Paycheck Protection Program Loan Forgiveness
From additional funding, new options for second-draw loans, a simplified forgiveness process and changes to EIDL advance deductions, there are a lot of changes coming to the PPP program. To help, we have created an overview that will answer many of your questions.
Applying for Forgiveness
Umpqua Bank PPP borrowers can access the PPP Loan Portal to apply for forgiveness. In the PPP Knowledge Center, borrowers can explore PPP educational resources and information.
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 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%.
The Simplified Forgiveness Application (3508S) is designed for PPP borrowers with loans originated at $50,000 or less. It exempts borrowers from any reductions in forgiveness based on reductions in full-time-equivalent (FTE) employees and reductions in employee salary or wages.
A new simplified forgiveness application form for borrowers with loans of $150,000 or less will be released by the SBA in January 2021.
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.
Owner Compensation Replacement
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.
All PPP borrowers have the option to elect a covered period for qualification for forgiveness of 8 to 24 weeks. There is also an option to borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles.
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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