FAQ: PPP Loan Forgiveness

Business owners with calculator

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. 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 updates as new program 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.

We are waiting for guidance from SBA to determine if we can automatically change the initial payment date beyond the six-month deferment presently included in the Note. We hope that it will become an automatic change.

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

No, you are only allowed to obtain one PPP loan. Once a loan has been funded, lenders are currently unable to increase the loan amount. Unfortunately, your current funded amount cannot be increased or changed.

The current regulations do not include any stipulations that employees must be maintained throughout the covered period. The regulation states that to qualify for full loan forgiveness, your employment levels must return by December 31, 2020. We have not received any further guidance on this topic.

The CARES Act explicitly states that loan forgiveness will not be taxable as cancellation of debt income. The IRS has stated that they will not allow expenses paid for with PPP loan proceeds to be deductible, which in theory would create the same result and cause a taxable event. It is expected that Congress will provide clarification on this topic soon.

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: 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 8/52 weeks 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.

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

You can choose one of two options when determining the 24-week forgiveness period, which is discussed as the “covered period.” Both are based on the date you received your PPP loan funds.

  • Covered Period: 24-week (168 day) period beginning on the first disbursement date of loan proceeds.
  • Alternative Covered Period: For administrative convenience, if you have a biweekly (or more frequent) payroll schedule, you can calculate eligible payroll costs using the 24-week period that begins on the first day of their first pay period following date you received the funds. For example, if you received funding on April 20th and the first day of the first payroll period after funding is April 26th, you could select the Alternative Covered Period which would begin April 26th and align with your payroll cycle. This is a convenient way for the covered period to align with payroll periods more closely.

SBA has not provided a deadline on when loan forgiveness applications must be submitted. Once you submit a complete application to your lender, they have 60 days to review and submit it to SBA. Once SBA receives the application, they have 90 days to review the application and make a final determination on loan forgiveness.

Yes, there are not any restrictions on when you can apply for forgiveness. However, we recommend waiting until you are confident that you have all the documents needed to ensure you maximize your loan forgiveness amount.

At this point, SBA has not provided direction to lenders like Pursuit on how to submit a forgiveness application or what the approval process will look like. Pursuit will wait until SBA has provided clear direction before we begin accepting forgiveness applications.

No, there is no relation between the covered period and the June 30th date. In many instances the covered period will extend beyond June 30th. However, to use the employment/payroll safe harbor to ensure that forgiveness is not reduced, employment must return to the appropriate levels as of June 30, 2020, regardless of the covered period.

  • 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.

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.

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 $15,385 (eight 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 for the first six months. For the 18 months that follow, you will make payments on principal and interest.

If your loan is not fully forgiven, you will have to make payments on the first of the month following the six-month payment-free period.

Yes, partially. A borrower who received an EIDL Advance will have that amount deducted from the loan forgiveness amount. For example, if you received a PPP loan for $50,000 and have all documentation to support forgiveness of this amount, but also received an EIDL Advance for $5,000, the maximum forgiveness that will be awarded is $45,000.

FAQs For Sole Proprietor/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.

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.


Sign up for our newsletter

Popular articles

REsource Topics

Find flexible, affordable business loan options