If Employees Do Not Come Back?
We are all aware of the two main reasons employees do not want to return to work:
1. They are afraid to risk their health or the health of someone in their household.
2. They are making more money on unemployment.
Employees May Not Refuse Rehire & Still Collect Unemployment.
Legally, when an individual files for unemployment, they are asked to verify that they have not received a job offer. If they have received an offer, benefits will no longer be available. Additionally, State officials will also routinely reach out to employers to verify the worker's status. If the employer states that someone has been offered a job and it was refused, the state will investigate.
Exemptions to Return-to-Work Requests.
There are exemptions, however, where furloughed employees may continue to receive unemployment even if they are ordered to return to work.
In some of these cases, the employee may be eligible for paid or unpaid leave, which the PPP may be able to be used for (even with unpaid, insurance may continue, for example).
- Employees who are unable to return to work because they are ill with COVID-19 or caring for an ill family member with COVID-19.
- Employees who are unable to return to work because they are caring for children at home due to COVID-related school closures.
- Employees who are vulnerable to COVID-19 due to compromised immunity and face a high risk of exposure at their place of employment.
Lastly, if a return-to-work offer is at reduced pay or reduced hours, the employee may be eligible for full or partial unemployment benefits. Keep in mind that PPP forgiveness will be reduced if salaries/wages are decreased by more than 25% per employee.
What If I Don’t Qualify For Forgiveness?
If you use your loan for qualified expenses, your loan will be forgiven. But, what if your usage does not meet the requirements? You will be required to repay at least a part of the loan.
As previously mentioned, there are a few things that can prevent you from receiving 100% forgiveness on your PPP loan. As a quick reminder, those are:
If you don’t qualify for full loan forgiveness, you will be required to pay back loan funds plus interest. The interest rate for PPP loans is 1%, over two years with a 6-month deferred payment. Interest will accrue during the deferment, however.
When & How Should I Apply For Forgiveness?
You want to apply for forgiveness through your lender using the Paycheck Protection Program Loan Forgiveness Application (also linked on our COVID-19 Resources page under "Funding")
At the very least, be sure to have the documentation to show how your loan was spent. You may be required to submit documentation such as payroll, statements, tax forms, receipts, and canceled checks. The application clearly states acceptable documentation for reference.
Once your lender has received everything, they must make a decision on the status of your loan forgiveness within 60 days.