Paycheck Protection Program Loan Forgiveness
Applying for Forgiveness
The SBA recently announced a simpler PPP forgiveness process for loans $150,000 or less. To ensure a smooth forgiveness application process for all of our borrowers, we have upgraded the Umpqua Bank PPP Loan Portal to accommodate the new forgiveness rules.
Please note: For borrowers with a Second Draw PPP loan, each PPP loan must receive a separate loan forgiveness application. Borrowers must submit a forgiveness application for a First Draw loan before or simultaneously with their forgiveness application for a Second Draw PPP loan. Currently, the SBA requires that loans elapse a minimum eight-week covered period following loan disbursement before borrowers may apply for forgiveness.
As a reminder, a delay in applying for loan forgiveness should not negatively impact you. Borrowers may apply for forgiveness any time during the life of the PPP loan. All SBA PPP loans not yet through forgiveness remain in deferral status. Loan payments may be deferred for 10 months after the end of the covered period (8 to 24 weeks from the disbursement date of the loan) OR until we are notified by the SBA of its decision on forgiveness of your loan, whichever occurs first.
Forgiveness Application Forms
The U.S. Small Business Administration (“SBA”) and Department of the Treasury have released a Standard Forgiveness Application, an EZ Forgiveness Application, and a Simplified Forgiveness Application. Umpqua borrowers can choose from each of these form options in the PPP Loan portal and do not need to download a PDF or print a paper application. All borrowers may elect to use the long-form standard Forgiveness Application (3508).
The EZ Forgiveness Application (3508EZ) is designed to provide a more borrower-friendly process in applying for forgiveness. Borrowers eligible to use the EZ application include those with loans greater than $150,000 that:
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%.
The Simplified Forgiveness Application (3508S) is designed for PPP borrowers with loans originated at $150,000 or less. It allows borrowers to complete an attestation-based forgiveness application without additional supporting documentation, unless requested by the SBA or lender. Borrowers that did not supply documentation of a 25% revenue drop required for Second Draw PPP loans will also be required to provide that at the time of their forgiveness application.
If you were in business for all of 2019, you can select any quarter in 2019 as a reference period and the corresponding quarter in 2020 for comparison; or you can elect to compare a full year over year. For all other scenarios, please use the below table to determine the appropriate reference and comparison period for your situation.
Eligible 25% Gross Receipts Reduction Comparison Periods
|Reference Period||Q1 2019||Q2 2019||Q3 2019||Q4 2019||Annual 2019||Q3 2019||Q4 2019||Q1 2020|
|Comparison Period||Q1 2020||Q2 2020||Q3 2020||Q4 2020||Annual 2020||Any Q 2020||Any Q 2020||Q2, Q3, or Q4 2020|
|Quarters of Business Operation||2019: Q1, Q2, Q3, Q4||Yes||Yes||Yes||Yes||Yes||No||No||No|
|2019: Q3 and Q4 only||No||No||Yes||Yes||No||Yes||Yes||No|
|2019: Q4 only||No||No||No||Yes||No||No||Yes||No|
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.
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
General Process for
What Sole Proprietors Should
Know About Loan Forgiveness
Payroll & Non-Payroll
Reductions in Forgiveness
& Safe Harbor
Frequently Asked Questions
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.
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.”
The SBA requires borrowers that previously received a loan (or loans) totaling $2 million or more to fill out a questionnaire attesting to their economic need for their PPP loan.
The covered period begins on the date of PPP loan funding, and ends on a date that the borrower selects, which must be between 8 and 24 weeks from the loan funding date.
Businesses may need to demonstrate restored workforce levels to maximize forgiveness eligibility. Borrowers at smaller loan amounts may be exempt from workforce related forgiveness reductions. 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.
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. Borrowers that have paid down their loan may only apply for forgiveness up to their actual eligible loan amount. For instructions on how to make a payment or payoff the loan, please contact SBACares@umpquabank.com.
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.
EIDL advances are no longer required to be deducted from PPP loan forgiveness. Borrowers that previously had their PPP forgiveness reduced by an EIDL advance will retroactively be made whole.
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
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 after the deferral period.
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.
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