Calculating US Paycheck Protection Program Loan Forgiveness – What’s Required?

While we wait for the decision from the US government on the future of Paycheck Protection Program (PPP), for those who have been approved, have received or are expecting to receive funds, here is guidance on loan forgiveness and what documentation is required.

For background, the PPP loans were designed to help companies impacted by the COVID-19 disruption keep employees and provide capital to cover other specified costs. The loan amount is based on 2.5 times the company’s average monthly payroll cost with certain criteria as outlined in our past notes on the subject. It is typically reserved for companies with 500 or less employees, with a maximum loan amount of $10 million at 1% interest to employers.

As the $349 billion in PPP funds starts to flow to those companies that were approved, what should they expect in terms of the forgiveness of the loan?  The guidelines established by the federal government used to calculate the eligible loan amount were changeable and often unclear. So, our expectation is that the rules on forgiveness are likely to be the same.

Here’s what we know so far from the interim rules given by the US Treasury and the Small Business Administration (SBA).

Loans can be forgiven up to 100% of the borrowed amount if certain criteria are met:

  • Proceeds of the loan, incurred before February 15, 2020 and paid over the eight-week period from when the loan originated, are used for the following:
    • Payroll expense,
    • The continuation of group health care benefits,
    • Mortgage interest,
    • Rent on leased facilities,
    • Utilities,
    • Interest on any other debt obligations
  • Employee headcount and compensation levels for employees earning less than $100,000 are maintained.
  • Not more than 25% of the loan forgiveness amount is used for non-payroll costs.

If you received an Economic Injury Disaster Loan, the proceeds from any advance up to $10,000 will be deducted from the loan forgiveness amount on the PPP loan.

If a portion of the loan is not forgiven, the remainder becomes a 2-year loan, accruing interest of 1% per year. The US Treasury has granted a deferment of interest and principal payments for a 6-month period from the date the loan originated, with interest accruing over that period. The amount forgiven will be equal to the aggregate spent on the qualifying criteria listed above.

How to apply?

No formal application has been released by the SBA as of the time this article was written (April 19, 2020), but a company seeking forgiveness of the PPP loan, will be required to submit a formal application when available and the following information to their lender:

  • Verification of the number of full-time employees and pay amounts for the relevant periods, which should include tax filings (IRS and state), payroll and unemployment insurance filings, payroll records and other supporting documents
  • If you work with a Professional Employer Organization, such as TriNet, you will need your payroll invoices showing payroll costs and benefits paid
  • Supporting documentation for mortgage interest obligations, rent payments on leased property and utility service agreement expenses
  • A certification statement from a company director attesting that the information supplied is accurate and has been used for the qualified expenses

Approved PPP lenders are required to determine loan forgiveness no later than 60 days after the submission of the forgiveness application and supporting documentation. However we are expecting additional guidance from the SBA on loan forgiveness. According to the Interim Rules posted on April 3, 2020, the SBA is required to issue final guidelines within 30 days from when the CARES Act was enacted on March 27, 2020.

At this point, we can’t say with any certainty what the final guidance of the SBA will be, but it is important to be prepared by collecting your supporting documentation as outlined above and to work out your loan forgiveness based on the use of loan proceeds.  This can be a complicated calculation and it’s important to get it right

If you need help please email anyone on the Rooney Nimmo COVID-19 support team: Elannie Damianos, Allan Rooney, Tim Davis , Abbey Docherty or Charles Arrowsmith or call us on 212 545 8022.


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