We continue to hear stories of clients receiving approval letters for their PPP loans and even a few about companies receiving their funding. This is very exciting and, while we will continue to help clients with their PPP applications, we need to be thinking about PPP loan forgiveness on the back-end. Our COVID-19 Task Force is willing and able to assist in conversations about the forgiveness part of these loans and how you might consider tracking qualified expenses.

As with many other parts of the PPP, we currently don’t have clear guidance on exactly how the forgiveness will be applied for and approved. Our hope at this point is there will be more guidance coming from the SBA, but we believe some aspects of the process will be left up to individual banks to decide. Here’s what we think we know now based on the guidance:

The principle amount of PPP loans, and interest thereon, will be forgiven to the extent of the borrower’s documented expenses for the following amounts, in each case incurred and paid during the 8-week period beginning on the date the loan is originated (the “forgiveness period”):

• Payroll Costs;
• Interest (but not principal) payments on mortgages in existence as of Feb. 15, 2020;
• Rent; and
• Utilities (such total, the “Forgiven Amount”).

Not more than 25% of the Forgiven Amount may be non-payroll costs (because the 8 week forgiveness period is roughly equal to 75% of a 2.5 month period, which is used to calculate the available loan amount).

The Forgiven Amount is subject to reduction as follows:

• On a pro rata basis, based on the amount by which average monthly FTE headcount during the forgiveness period is less than such average during, at the borrower’s election, either:
  • January 1 – Feb 29, 2020; or
  • February 15, 2019 – June 30, 2019 (seasonal employers must use this period)
• The reduction of salary or wages of any employee (making less than $100,000 per year) that exceeds of 25% of such employee’s salary or wages for the most recent full quarter in which they were employed (because of a disconnect between the length of the two measuring periods, the ultimate calculation will need to be clarified in the regs)

A borrower may request forgiveness by:

• submitting documents that verify (a) the number of FTE employees and pay rates, and (b) payments on eligible mortgage, lease, and utility obligations; and
• certifying that it used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments.

Lenders are required to make decisions on calculations of the Forgiven Amount within 60 days after borrower submission of the required documentation.

To the extent that any reductions in pay or headcount during the period from February 15, 2020 through April 26, 2020 are restored through rehiring or wage increases by June 30, 2020, such reductions will be disregarded in calculating the Forgiven Amount.

Amounts forgiven will not be treated as income (CODI) for tax purposes.

SBA has indicated that further guidance on forgiveness is forthcoming.

If you need assistance with your loan application or you would like to discuss tracking qualified expenses, we are here to help. Reach out to your WR Partner or you relationship manager. You can also email our COVID-19 task force for assistance: COVID19TASKFORCE@websterrogers.com.

Sincerely,
COVID-19 Task Force