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PPP Loan Forgiveness: What We Presently Know

Although further clarification and guidance is anticipated, the following is a snapshot of loan forgiveness terms under the Paycheck Protection Program (PPP) presently in place.

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Although further clarification and guidance is anticipated, the following is a snapshot of loan forgiveness terms under the Paycheck Protection Program (PPP) presently in place.

Although further clarification and guidance is anticipated, the following is a snapshot of loan forgiveness terms under the Paycheck Protection Program (PPP) presently in place.

For the uninitiated, the PPP, an effort by the U.S. Small Business Administration (SBA) to distribute $349 billion in funds to businesses with fewer than 500 employees impacted by the novel coronavirus, has been underway as of April 1.

In brief, loans of up to $10 million from SBA 7 (a) lending institutions are available to eligible businesses and entities to cover payroll and other costs, such as rent and utilities; businesses can make the loans retroactive to February 15, 2020, and businesses can rehire recently laid-off employees through June 30, 2020 to receive funds to cover the cost.

Businesses receiving PPP loans can have a portion of certain expenses forgiven in the eight weeks following the date of loan origination.  The amount of a PPP loan eligible for forgiveness depends on how the borrower uses the loan during the eight-week period immediately following receipt of the loan.

As it currently stands, the eight-week period is defined as beginning on the date the lender makes the first PPP loan disbursement to the borrower.  Based on the CARES Act – a law meant to address the economic fallout of the 2020 coronavirus pandemic in the United States – three factors may impact loan forgiveness:

  • Loans must be used for a minimum of 75% payroll costs – in other words, no more than 25% of the loan forgiveness amount can be attributable to non-payroll costs, which include rent, mortgage interest and utilities.
  • Reductions in employee workforce or salaries may reduce the amount of the PPP loan that is forgiven.
  • If a borrower reduces full-time employees, the forgiveness amount will be reduced to an amount determined by the following equation: monthly average full-time equivalent (FTE) employees during the eight-week covered period divided by the monthly average FTE employees of either February 15, 2019 – June 30, 2020 or January 1, 2020 – February 29, 2020. If the borrower is a seasonal employer, as determined by the SBA, the measurement period is February 15, 2019 – June 30, 2019.

Loan recipients must apply through their lender for loan forgiveness.

No question – there is a lot of information to digest and additional explanation and direction is expected.  Given all that, borrowers may want to contact their professional advisors to make sure their PPP loans are used to accommodate maximum forgiveness parameters during the eight-week covered period.

 

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Disclaimer:  The contents of this resource are for general informational purposes only. While every effort has been made to ensure its accuracy, the information is provided “as is” and no representations are made that the content is error-free. We have no obligation to update any content, comments or other information for retroactive or prospective interpretations or guidance provided by regulators, financial institutions or others. The information is not intended to constitute legal advice or replace the advice of a qualified professional. There are areas of the CARES Act where additional clarification from the Treasury Department and the SBA is needed. Your judgment and interpretation of the act may be needed. Users should consult with their legal counsel and representatives of the lending institution regarding the proper completion of their application and supporting documentation.

Any written tax content, comments, or advice contained in this article is limited to the matters specifically set forth herein. Such content, comments, or advice may be based on tax statutes, regulations, and administrative and judicial interpretations thereof and we have no obligation to update any content, comments or advice for retroactive or prospective changes to such authorities. This communication is not intended to address the potential application of penalties and interest, for which the taxpayer is responsible, that may be imposed for non-compliance with tax law. 

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