Loan forgiveness and the Paycheck Protection Program

The first round of funding for the Paycheck Protection Program (PPP) has been approved and loans are being dispersed.

Now, many borrowers (as well as lenders) are asking a huge question: What does the loan forgiveness process look like?

Qualifications of Loan Forgiveness in the CARES Act

At Morgan & Associates, we always advise clients to keep meticulous records.

If you’ve been approved for a PPP loan, this is an especially important time to carefully track how the loan money is spent.

Here are some important points of the CARES Act and the Loan Forgiveness statute:

  • Borrowers will be eligible for forgiveness of indebtedness on a PPP loan in an amount equal to the sum of the following costs incurred and payments made during the 8-week period after the first disbursement of the PPP loan:
    • Payroll costs
    • Interest payment on any mortgage incurred prior to February 15
    • Payment of rent on any lease in force prior to February 15
    • Payment on any utility for which service began before February 15
  • The First Interim Final Rule (issued by the SBA) clarified that not more than 25% of the loan forgiveness amount may be attributable to non-payroll costs.

The CARES Act also allows for a reduction in the loan forgiveness amount in the case of:

  • The reduction in number of full-time employees of a PPP loan borrower
  • The reduction in excess of 25% the total salary/wages of any employee during the 8 week period after disbursement compared to the most recent full quarter during which the employee was employed before the PPP loan disbursement (excluding reductions for salary and wage amounts over $100,000).

For more information about the CARES Act calculation for determining any reduction in number employees, read more from the attorneys at Starfield Smith, P.C.

We are still waiting for more clarification for both borrowers and lenders about:

  1. Calculating loan forgiveness with the CARES Act formula
  2. What documentation is required for submission
  3. Who is able to determine appropriate forgiveness documentation
  4. Consequences of incorrect forgiveness

If you have any questions about best practices for record keeping of your PPP loan, fill out our form below to contact the experts at Morgan & Associates.