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Paycheck Protection Program Loan Forgiveness

Video Guides

We have created some great resources for you to help navigate the PPP loan forgiveness process. Click here to view our webinars covering some of the most common topics related to PPP forgiveness. You can also learn more below.

Overview of the Forgiveness

Amount Calculation

 

General Process for

Forgiveness

 

What Sole Proprietors Should

Know About Loan Forgiveness

 

Payroll & Non-Payroll

Allowable Items

 

Reductions in Forgiveness

& Safe Harbor

 

Documentation

Requirements

 

The U.S. Small Business Administration and Department of the Treasury released a revised Full Forgiveness Application and instructions, as well as a new EZ Forgiveness Application and instructions. The new application forms reflect changes from the Paycheck Protection Program Flexibility Act. Umpqua borrowers will be provided access to our online forgiveness application portal and do not need to download a PDF or print a paper application.

The EZ version of the application is designed provide a more borrower-friendly process in applying for forgiveness. Borrowers eligible to use the EZ application include those that:

  • Are self-employed and have no employees; OR

  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number
    or hours of their employees; OR

  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or
    wages of their employees by more than 25%.

Qualifying for Forgiveness

The SBA 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 forgiveness. That allows for 40% to be used for rent, utilities, and mortgage interest, as long as these expenses and obligations existed before February 15, 2020. Borrowers have flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving their PPP loan. To help you better understand the 60% requirement, we’ve provided examples at the bottom of this page we believe might make this easier to understand.

Calculating Maximum Loan Amounts based on Payroll Costs

The SBA and Department of the Treasury have created a guide to calculating your loan amount based on your payroll information. The steps are outlined here.

Documentation & Record Keeping

We anticipate a wide variety of circumstances and factors involved in determining loan forgiveness, so we encourage you to retain clear documentation of how you are using the money. The current guidance from Department of Treasury states:

“The request [for forgiveness] will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.”

Loan Forgiveness Period

The covered period for qualification for forgiveness is extended from 8 to 24 weeks for all PPP borrowers. PPP borrowers who received funding prior to June 5, 2020 may choose to apply for forgiveness under the original 8-week covered period if ready to apply for forgiveness at such point. There is also an option for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles.

Restored Workforce

Businesses now have until December 31, 2020 to restore workforce levels to maximize forgiveness eligibility. There are additional exceptions available to businesses if they are unable to restore workforce. The amount of forgiveness will not be proportionally reduced if a business is unable to: 1) find qualified replacement employees; or 2) restore business operations to February 15, 2020 levels due to COVID-19 operational restrictions. Documentation showing good faith efforts to restore employees should be maintained.

Payback/Paydown

The entire amount of your loan was deposited into your account at closing. Should you wish to repay a portion or all of the loan, you may do so without a prepayment penalty. At this time, we are unaware how a paydown would impact your loan forgiveness. For instructions on how to make a payment or payoff the loan, please contact SBACares@umpquabank.com.

Other Programs

The SBA has a few different programs with varying requirements and application processes. We received a lot of questions about the Economic Injury Disaster Loan (EIDL). This is a unique program with its own requirements, separate from the PPP. You can learn more about this program and how to apply directly through the SBA here.

Payroll Costs

According to the U.S. Treasury, 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;
  • State and local taxes assessed on compensation of employees; and
  • 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.

Note: Exclusions do apply, customers should review available guidance

Terms

The interest rate on your loan is 1.00% fixed and payments are initially deferred. However, interest begins accruing when the money is disbursed and accrues during the deferral period. In the event some or all of the loan is not forgiven, the remaining balance will be amortized over the remaining term of the loan. All borrowers should promptly apply for forgiveness at the conclusion of the applicable covered period; any balance remaining after the application for forgiveness has been processed will result in a term loan, with the first payment due 10 months after the end of the covered period.

Other Resources
If you have questions regarding your Paycheck Protection Program loan, please contact SBACares@umpquabank.com.
For the existing details of the CARES Act and the Paycheck Protection Program, visit the U.S Treasury Department or SBA.gov.

Examples for calculating payroll costs

While official guidance from the Small Business Administration has yet to be provided, here are three general examples to help you understand the SBA’s requirement that 60% of a forgiven loan amount must be used for payroll purposes. If you have questions or concerns about how these examples apply to your unique circumstances, you may want to consult your legal or tax professional.

Example 1: Full Forgiveness


Borrower applied for and received a $100,000 PPP loan. When they applied for forgiveness, they noted that within 24 weeks of their loan funding they had spent (and properly documented) $60,000 on allowable payroll costs and $40,000 in allowable other costs. In this example, they could expect to see their entire loan amount forgiven.

Example 2: Partial Forgiveness

 

Borrower applied for and received a $100,000 PPP loan. When they applied for forgiveness, they noted that within 24 weeks of their loan funding they had spent (and properly documented) $50,000 on allowable payroll costs and $50,000 in allowable other costs. In this example, because they didn’t spend at least 60% of their loan proceeds within the 24-week covered period on payroll their entire loan amount would likely not be forgiven.

Example 3: No Forgiveness

 

Borrower applied for and received a $100,000 PPP loan. When they applied for forgiveness, they noted that within 24 weeks of their loan funding they had not spent any of their funds on allowable payroll costs or allowable other costs. In this example, because the borrower did not utilize the funds in accordance with the program requirements in order to be eligible for forgiveness, they would likely not have any of their loan amount forgiven.

What will it take to reemerge?

 

Check out SOAR for business,

a strategic framework to help you navigate the challenges that come with reopening,

starting over or reimagining your day-to-day operations.