Asking for Forgiveness: Paycheck Protection Program (PPP)
Truxton Trust is here to assist our business clients in managing the difficult period we are experiencing. The money loaned through the Paycheck Protection Program is backed by the SBA and is intended to be a no- or low-cost loan to you. The entire amount of the loan, plus accrued interest, has the potential to be forgiven. As a PPP loan recipient, it is important that you closely follow the parameters outlined by the SBA to have your loan forgiven. More guidance on forgiveness is forthcoming from the SBA. The information below is our current understanding and is subject to change. If and when this information changes, we will communicate it to you. And as always, you may contact your dedicated loan officer for further assistance.
What We Know
- The clock for expenses eligible for forgiveness started at date of loan closing ending in 8 weeks. Only expenses paid in this 8-week period are eligible for forgiveness.
- While not confirmed by the SBA, Truxton believes that only cash expenses are eligible. Money must change hands for an expenditure to count for forgiveness.
- 75% or more of the amount requested for forgiveness must represent payroll costs1 spent within the 8-week timeframe.
- No more than 25% of the amount requested for forgiveness may be spent on specific non-payroll costs2 such as mortgage interest, rent, or utilities. No other non-payroll expenses are permitted uses of PPP funds.
- Business may need to adjust the timing of their pay periods to maximize the compensation paid in the 8-week forgiveness period and should explore how to best implement that change within their accounting and payroll systems.3
- Forgiveness metrics will include a measurement (not yet defined) of the number of full-time employee equivalents (FTEEs) compared to pre-pandemic levels. The comparison time frame is either January 1, 2020 to February 29, 2020, or February 15, 2019 to June 30, 2019, whichever generates a lower number of FTEE.4
- Bonuses and additional retirement contributions will count in payroll costs.
- The borrower will need documentation to support agreements in place prior to February 15, 2020, pertaining to leases and utilities.
- Interest on non-mortgage debt incurred before February 15, 2020, is an acceptable use of the loan proceeds but is not eligible for forgiveness.
- Forgiveness for sole proprietorships, self-employed individuals, and single member LLCs have special instructions.1
What We Don't Know
More guidance from the SBA is forthcoming. We currently do not know:
- The calculations associated with forgiveness reductions if employee and compensation levels are not maintained at pre-pandemic levels.
- The calculations associated with levels for employee and payroll compensation during the 8-week period (weekly averages, daily averages, overall amounts, etc.).
- Forgiveness arrangements for loan amounts associated with ownership compensation of partnerships and multi-member LLCs (as designated on 2019 Form 1065 Schedule Ks).
What the SBA Expects from You
To ease the process and paperwork required for forgiveness, you can now:
- Document all uses of the PPP loan proceeds – the limitations on acceptable use apply even beyond the 8-week forgiveness period. Documentation is essential. To apply for forgiveness, you will submit documentation to Truxton Trust proving that you used funds for allowable purposes and in the required amounts.
- Gather documentation showing agreements in place before February 15, 2020, for eligible non-payroll expenses (e.g. utility invoices, internet and communication agreements, mortgage or lease documentation, etc.).
- Get back to employment and salary levels prior to February 15, 2020.
What You Can Expect from Us
We are here to help. As more information is released from the SBA, we can help you navigate the information to aid and assist in keeping this loan no- or low-cost to you. Please expect further communication from us. As always, reach out to your dedicated officer should you have further questions or concerns.
1 Payroll costs are:
- Gross salaries, wages, commissions, cash tips or equivalents, and similar compensation paid to employees, capped at $15,384.62 per employee ($100,000 x 8/52 weeks).
- Note for the sole proprietorships, self-employed individuals and single member LLCs, net earnings from self-employment can be calculated using 8/52 x 2019 Form 1040 Schedule C Net Income (line 31), also capped at 15,384.62 ($100,000 x 8/52 weeks)
- Payments for vacation, and parental, family, medical, or sick leave
- Severance payments for dismissal or separation
- Group health care benefits, including insurance premiums
- Employer retirement benefit payments
- State taxes paid (e.g. state unemployment taxes, etc.).
- Payroll costs exclude: the employer portion of federal employment taxes
2 Non-payroll costs eligible for up to 25% of the total forgiveness amount are:
- Interest payments on mortgage obligations incurred before February 15, 2020
- Rent payments on leases dated before February 15, 2020
- Utility payments under service agreements dated before February 15, 2020, utilities include electric, gas, water, telephone and internet services
- Special rules apply to EIDL loan refinancing – seek additional guidance
3 The CARES Act includes a caveat for the salary/wage-related reduction in forgiveness. If by June 30, 2020 you have restored the salary/wage levels of the below-$100k people to at least the level existing on February 15, 2020, then that action excuses any salary/wage level reductions which occurred between February 15, 2020 and April 26, 2020. (The CARES Act wording is that the employer by June 30 “has eliminated” that reduction in the number of FTEEs. We await guidance from the SBA on precisely what this means.)
4 The CARES Act also includes a caveat for the headcount-related reduction in forgiveness. If by June 30, 2020 you bring your FTEE levels back up to where they were at February 15, 2020, then that action excuses whatever reduction in forgiveness was attributable to a drop in headcount between February 15, 2020 and April 26, 2020. (The CARES Act wording is that the employer by June 30 “has eliminated” that reduction in the number of FTEEs. We await guidance from the SBA on precisely what this means.)