Understanding PPP Loan Forgiveness

​A week and half ago, the Treasury and SBA released its highly anticipated Payroll Protection Program Loan Forgiveness Application. I considered writing about it last week but as there were rumors of additional guidance and potential changes in the works, I held off. Those rumors are still out there and there are two bills in Congress that would have impacts. I had promised a post about how to put out the flaming hot ball of tar you have been holding in the form of the PPP loan and so for now, as we are approaching the four week mark for some of the loans, let’s discuss forgiveness.

The PPP Loan Forgiveness Application can be found at https://home.treasury.gov/system/files/136/3245-0407-SBA-Form-3508-PPP-Forgiveness-Application.pdf

Before you begin the application, you should gather the following information:

• Your SBA PPP Loan Number
• Your Lender PPP Loan Number
• Your PPP Loan Amount
• Your PPP Loan Disbursement Date
• Numbers of Employees at time of Loan Application
• The amount EIDL Loan Advance (earlier call a grant), if any.
• Your EIDL Application Number, if any.
• Your covered period (8 weeks starting and ending dates)
• Your eligible payroll costs (paid) during the covered period. This includes gross payroll (compensation to employees) plus cash tips paid, vacation/sick/FMLA time paid, allowance for separation or dismissal amounts paid, group health insurance costs paid, employer retirement contributions and employer taxes paid at the state or local level on compensation paid. For self-employed (independent contractor/sole proprietor/LLC member/partner), your payroll costs are 8/52nd of your 2019 Schedule C net profit or similar compensation not including passive activities.
• Your Business Mortgage Interest Payments during the covered period, paid or accrued.
• Your Business Rent or Lease Payments during the covered period.
• Your Business Utility Payments during the covered period (electricity, natural gas, water, transportation, telephone or internet service.
• Your headcount at the end of the covered period.
• Your average annual salary or wage for the first three months of 2020.
• Supporting documents for each item listed above.

The forgiveness application starts with information about your business and your employee headcount and then asks you to list your compensation and eligible non-compensation costs. The sum of these costs is your potential forgivable loan amount before adjustments.

The application then lists adjustments to the forgiveable amount which include a reduction if your average compensation per employee full time equivalent (FTE) was not at least 75% of the average compensation for the first three months of 2020. It also includes an adjustment if your FTE workforce was lower than during the first three months of 2020, subject to an exception for restoring FTE by June 30, 2020.

Your PPP loan forgiveness amount is the lesser of your adjusted forgiveable amount, the total PPP loan amount or the total payroll costs divided by 0.75 (which is a representation of using 75% of the forgivable loan proceeds for payroll costs.).

The Treasury continues to keep a list of frequently asked questions which provides a little more in depth information regarding certain scenarios. You may want to refer to them as well. They can be found at https://www.sba.gov/document/support--faq-lenders-borrowers

The important takeaway from my review of the forgiveness application is to keep great records of the eligible expenses and supporting documents for each.

The forgiveness application will be submitted by you to your lender and not the SBA which means that each lender may interpret forgiveness a little bit different from another lender, as we saw in the PPP loan application process.
​
While absolutely possible for you to complete your PPP forgiveness application on your own, if you have any hesitations about doing it yourself, please hire your CPA to help you. We actually enjoy helping