PPP Loan Frequently Asked Questions
What can the loan proceeds be used for?
- The loan proceeds may only be used for payroll costs, mortgage interest payments for obligations, rent payments, utility payments and interest payments on other debt obligations incurred prior to February 15, 2020.
- Of the costs listed above, at least 75% of the proceeds of the loan must be applied to payroll costs. Payroll costs consist of gross wages paid (including costs for employee vacation, parental, family, medical, and sick leave), costs related to the continuation of group health care benefits, employer contributions to retirement, and payment of state and local taxes assessed on compensation of employee (state unemployment).
- Mortgage interest costs do not include mortgage prepayment or principal payments.
- Consequently, borrowers should consider developing a plan to make sure adequate controls are in place to maximize the potential usefulness of the loan proceeds and also to prevent the loan proceeds from being misapplied.
How should I hold funds to ensure compliance with the SBA?
- Holding the loan funds in a separate account may be a convenient way to ensure these funds are used for purposes permitted by the SBA. This could make it easier to comply with the restrictions on the use of loan proceeds, and document the use of the proceeds for purposes of forgiveness.
- For some borrowers, it might not be realistic to switch accounts used for payroll. In that case, you could transfer proceeds from the segregated account into the main operating account just prior to the permitted use cost being paid.
- Reminder: You can allocate no more than 25% of the funds for non-payroll costs to stay compliant with the loan forgiveness restriction.
When will the 8-week period begin?
- The eight week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. The lender must make the first disbursement no later than 10 calendar days from the date of approval.
- Additional guidance from the SBA confirms that borrowers will not be able to defer the start of their covered period to a later date.
- Important: If you are a summer, seasonal business that would naturally be increasing payroll towards the end of June, we recommend that you talk to your lender about disbursing the funds towards the end of that 10 day window
PPP Loan Forgiveness
At this point, the “Loan Forgiveness” component of the Paycheck Protection Program has yet to reach final form.
The second phase of PPP included an addition to the borrower's certifications aimed at ensuring the use of the proceeds were for those borrowers most in need. Companies must now certify in good faith that the "loan request is necessary" due to a lack of "other sources of liquidity". Further, any company that already received funds but should not have based on these requirements, will be allowed to return the money by May 14, 2020, without risk of penalty.
Please see Program Rules - Frequently Asked Questions provided by the U.S. Department of Treasury. Please be aware that these FAQs are regularly updated, and may be reached at the button below.
It is clear at this time that the Lender (the originator of your PPP Loan) will have a duty to review Payroll and related other records of “includable expenses” and calculate the amount of a PPP Loan to be forgiven.
Recordkeeping by the Borrower is essential. The form of these records is equally important to facilitate a full and accurate review by the Lender, and one that will result in the greatest amount of Loan Forgiveness.
What documentation will be required to verify expenses that are eligible for loan forgiveness?
- For the 8-Week Post-Closing Period: Borrowers will need to provide supporting documentation for all eligible expenses. Therefore, when you receive the funds, it will be best if you already have a system in place to account properly for the funds received.
- While we have not yet received specific guidance on exact documentation that may be required, some components of this question are clear:
- Supporting documentation reflecting the average number of FTE’s per month
- Copies of payroll tax reports
- Copies of payroll reports for each pay period. These reports should include paid time away which occurred during the period for vacation, sick time, and other paid time off.
- Documentation of all employer paid health insurance premiums under any type of group healthcare plan. Payments for owners may also be included.
- Documentation sufficient to support rental/lease payments for real estate and personal property associated with business operations, and proof of payment
- For business related debt initiated prior to February 15, 2020, evidence supporting payment of interest
- Evidence of utilities paid (i.e., cancelled checks, statements, etc.)
How will FTEs be counted when calculating forgiveness?
- Formal guidance on this has not been issued yet. However, we know there will be two options when it comes to calculating your prior FTE count.
- Option 1: Average number of FTEs per month from February 15, 2019, to June 30, 2019.
- Option 2: Average number of FTEs per month from January 1, 2020, to February 29, 2020.
- For employers who have seasonal or part-time staff, their hours will be a very important part of the calculation
How will I apply for forgiveness?
- Borrowers will be required to submit information supporting their forgiveness calculations. Lenders will review information and then request the forgiveness from the SBA.
- Please note: It will be important to apply for forgiveness as soon as possible to ensure that forgiveness is processed before the six-month payment deferment ends. With the extent of this program there will be a lag time between when the borrower submits their forgiveness request and when the request is processed by the SBA.
- SBA published the Paycheck Protection Program Loan Forgiveness Application on Friday, May 15, 2020. The application may be downloaded at the button below.