FAQ: PPP Loan Forgiveness Guidance

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With the Paycheck Protection Program, small business borrowers can qualify for forgiveness of up to 100% of the loan if certain guidelines are followed. If you’ve received a PPP loan from Pursuit, we’ve outlined the basics and provided links to the relevant SBA Final Interim Rules (these are documents that lay out the nuts and bolts of the program) in our PPP Loan Forgiveness Guide. However, we know that many borrowers have additional questions and need PPP loan forgiveness guidance. That’s why we’ve created this helpful FAQ.

PPP continues to evolve and this FAQ includes information on the latest rules and guidelines. Check back for PPP loan forgiveness guidance as new changes are announced.

FAQs: Updated forgiveness regulations

No, you do not need to do anything to take advantage of the extended loan forgiveness covered period, you will automatically benefit from it.

No. The change to the deferment period is retroactive so all PPP loans will have the extended deferment period. No payments will be required until loan forgiveness has been determined (assuming the loan is not fully forgiven).

Yes, you will need to specifically request and negotiate this change with Pursuit after your loan forgiveness amount has been determined.

Yes, the Economic Aid Act has made it clear that loan forgiveness is not to be treated as taxable income and all expenses incurred utilizing PPP funds can still be deducted. This essentially makes the PPP loan a tax-free grant if full forgiveness is received.

No, your employees will still be considered full-time. Here’s why: the 40-hour week is only used when considering whether your business has retained its employees. If your business had a shorter work week and has continued with that same schedule, there will not be any decrease in employment. Essentially, your business will not be impacted if it is consistent in the hourly requirements of its employees. Adjustments are only made if the business reduces work hours.

Yes, you would still qualify for forgiveness. The Flexibility Act states that forgiveness will not be reduced if you are able to document an inability to return to the same level of business activity due to compliance with guidance issued by the government. This includes rules and regulations issued by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

FAQs: Applying for forgiveness

Read and review all materials, including the SBA application and instructions. Pursuit has all this available in our loan forgiveness guide.

Applications for forgiveness have now been sent to Pursuit borrowers. You may now upload your documents through the application portal.

For loans under $150,000, you will not need to submit any documentation and will only be asked to certify a simple form.

For loans above $150,000, you will be required to fill out SBA Form 3508 or 3508 EZ as part of the online forgiveness application. Supporting documentation (e.g. payroll records, utility statements) will be required to support the figures included on the forgiveness application. Here is additional information on the types of supporting documents you should submit:

  • Payroll costs: Reports from third-party payroll providers, canceled checks or paystubs
  • Rent: canceled checks, receipts, or similar documentation showing that rent has been paid
  • Utilities: copies of utility statements and proof of payment
  • Mortgage interest: copies of your mortgage statement and proof of payment

Yes, there is no requirement that you wait until the end of the 24 week period to apply. However, keep in mind that SBA has not yet opened the forgiveness for submission so there is no need to apply at this time. We encourage you to be patient and continue to focus on running your business.

Please check your forgiveness application portal for the status of your application. Please note that Pursuit is not able to provide updates on your application once it has been submitted to SBA for approval. SBA has up to 90 days to approve your forgiveness application.

FAQs: Eligible expenses

Yes, the calculations for payroll costs and loan forgiveness are the same. Per the SBA interim rule on this matter:

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation.

If you are able to reach the full loan amount with payroll costs, you are eligible for full loan forgiveness. If you are not able to do this, you will have to repay the remaining balance as a loan.

No. Payments to independent contractors are not an eligible payroll expense.

Yes, all business types that use self-employment income will use the same two and a half months calculation. This includes partnerships and LLCs which used self-employment income from Line 14a on Schedule K-1 and sole proprietorships and LLCs that used the net profit from Schedule C. The maximum owners’ compensation replacement is $20,833.

You can count payment of state and local taxes assessed on employee compensation towards payroll costs. Taxes imposed and withheld from the employee can also be included as payroll costs and count towards loan forgiveness. Federal payroll taxes which are imposed on the employer are not and eligible payroll cost and do not count towards loan forgiveness. Per the SBA final rule on the matter:

Under the Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees.  As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax.  For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs.  The employee would receive $3,500, and $500 would be paid to the federal government.  However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.

Yes, you can include all healthcare costs in the calculation, regardless of whether it is for an employee or their family as part of a larger coverage plan.

Yes. If the employee’s leave is not covered under the Families First Coronavirus Response Act, this expense qualifies as an eligible payroll cost and can be included within the loan forgiveness calculation.

