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Understanding Paycheck Protection Program Loan Forgiveness
Learn if your loan qualifies
Across the country, more than 4.6 million small business owners have tapped over $518 billion from the Paycheck Protection Program (PPP) to help cover payroll costs and other eligible expenses.
A key feature of the program is that some—or all—of the loan amount can be forgiven by the federal government if certain requirements are met. We’re here to walk you through the loan forgiveness process so that hopefully, you can achieve full loan forgiveness.
A PPP refresher course
First, a little background: Under the original CARES Act legislation passed on March 27th, loans could be forgiven if borrowers used the proceeds to maintain their payrolls and pay other specified expenses within an eight-week time period.
Then on June 5th, Congress voted nearly unanimously to pass the Paycheck Protection Flexibility Act (PPFA). Among other provisions, the legislation gives borrowers additional time to qualify for loan forgiveness. Now the period in which the funds must be spent has been extended from eight weeks to 24 weeks or until December 31, 2020, whichever comes first.
Do I qualify for forgiveness?
The Small Business Administration has established that at least 60% of the loan amount that is forgiven must be used for payroll costs in order to be eligible for full forgiveness; if less than 60% is utilized for payroll costs, a reduced amount may be forgiven. That allows for 40% of the loan to be used for rent, utilities and mortgage interest, as long as these expenses existed before February 15, 2020.
According to the U.S. Treasury guidance, payroll costs include:
- Salary, wages, commissions, or similar compensation; cash tips or the equivalent (capped at $100,000 on an annualized basis for each employee) for employees whose principal place of residence is the United States
- Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment required for the provisions of group health care coverage including insurance premiums; and retirement (limitations may apply)
- State and local taxes assessed on compensation of employees (limitations may apply)
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee
Tips to maximize your eligibility
If you had to lay off employees, you now have until December 31, 2020 to restore workforce levels to maximize your forgiveness eligibility. In some cases, exceptions may apply if this isn’t possible. For instance, the amount of forgiveness may not be proportionally reduced if you’re unable to restore business operations to pre-pandemic levels, if certain qualifications are met. Just be sure to maintain documentation on your good-faith efforts to restore pre-pandemic employee levels.
You’ll also want to keep supporting documents which offer a breakdown of your PPP fund usage. Keep proof of payments for rent or mortgage interest, retain payroll registers, and hang on to invoices and statements for electric, internet, gas and heating utility providers. Full details are available through the step-by-step instructions linked below.
Estimating your loan forgiveness
The amount of forgiveness that you can expect depends on a wide range of factors, including the time period in which you used your loan, your eligible costs, and the number of employees retained. If you’d like to estimate how much of your PPP loan can be forgiven by the federal government, our partners at Paychex offer a great PPP Forgiveness Estimator tool.
How to apply
The SBA recently updated loan forgiveness applications and step-by-step instructions that you can download and print out.
If you received your PPP loan through Umpqua Bank, we’re also developing a convenient online application portal which will simplify the forgiveness application process. As soon as we’re ready to begin accepting applications, we’ll send loan recipients information on how to access the portal.
If you received your PPP loan somewhere else, the financial entity where you originated your loan can work with you to submit your loan forgiveness application.
It’s a lot of information to absorb, and you may have further questions. The US Treasury website is a great place to find additional guidance and in-depth information about the loan forgiveness application process.