How to Ensure Forgiveness of Your Paycheck Protection Program Loan
Congratulations! Your Paycheck Protection Program (“PPP”) loan has been approved, and you have received your funds. Be sure to use the funds appropriately.
Use Loan Proceeds Properly
The loan proceeds are intended to cover payroll costs, interest on mortgages, rent, and utility costs during the “covered period,” which is 24 weeks from the date of origination of the PPP loan or December 31, 2020, whichever is earlier. While funds are forgivable for interest on mortgages, rent, and utilities, not more than 25% of the forgiven amount may be for non-payroll costs. If you use the money for other expenses, you will be required to pay that portion of the loan back at a fixed interest rate of 1%.
The PPP Loan Program is designed primarily to keep workers on the payroll. “Payroll” includes salary, wages, commissions, or tips capped at $100,000 on an annualized basis for each employee. For purposes of allowable expenses for forgiveness, “payroll” also means: (1) employee benefits including vacation and sick leave, (2) state and local taxes assessed on compensation, (3) payments for the provisions of group health care benefits, including insurance premiums, and (4) payment of any retirement benefit. Note, to receive forgiveness of payroll expenses, an employer must maintain or quickly rehire employees and maintain their salary levels. You have until December 31, 2020, to restore all full-time employees’ status and salary level. Forgiveness will be reduced if your full-time employee count declines, or if salaries and wages decrease.
Application for Forgiveness
For the funds to be forgiven, you will need to submit a forgiveness request to your lender servicing the loan. Borrowers have the obligation to provide records which evidence the funds were used for allowable expenditures.
With your application, you will need to include documents that verify your number of full-time employees and rates of pay. You will also need to include documents that support payments on mortgage interest, rent, and utilities. Finally, you will need to certify: (1) the documents are true, (2) the amount of funds used to keep employees paid, as well as the amount of funds used for mortgage interest, rent, and utilities payments, and (3) the funds are “necessary to support ongoing operations.” To the extent the loan is not forgiven, you need to pay it back within two years. Payments are deferred for 6 months, but interest will accrue during this time. Your lender must make a decision on the forgiveness of your loan within 60 days of receiving your request.
If you have questions related to your PPP loan, you may contact the Radey Law Firm.