No, workers’ compensation and other insurances do not qualify as they are not considered payroll, rent, utilities, or mortgage interest. References to insurance premiums in the payroll cost definition are related to healthcare and would not include other business expenses such as workers’ compensation insurance.

No, this does not count towards payroll costs. This would be incorporated into the owner compensation replacement figure.

For interest to qualify as an eligible expense for loan forgiveness, the debt must be incurred in the ordinary course of business that (a) is a liability of the borrower; (b) is a mortgage on real or personal property; and (c) was incurred before February 15, 2020.

FAQs: Forgiveness calculation

The covered period begins on the date that your loan was originally disbursed. You can find this date on your loan documents or in the recent email correspondence. The covered period ends on a date that you select that is between 8 and 24 weeks after the date of loan disbursement. Typically, most borrowers will choose the full 24 week period to ensure full forgiveness – this is 168 days after the disbursement date and we have also provided this date to you in our recent email correspondence.

For example, if you received your PPP loan proceeds on Monday, April 20, 2020, the first day of the covered period is Monday, April 20, 2020, and the final day of the Covered Period is any date between Sunday, June 14, 2020, and Sunday, October 4, 2020.

You have ten months after the 24-week covered period ends to apply for loan forgiveness. This is effectively 15 1/2 months from loan funding. Pursuit will contact you with any questions when reviewing the forgiveness application and let you know when submitted to SBA for review and as soon as SBA has issued its determination.
Please note that SBA can take as long as 90 days to review forgiveness applications and we cannot provide any status updates.
  • There are two ways to calculate the number of full-time equivalent employees (FTEs). You can use either method, but you must be consistent in using one method for all calculations.

Traditional: To use this calculation, divide the average number of hours worked per week by 40. Some nuances: an employee cannot count as more than one FTE and employees who work fewer than 40 hours per week are aggregated based.

For instance, if there are five employees in a company and they work 50, 40, 30, 20, and 10 hours each, respectively, this would equal 3.5 FTEs. The calculation results in the following:

  • Employee averaging 50 hours = 1.0 FTE
  • Employee averaging 40 hours = 1.0 FTE
  • Employee averaging 30 hours = 0.75 FTE
  • Employee averaging 20 hours = 0.5 FTE
  • Employee averaging 10 hours = 0.25 FTE

TOTAL = 3.5 FTEs

Simplified: With this method, there are only two values to each employee – 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer than 40 hours per week. For example, if there are four employees in a company and they work 50 hours, 40 hours, 30 hours, and 20 hours, this would equate to 3.0 FTEs. Per the SBA final interim rule on the matter:

Average FTE: This calculates the average full-time equivalency (FTE) during the Covered Period or the Alternative Payroll Covered Period. For each employee, enter the average number of hours paid per week, divide by 40, and round the total to the nearest tenth. The maximum for each employee is capped at 1.0. A simplified method that assigns a 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours may be used at the election of the Borrower.

The figure that you included in your application for number of employees does is not relevant when calculating loan forgiveness. Your lender used that number only to determine PPP program eligibility. Loan forgiveness is calculated based on the FTE calculations in the questions above.

The Flexibility Act has scaled back the requirements for maintaining full-time equivalent employee count. If the business was unable to operate at the same level of business activity due to restrictions, there is no longer a requirement that the employee count remain the same. Your loan forgiveness will not be impacted by a lower FTE count.

Yes, you can include all employees who were employed at any point during the covered period if their principal place of residence is in the United States.

Yes, increased salaries and/or bonuses can be paid to employees. However, the maximum annualized rate may not exceed $100,000. Therefore, the maximum forgiveness that can be allocated to any single employee is $46,153 (24 weeks of pay for someone earning $100,000).

No, there are not any stipulations regarding the timing of payroll. Employers who use biweekly or more frequent payroll cycles can use the alternative covered period (See “When does my 24-week period start?”) FAQ above.

Yes, however borrowers must have all supporting documentation regarding loan forgiveness and retain copies of all records demonstrating compliance with PPP requirements for six years after the loan is paid in full. Partial forgiveness will be granted based upon proper documentation for those eligible expenses. In no circumstance will forgiveness be less than 60% for eligible payroll costs or exceed 40% for eligible non payroll costs.

Yes, the minimum threshold is using 60% of your loan proceeds toward eligible payroll costs. There is not a maximum, so you are able to use all loan proceeds for payroll costs and have them forgiven.

