PPP Forgiveness

What You Need to Know About PPP Forgiveness

Update, May 18, 2020: The SBA has released the official Paycheck Protection Program Loan Forgiveness Application, calculation form and other materials to give a little more clarity on the process and its rules. We have updated the information below to reflect our new understanding of forgiveness.

View the application here.
Note: This is for reference only. We cannot accept applications yet and are awaiting additional guidance from the SBA.

Though the forgiveness application is on the SBA’s website, the process has not yet begun, and we cannot accept forgiveness applications at this time. We expect even more guidance soon that will give us and you the full details we need before the application officially opens.

Furthermore, we are working hard behind the scenes to make the application process as easy and as streamlined as we can. Just like with your original application, your forgiveness application will come to us. We will review it, process it and give it to the SBA for a final decision. We will communicate the details and instructions for our application process as soon as we have them available.

In the meantime, review the guidance we have put together below, carefully document how you’re spending PPP funds and stay in touch with your financial advisor, CPA and/or attorney for help.

The point of the Paycheck Protection Program is to keep your employees on payroll and business supported during the pandemic. It is intended for companies facing economic uncertainty as a result of the pandemic. The money we are lending, backed by the SBA, is intended to be no- or low-cost to you if you follow the SBA’s rules. Ultimately, you, as borrower, and we, as lender, answer to the SBA and must abide by their rules.

To have your loan forgiven, it is important that you closely follow the parameters outlined by the SBA which we have summarized below. It is also important that you honor the spirit of the law: To meet the urgent needs of businesses struggling financially as a result of the pandemic.

The entire amount of this loan, plus accrued interest, has the potential to be forgiven. Here is a general summary of how that process works and the steps you must take to be eligible based on information that the SBA has provided to date. Please read the entirety of this document and consult your financial and/or legal advisor(s) if necessary so you are absolutely clear about the forgiveness parameters.

Download this information in a PDF.

Use this helpful tool to track how you spend your PPP funds.

View a recorded webinar on forgiveness from May 1, 2020.

The Basics

Both principal and accrued interest can be eligible for forgiveness if funds are used for the allowed purposes. The actual amount of the forgiveness will depend, in part, on your total amount of payroll costs, the percentage of FTEs you have retained and other allowable purposes.

These are the forgivable uses. If you spend loan proceeds in these ways, you may be eligible for forgiveness. Forgiveness can be reduced in part or completely depending on the use of funds, timing of that use and employee retention.

  • Funds must be spent within an eight-week (56 day) covered period.
    • The covered period could start the day you receive the funds. In other words, if you get the money on April 17, it can cover payroll and essential bills until June 12.
    • Or you could choose an “alternative covered period” that will allow forgiveness eligibility for payroll costs beginning on the first day of the first pay period following loan disbursement. Essentially, this means that your covered payroll period could extend past the official eight-week period. You would still be limited to 56 days of payroll costs. See page 1 of the application for the full details.
    • Payroll costs are considered paid on the day paychecks are distributed or the day your originate an ACH transaction for direct deposit. Payroll costs are considered incurred on the day pay is earned.
    • Payroll costs incurred but not paid during the last pay period of the eight-week or alternative payroll covered period are eligible for forgiveness if paid on or before the next regular payroll date.
    • For full details, see page 2 of the application.
  • At least 75% of proceeds must be spent on payroll costs.
    • Based on full employment levels as of Feb. 15, 2020 at no less than 75 percent of 2019 annualized wages or seasonal calculation (up to $100,000 per person)
    • For each individual employee, the total amount of cash compensation eligible for forgiveness may not exceed an annual salary of $100,000, as prorated for the covered period. That means no one person can be paid more than $15,385 during the eight-week period.
    • Count payroll costs that were both paid and incurred only once.
    • For information on what qualifies as payroll costs, see page two of the application and this Interim Final Rule document.
  • No more than 25% of proceeds can be spent on other covered costs.
    • Mortgage Interest – Payments of interest (not including any prepayment or payment of principal) on any business mortgage obligation on real or personal property incurred before February 15, 2020
    • Rent – Business rent or lease payments pursuant to lease agreements for real property or personal property in force before February 15, 2020
    • Utilities – Business payments for a service for the distribution of electricity, gas, water, transportation, telephone or internet access for which service began before February 15, 2020
  • Safe harbor provision on staffing levels
    • By no later than June 30, 2020, restore full-employment and salary levels for any changes made between Feb. 15, 2020 and April 26, 2020.
    • Full restoration of FTEs does not necessarily mean they must be filled by the same employees. New hires will be allowed.
    • In determining the rate of forgiveness reduction based on FTEs, the SBA will allow borrowers to choose which period to use as a baseline for employment level comparisons: Feb. 15 to June 30, 2019, or Jan. 1 to Feb 29, 2020.
    • The SBA allows for an exception in FTE restoration if:
      • you made a good faith effort to rehire workers but those offers were declined
      • the employees who left were fired for cause, voluntarily resigned or voluntarily requested and received a reduction in hours
      • In this scenario, you’re still required to spend at least 75 percent of the proceeds on payroll for the employees you retained or new employees you hired. Expect full details of how that will work in the near future.
    • If this safe harbor is not met, the amount of the loan eligible for forgiveness is reduced based on the percentages of FTE and salary reductions.
  • The SBA has provided a detailed list of documentation requirements on page 10 of the application.

