With the craziness of PPP cooling down, it’s important to know that for Lenders and Borrowers alike, we are only in the eye of the storm.
So, here is the big question: How do Borrowers get 100% of their PPP loans forgiven?
SBA & Treasury dropped the first initial draft of the Paycheck Protection Program Loan Forgiveness Application on Friday night, May 15th.
Ok, so let’s start from the beginning. You submitted payroll documentation to your Lender in order to arrive at your PPP Loan Amount. You signed loan documents and received your money, triggering the 8 week window known as the “Covered Period”. By way of example, if you received your PPP loan proceeds on Monday, April 20th, your first day of the Covered Period is April 20th and the last day of the Covered Period is Sunday, June 14th.
The Forgiveness Application focuses on what’s called this covered period. The application requires you to prove that the payroll costs and nonpayroll costs are eligible for forgiveness.
Here are the documents you absolutely must submit to your Lender after the 8 week period is over:
1. 1st/2nd Quarter 2020 IRS Form 941 OR 3rd party Payroll Registers:
You may recall that you submitted your 2019 IRS Tax Form 940, which is the annual payroll tax filing, and at least your 2020 1st quarter IRS Form 941, which is your quarterly tax filing. If you didn’t have IRS Tax Forms, you at least provided your payroll registers (such as Paycheck or ADP).
The same will need to be completed here. Your 2nd Quarter 2020 IRS Form 941 will be required to submit with your forgiveness application.
‘In addition, you will also need to include your state quarterly business & individual employee wage reporting and unemployment insurance tax filings (that has been or will be reported), to the relevant state.
2. Employees Benefits:
You will be required to comply with one of the following three options:
i. Payment Receipt from your Vendor;
ii. Cancelled Checks showing you paid the Vendor; or
iii. Account Statements
3. Average # of Full Time Employees (FTE):
You may recall that there are three ways to calculate the maximum PPP loan amount; one for seasonal businesses, one for existing businesses and one for new businesses that began operating in 2020.
Average # of FTEs on payroll per month between February 15, 2019 through June 30, 2019;
Average # of FTEs on payroll per month between January 1, 2020 through February 29, 2020; OR
- January 1, 2020 through February 29, 2020;
- February 15, 2019 through June 30, 2019; or
- Any consecutive twelve-week period between May 1, 2019 and September 15, 2019
In our next posting, we will discuss in more detail what it will mean if your average number of FTEs is less than when you made your initial application.
4. Nonpayroll Costs (if applicable):
25% of your PPP amount is eligible to be forgiven if the funds were used to pay interest on business debt, rent or lease payments incurred in the ordinary course of business and business utility expenses.
Here is what you will need to provide if any of these expenses apply to you:
a. Business Mortgage Interest Payments:
- Copy of Lender Amortization Schedule and receipts or cancelled check verifying your payments from the Covered Period
- Lender Account Statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period showing the interest amounts and eligible payments.
b. Business Rent or Lease Payments:
- Copy of current lease agreement and receipts OR cancelled checks verifying eligible payments from the Covered Period; OR
- Lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible
c. Business Utility Payments:
- Copy of invoices from February 2020 and those paid during the Covered Period and Receipts, cancelled checks or account statements that show payments were made.
Every business is different and therefore, there are other nuances, especially as it relates to FTEs, that we will examine over the course of the next few weeks.
How your final numbers in the PPP forgiveness application compare to when you applied and received your loan will have an impact on the amount that can actually be forgiven.
Get in touch with one of our specialist.