May 20, 2020 - 9:00am
From shipping to staffing, the Chamber and its partners have the tools to save your business money and the solutions to help you run it more efficiently. Join the U.S. Chamber of Commerce today to start saving.
The Treasury Department and Small Business Administration recently released the application form and instructions for loan forgiveness. The forgiveness forms, instructions, and worksheets can be downloaded here.
PPP borrowers must apply for loan forgiveness with the lender that processed the loan.
This guide is designed to help borrowers understand the process by which their loan forgiveness amount will be calculated and the overall approach of the loan forgiveness process.
Sign up to receive new and updated COVID-19 resources and guides as they are released.
The process to calculate the amount of loan forgiveness requires three steps:
Determine the maximum amount of possible loan forgiveness based on the borrower’s expenditures during the 8 weeks after the loan is made;
Determine the amount, if any, by which the maximum loan forgiveness will be reduced because of reduced employment or reduced salaries and wages; and
Apply the 75% rule that requires that at least 75% of eligible loan forgiveness expenses go towards payroll costs.
1A. Expenses Qualifying for Loan Forgiveness:
The following expenses incurred or paid by the borrower during the 8 weeks following loan origination (see below for determining the 8-week period) are eligible for forgiveness:
Payroll Expenses, defined as:
Note: For an independent contractor or sole proprietor, payroll costs only include wages, commissions, income, or net earnings from self-employment, or similar compensation.
Non-Payroll Expenses, defined as:
Note: For an independent contractor or sole proprietor, you must have claimed or be entitled to claim a deduction for these expenses on your 2019 Form 1040 Schedule C in order to claim them as expenses eligible for PPP loan forgiveness in 2020.
1B. Identifying Your 8-Week Period:
The 8-week period during which expenses must be incurred or paid:
Tip: If you are using an online date calculator, remember to count the date of the disbursement of the loan as part of the 56 days. For example, if the loan was disbursed on April 20, the last day of the 56 days would be June 14).
2A. Determine loan forgiveness reduction based on a reduction in salaries or wages of more than 25%:
For employees who earned $100,000 or less in 2019 (or were not employed by the borrower in 2019), the borrower’s loan forgiveness will be reduced for each employee whose average pay (salary or hourly wage) during the 8-week period is less than 75% of their average pay from January 1 to March 31, 2020. The amount of the reduction in loan forgiveness is based on the amount of the reduction in pay.
Safe Harbor: Borrowers can avoid having their loan forgiveness amount reduced if they restore an employee’s pay. Specifically, if the employee’s annual salary or hourly wage on June 30, 2020 is equal to or greater than their annual salary or hourly wage on February 15, 2020, the borrower’s loan forgiveness is not reduced.
2B. Determine loan forgiveness reduction based on a reduction in the average number of employees.
The borrower’s loan forgiveness will be reduced if the average number of weekly full-time equivalent employees (FTEs) during the 8-week period is less than the average number of FTEs during the borrower's chosen reference period. Borrowers can choose between the following reference periods:
Exceptions: Borrowers will not be penalized for any FTE reductions if either of the following occurred:
Safe Harbor: There is no reduction in the forgivable loan amount for borrowers who reduced their FTEs during the period beginning on February 15 and ending on April 26, 2020, but who by no later than June 30 restored the FTEs to the level that existed on February 15.
A borrower’s maximum loan amount could also be reduced if the borrower’s eligible non- payroll expenses exceed 25% of the total eligible expenses. The maximum eligible loan forgiveness is payroll expenses divided by 0.75.
Example: If your payroll expenses for the 8-week period equal $75,000, your loan forgiveness cannot exceed $100,000. Any more than $100,000 would mean your non-payroll expenses represent more than 25 percent of the total forgiveness amount.
Borrowers’ loan forgiveness will equal the smallest of the following:
Your PPP loan amount
The maximum loan forgiveness amount from Step 1 less any reductions from Step 2
The maximum loan forgiveness amount where eligible payroll expenses equals or exceeds 75% of the total forgiveness (i.e. your eligible payroll expenses ÷ 0.75)
For any loan amounts not forgiven, the original loan terms – two-year maximum loan at 1% interest rate with payments deferred for the first six months – will apply.
There are no prepayment penalties or fees.
Borrowers will be required to submit certain documentation with their loan forgiveness application:
Full-Time Employees (FTEs):
Congress is currently considering a number of changes to the PPP program, including eliminating the 75% rule and extending the 8-week period to up to 24 weeks. However, enactment of these changes is not guaranteed.
Until any changes are enacted into law or until the Treasury Department and SBA change any regulations and guidance, the current rules apply to all borrowers.
Special thanks to Facebook, our partner on these guides and resources. Visit the Facebook Business Resources Hub for more resources and information.