Payroll Protection Program – Loan Forgiveness


As part of the Nation’s response to the economic impacts of COVID-19, the Payroll Protection Program (PPP) was enacted as part of the CARES Act, which provided $350 billion in loans to assist businesses with payroll, rent, interest, and utilities payments. The original funding was exhausted quickly, and the PPP received an additional $310 billion in funding as part of the Paycheck Protection Program and Health Care Enhancement Act. If used for eligible payroll costs and other expenses, the loans can be completely forgiven.

Now that many clients have received their funding from the PPP, most concerns surround how to have the loans forgiven. Under the CARES Act, the funds are to be used for payroll, rent payments, mortgage interest, and utilities for an 8-week period, beginning on the date the funds are received. Mortgage, rent, or utility payments are eligible so long as the agreement or contract was in effect prior to February 15, 2020.

A business must use 75% or more of the forgiven funds on its payroll expenses, with any remaining funds allowed to cover the additional expenses. The qualifying payroll includes wages up to an annualized $100,000 per employee, group health plan expenses, state payroll taxes, and retirement plan contributions. For self-employed individuals, the PPP will replace earnings from self-employment for the 8-week period.

Businesses that have laid off workers are required to restore their fulltime and fulltime-equivalent employees by June 30, 2020 to qualify for full forgiveness for any reduction in employees that occurred between February 15 and April 26, 2020. Additional layoffs will reduce the amount of allowed forgiveness. Additionally, employers cannot reduce wages by more than 25% per employee, otherwise forgiveness will be reduced.

Guidance from the Small Business Administration and Department of Treasury is still pending on the mechanics of how some of the forgiveness aspects will work. Businesses are encouraged to keep records of their qualifying expenditures like the business is preparing for an audit. An application, along with this documentation, will be provided to the bank that processed the PPP loan to begin the forgiveness process. Once the borrower certifies that it used the funds appropriately and provides the documentation to the lender, the lender has 60 days to approve an amount of forgiveness.

If a portion of a PPP loan is not forgiven, it becomes a two year loan with a 1% interest rate, with no payments for the first six months.