Any use of funds for purposes other than those described above—or in different ratios than described above—can make you ineligible for full forgiveness. You will then owe part or all of the loan proceeds, plus interest, as you would any other loan. Intentional misuse of PPP funds will lead to required repayment in full and additional liability, possibly including criminal charges for fraud. The SBA will also have recourse against owners, shareholders, members and partners of that business.

Certification of Need

At the time of application, all borrowers certified that that "[c]urrent economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant." The SBA may investigate and require proof of need as part of the forgiveness process. This is an attempt to shape the letter of the law to better reflect its intent, which is to provide relief for small businesses so they may keep staff on payroll and pay essential bills during the crisis. 

  • For Loans Under $2 Million
    • The SBA will assume this certification was made in good faith and the borrower did not have ready access to other sources of capital at the time of application.
    • In other words, small and mid-size borrowers should not worry about getting into trouble over accepting PPP funds and should feel free to spend them for allowable purposes.
    • However, documentation requirements remain intact and these loans are subject to review by the SBA.
  • For Loans Over $2 Million
    • All loans over $2 million will be subject to a full review by the SBA to ensure this certification was made in good faith.
    • Borrowers should take time to carefully consider the certifications made at the time of application and determine the best path forward for their company. 
    • Borrowers who are found to have had ready access to capital, including many publicly traded companies, will be asked to pay back the loan, plus any accrued interest, immediately.
    • If this is done, the matter will be closed and the SBA will not pursue administrative enforcement or refer the borrower to other governmental agencies.
    • If this is not done, the SBA may take additional action, including possible referral for criminal proceedings.

The details of the review process for loans over $2 million have not yet been made clear. As more information is made available, we will share it with you. For now, you can review the SBA’s latest FAQ, paying particular interest to questions 31, 43 and 46. We also encourage you to consult with your CPA and attorney for additional guidance, if necessary.

This is how you request forgiveness.

You will apply to Pinnacle. You can make that request beginning eight weeks after you receive your funds, though the application has not officially opened yet. In addition to the application, we will need the corresponding SBA forms and documentation to verify:

  • The number of full-time equivalent employees and their pay rates
  • Payroll expenditures covering the 8-week period following loan origination
  • Payment documentation on eligible mortgage, lease and utility obligations
  • Certification that documents are true and you used the forgiveness amount for eligible purposes

A full listing of records that you are required to maintain are included on page 10 of the application.

We will review your request and the supporting documents. Please understand that it is ultimately your responsibility and not ours to provide and attest to the documentation supporting your request for loan forgiveness. The law says you will be provided an answer within 60 days, but we don’t expect it to take that long. If approved, the SBA will forgive your loan, and we will provide proof of forgiveness for your records. If not approved, we will work with the SBA to determine the amount that can be forgiven, if any. Then we will work with you to determine a schedule for repayment according to the original terms of the loan:

  • 1% interest rate
  • 6 months of deferred payments, though interest will accrue over this period
  • 2-year maturity
  • No prepayment penalties or fees

For more information here is the link to the CARES Act and Interim Final Rule relating to PPP and forgiveness of your loan.

Here is a list of frequently asked questions with thorough answers from the SBA.

Legal Disclaimer: These materials were created to provide an overview of certain aspects of the PPP program. The information provided herein does not, and is not intended to, constitute legal advice; instead, all information is for general informational purposes only. Information contained herein is subject to change and may not constitute the most up-to-date information.  It is recommended that you contact your attorney to obtain advice with respect to any particular legal matter, and you should not act or refrain from acting on the basis of information contained herein without first seeking advice from your attorney.  Only your individual attorney can provide assurances that the information contained herein – and your interpretation of it – is applicable or appropriate to your particular situation. All liability with respect to actions taken or not taken based on the contents hereof are hereby expressly disclaimed. The content herein is provided "as is;" no representations are made that the content is error-free.