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Paycheck Protection Program (PPP) loans, created under the CARES Act, allowed for potential loan forgiveness on eligible costs incurred during a set 24-week period after a borrower’s PPP funds were disbursed, defined under the CARES Act as the “covered period.” Applications for forgiveness were due within 10 months of the disbursement date.
Borrowers that received PPP loans of $150,000 or less used a streamlined forgiveness application and automatic forgiveness.
Borrowers submitted a one-page certification listing:
The record retention guidelines for these smaller loans was reduced to 4 years for employee records and 3 years for compliance records.
The following costs and expenses were eligible for loan forgiveness under the Paycheck Protection Program. These costs must have been paid or incurred during the covered period.
The forgiveness amount may have been reduced for employers that laid off employees or reduced their salaries with forgiveness calculated as follows:
Payroll cost multiplied by the average number of full-time employees per month for one of these 8-week periods:
Seasonal employers used the period from February 15, 2019, through June, 30, 2019.
Reductions in employee salary may have also affected your eligible forgiveness amount. A reduction of 25% or more in annual salary (compared to their most recent full quarter) for employees who made less than $100k/year reduced the loan forgiveness amount.
Employers that laid off employees or reduced payroll beginning February 15, 2020, may have been permitted to eliminate the forgiveness reduction as long as they rehired the laid-off employees or restored payroll before applying for forgiveness.
Due to the SBA anticipating a high number of borrowers requesting PPP loan forgiveness, it is anticipated that no more than 40% of the forgiven amount may be for non-payroll costs.
PPP loan forgiveness applications were coordinated through lenders.
In cases of non-approval, lenders may have requested additional documentation. Otherwise, the borrower was required to repay the loan with the outstanding balance accruing interest at 1% over the loan term.
Before you sit down to complete your application for loan forgiveness, you’ll want to compile the following information:
The SBA will require the following documentation as evidence that funds were spent on payroll, mortgage interest payments, rent payments, and utility payments during the 24-week covered period.
The SBA requires the following documentation be provided as evidence that the borrower has met employee retention requirements:
An authorized representative of the business must certify that the documentation provided is true and that the amount forgiven was used according to the program’s guidelines..