After SBA processes your loan forgiveness application and sends payment to the lender, this amount will pay down the loan balance. Your PPP loan is structured so that you will not have to make payments until loan forgiveness is determined. If your loan is not fully forgiven, you will have to make payments on the first of the month following the forgiveness determination.

No, EIDL grants are no longer required to be subtracted from your loan forgiveness amount. 

Even if you do not reach the 60% payroll requirement, you are still eligible for forgiveness at a proportional amount. Let’s assume you obtained a PPP loan for $100,000. You were able to spend $54,000 on payroll, which is only 54%, not reaching the required 60% threshold. You would still obtain forgiveness for the $54,000 spent on payroll, plus you would be able to obtain forgiveness of up to $36,000 of nonpayroll costs (54%/60% = 90% … $40,000 * 90% = $36,000). This brings your total eligibility for loan forgiveness to $90,000, or 90% of the total loan amount.

The calculation is the same as it was for the original application and gross pay can be utilized to calculate employee payroll costs. The maximum forgivable amount per employee is $46,154, which is an annualized figure of $100,000.

No. A reduction in salary means a reduction in the employee’s hourly rate. Working fewer hours is not considered a reduction in salary.

No, forgiveness is only impacted if there is more than a 25% reduction in the employee’s hourly rate. Working fewer hours is not considered a reduction in salary and will not impact loan forgiveness. 

Please review pages 4 and 5 of our Loan Forgiveness Guide, which outline the payroll cost calculation. The instructions attached to SBA Form 3508S also have specific details on the calculation. You can also visit the SBA website or Treasury guidelines on the program for more information. 

We recommend reaching out to your accountant, attorney, or business advisor for questions that are specific to your business’ situation. Please remember that as your lender Pursuit is tasked with reviewing and verifying the information submitted for forgiveness and therefore cannot provide specific assistance to borrowers in filling out the forgiveness application. 

Please note that this figure is what was included on your original application. If it is incorrect, please email [email protected] and include your:

  • Loan number
  • Borrower name
  • Correct number of employees you wish to have on your application

FAQs: Sole proprietors and independent contractors

No, additional forgiveness is not provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners. This is because these expenses are paid out of their net self-employment income.

No, only expenses that are paid for by the business and have previously been shown on prior years’ business tax returns can be included.

The owner’s compensation replacement equates to two-and-a-half months of the company’s net profit in 2019 (typically reported on Line #31 of Schedule C or Line #14(a) of the K-1 of Form 1065). This is the same calculation that was used to determine the original loan amount – Net Profit / 12 * 2.5. If the business has no employees, this essentially creates automatic complete forgiveness for a self-employed individual.

None! The calculation is entirely based on the net profit reported in 2019. There is no additional documentation that is required. Further, a self-employed individual does not need to account for utilities, mortgage interest, or rent as the forgiveness amount will fully be obtained through the owner’s compensation replacement.

FAQs: Other

You are required to make a good-faith, written offer to rehire the employee which must be documented. The employee’s refusal to return should also be documented. See details from the Interim Final Rule below:

Employees whom the borrower offered to rehire are generally exempt from the CARES Act’s loan forgiveness reduction calculation. This exemption is also available if a borrower previously reduced the hours of an employee and offered to restore the employee’s hours at the same salary or wages. Specifically, in calculating the loan forgiveness amount, a borrower may exclude any reduction in full-time equivalent employee headcount that is attributable to an individual employee if:

  1. the borrower made a good faith, written offer to rehire such employee (or, if applicable, restore the reduced hours of such employee) during the covered period or the alternative payroll covered period;
  2. the offer was for the same salary or wages and same number of hours as earned by such employee in the last pay period prior to the separation or reduction in hours;
  • the offer was rejected by such employee;
  1. the borrower has maintained records documenting the offer and its rejection; and
  2. the borrower informed the applicable state unemployment insurance office of such employee’s rejected offer of reemployment within 30 days of the employee’s rejection of the offer.

SBA has not provided guidance on this topic but there is no mention of a claw back or look back period once a loan forgiveness application has been submitted.

SBA has not provided guidance on this topic but there is no mention of a penalty or look back period once a loan forgiveness application has been submitted.

Unfortunately, there are currently no exceptions or extensions to the loan forgiveness period. We will provide an update if Congress, SBA, or Treasury adjusts the loan forgiveness rules or calculations.

Shareholders of corporations must be paid through payroll – the compensation cannot be distributions or dividends. The maximum an owner can receive as forgiveness is $20,833 per SBA guidelines.

No, there are no differences in the loan forgiveness application or process for non-profits.

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