Can my PPP loan be forgiven in whole or in part?
After the Small Business Administration (SBA) applications under the CARES Act for the Paycheck Protection Program are now possible and many banks have opened their portals and applications are pouring in, the next question is: can the loan be forgiven?
The quick answer is: Yes. We suggest that you open a new bank account, put all the loan in there and use it for allowed purposed. This makes tracking much easier.
The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgiveable purposes described below and employee and compensation levels levels are maintained. The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan.
However, not more than 25 percent of the loan forgiveness amount may be attributable to non- payroll costs. While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs and any payments of mortgage interest, rent, and utilities, the Administrator has determined that the non-payroll portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll.
The Administrator has determined in consultation with the Secretary of the Treasury that 75 percent is an appropriate percentage in light of the Act’s overarching focus on keeping workers paid and employed. Further, the Administrator and the Secretary believe that applying this threshold to loan forgiveness is consistent with the structure of the Act, which provides a loan amount 75 percent of which is equivalent to eight weeks of payroll. They provided this rationale: 8 weeks / 2.5 months = 56 days / 76 days = 74 percent rounded up to 75 percent. Limiting non-payroll costs to 25 percent of the forgiveness amount will align these elements of the program, and will also help to ensure that the finite appropriations available for PPP loan forgiveness are directed toward payroll protection.
It was announced that SBA will issue additional guidance on loan forgiveness.