Will I Receive Complete Loan Forgiveness on My PPP Loan? It’s Complicated.

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This is a question that we are hearing from our clients and unfortunately, the SBA is making the forgiveness portion just as complicated as the loan process itself.

Before we tackle the question…The good news is that The Senate has approved the next round of funding that includes $310 billion for the PPP program and $60 billion for the EIDL program, so we are hopeful that small businesses will receive the funds that they need via these programs.

Now that you have the PPP loan, you need to be aware of the following issues with loan forgiveness.

Banks will be interpreting loan forgiveness differently. We are expecting this to be a big problem as banks will interpret the rules and the documentation needed for loan forgiveness differently. We saw this with how banks handled the loan application process. We strongly recommend that you read your Bank’s email communications and/or speak with your business banker, if possible, on loan forgiveness since your bank is mandated with calculating forgiveness.

Project your expected payroll costs during the eight-week period (covered period). You are ‘On The Clock’ regarding the eight-week period when you received the loan proceeds. The program is called the Paycheck Protection Program for good reason, so if you don’t spend the money, you are going to have to repay it either at the end of the eight weeks or term it out with a two-year loan.

Also, If you do not spent at least 75% of the loan amount on payroll costs (payroll and related, employer portion of employee benefits and state and local employer payroll taxes), then you WILL NOT get any loan forgiveness for other qualified costs; rent, utilities, existing loan interest.

FTEs (Full-time Equivalent Employees) test is going to make many loans not 100% forgiven. The loan forgiveness is reduced if average FTEs during the eight-week period is less than the historical FTEs. You have two options when selecting either of the historical FTEs:

  1. Period February 15,2019 to June 30, 2019 or
  2. Period January 1, 2020 to February 29, 2020

The period with the lowest FTEs will be the one you use for benchmark purposes. At the time of this newsletter, we do not have any official guidance from the SBA on how to calculate FTE. In the past, the SBA has considered all employees who work 30 hours or more to be considered FTE.

To make matters worse, we have not received any guidance from either the SBA or banks on the level of detail and support required for FTE calculations.

Other Qualified Costs cannot exceed 25% for loan forgiveness and some businesses will not have enough qualified expenses to maximize the 25%.  The portion of the loan that can be forgiven for Other Qualified Costs is limited to 25%. Since some businesses will have qualified costs less than 25%, they will either need to have higher payroll costs for full loan forgiveness or face not getting 100% loan forgiveness.

All of the above just makes an already difficult situation more challenging, but hopefully we will get better guidance from the SBA soon.

If you have any questions, please do not hesitate to contact your Core accountant or myself.