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PPP Loan Forgiveness

Please CLICK HERE to access the Treasury’s website for all of the information that has been issued relating to the PPP

On Friday evening May 15th, the SBA, in consultation with the Department of the Treasury, issued the Paycheck Protection Program (PPP) Loan Forgiveness Application and detailed instructions, which provides a format as to how to apply for the forgiveness of your PPP loan.  The SBA will be providing further regulations and guidance to assist borrowers on completing the application. 

Please note there has not been any guidance issued as to when the submission period commences (i.e., following the 8 weeks or starting July 1st).  This information is to be defined in future guidance. 

The form is available on the Treasury website in the “For Borrowers” section. The direct link is:

We will continue to keep you informed as regulations and guidance are issued.

Last Revision 05/19/2020

The Payroll Protection Program is designed to help small businesses maintain their operations and retain their employees during the covid-19 pandemic. Forgiveness of the funds loaned depends on the Borrower’s adherence to the requirements of the program.

While some of the PPP’s loan forgiveness requirements are still unclear, the following is an outline of what information has been provided. Additional guidance is anticipated, but there are things you can do now to present a clear case when you apply for loan forgiveness.

Part I is an overview of the general requirements. Part II reviews the methods used to determine if the Borrower has met each standard for forgiveness. Finally, Part III suggests actions that can help the Borrower demonstrate their eligibility for loan forgiveness.

Please review each section and check back regularly for updates.  We encourage you to seek additional guidance from your CPA and payroll provider.

PART I: General Qualifiers for Forgiveness

  1. Loan Proceeds must have been used for payroll costs, mortgage interest, rent, and utilities payments over the 8-week period after receiving the loan.
  2. At least 75% of the forgiven amount must have been used for payroll.
  3. Forgiveness will be reduced if full-time equivalent headcount declines or if salaries and wages decrease.

PART II: How Forgiveness Might Be Reduced

  1. Only 25% of the loan forgiveness amount can be attributable to eligible non-payroll costs.
    1. This means that if $25,000 of a $100,000 loan is spent on eligible payroll expenses, a maximum of $8,333.33 of the funds distributed could be forgiven for other non-payroll expenses. 

  Payroll costs are defined as:

  • Salary, wages, commission or similar compensation

  • Vacation, paternal, family, medical, or sick leave

  • Group health care benefits, including insurance premiums

  • Retirement benefits

  • State and local taxes on compensation to employees

  Payroll costs exclude:

  • Compensation for employees and self-employment income to partners/members that is in excess of an annual salary of $100,000.

    • This only applies to cash compensation (including commissions and bonuses) and not to non-cash benefits.
    • Non-cash benefits include employer contributions to benefit plans, group health costs including insurance premiums and state and local taxes assessed on compensation.
    • Based on the most recent guidance, the maximum salary eligible for forgiveness for the eight week covered period is $15,385 ($100,000 / 52 X 8).
  • Compensation to a non-resident.

  • Sick leave or qualified family leave under the recently enacted FFCRA.
  • Employer’s share of payroll tax.
    • The most recent guidance published on 4/6/20 clarified there is no need to back out payroll taxes withheld in computing the eligible payroll for the loan amount or the amount of the loan forgiveness
  1. If the FTE (full time equivalent) employee* headcount reduces, loan forgiveness will also be reduced

    1. To calculate this, a business** must divide their average FTE employee headcount during the 8 week covered period by the average headcount during one of the following periods:

      1. February 15th, 2019 through June 30th, 2019

      2. January 1st, 2020 through February 29th, 2020

    2. Multiply this result by the loan funds spent on qualified expenses

    3. The result will determine the amount eligible for forgiveness

* FTE employee is a Full Time Equivalent employee who earns less than $100,000 annual salary

** Seasonal businesses must divide by the headcount during the February 15th, 2019 – June 30th, 2019 period

  1. If the Borrower decreases by more than 25% the salary and wage for any FTE employee, a portion of the loan may not be forgiven

    1. Borrowers must compare the total salary and wage of each FTE during the 8 week covered period to the most recent full quarter in which each FTE was employed

    2. When there has been a decrease of wages and salary in an amount of more than 25%, the excess of 25% is not eligible for forgiveness

      1. For instance, if an FTE received an annualized rate of pay of $60,000 in 2019, and their salary was decreased to $40,000, $5000 of the loan proceeds would not be eligible for forgiveness

PART III: Documenting Your Funds

It’s important that the Borrower documents the appropriate use of their PPP loan proceeds. Proper management of loan funds and clear documentation can aid the Borrower’s application for loan forgiveness. At this time it is not clear what documentation will need to be submitted to your lender to apply for loan forgiveness.  Consider the following recommendations:

  • Set up a separate bank account to keep things clean and simple
    • Avoid mingling the loan proceeds with funds from other accounts
    • Transfer eligible payroll costs to an operating account as needed
  • Write separate checks for the interest and principal payments on eligible mortgage payments
  • Retain copies of cancelled checks, payment receipts, account transcripts or other verification of payments for eligible mortgage, lease, and utility obligations
  • Gather and maintain records that show the number of FTE employees and their pay rates for each pay period
    • Include payroll tax filings reported to the IRS, state income filings, payroll and unemployment insurance filings
  • Track your FTE employee calculations each pay period
  • Keep evidence of retirement and health insurance contributions
  • Request certification that your evidence is accurate and that the forgiveness request is for eligible expenses
  • If you are self-employed gather all of the above AND INCLUDE 2019 Schedule C, which was included with your application