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Small Business Administration (SBA)
Paycheck Protection Program Update on Loan Forgiveness
As of June 26th, FirstBank is no longer receiving Payroll Protection Program (PPP) applications. If you have received funding through the Small Business Administration’s PPP Program, you may be eligible to request loan forgiveness. We know that loan forgiveness is important to you and your business and that you have questions. The entire amount of this loan, plus accrued interest, has the potential to be forgiven. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.
It is important for you to know that the loan forgiveness is not automatic. If you received your PPP loan through FirstBank, you must also request forgiveness through FirstBank. Generally, companies must maintain employee headcount during the 8-week period after loan disbursement, as compared to employee headcount during either February 15, 2019 through June 30, 2019 or January 1, 2020 through February 29, 2020. Companies must also maintain total salary and wages for each employee at certain levels compared to the most recent quarter during which the employee was employed prior to receiving the loan. Not more than 40% of the loan forgiveness amount may be attributable for non-payroll costs.
The SBA has made available an application form and instructions (updated on June 16, 2020) to inform borrowers how to apply for forgiveness of their PPP loans, consistent with the CARES Act. The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers, including:
- Options for borrowers to calculate payroll costs using an “alternative payroll covered period” that aligns with borrowers’ regular payroll cycles.
- Flexibility to include eligible payroll and non-payroll expenses paid or incurred during the eight-week or 24-week period after receiving their PPP loan.
- Step-by-step instructions on how to perform the calculations required by the CARES Act to confirm eligibility for loan forgiveness.
- Borrower-friendly implementation of statutory exemptions from loan forgiveness reduction based on rehiring.
- Addition of a new exemption from the loan forgiveness reduction for borrowers who have made a good-faith, written offer to rehire workers that was declined.
To help your business best prepare for the forgiveness process, review the links provided below. Please take the opportunity to familiarize yourself with the documents and begin gathering required information. FirstBank will soon follow with further details about the forgiveness application process. The SBA application includes a PPP Loan Forgiveness Calculation Form and other additional forms you need. For instructions, click below.
There is now available a much more simplified version of the PPP Forgiveness application (Form EZ) released on June 16, 2020 and if you meet one of the three requirements found in the Form EZ Instructions opening checklist. The Form EZ requires fewer calculations and less documentation for eligible borrowers:
- Applied for the PPP loan as self-employed, an independent contractor or a sole proprietor with no employees.
- Did not reduce salary or wages for any employee by more than 25%, and did not reduce the number or hours of their employees (excepting laid-off employees who refused an offer to return).
- Did not reduce salary or wages for any employee by more than 25% during the covered period and experienced reductions in business activity as a result of health directives related to COVID-19.
FAQ About PPP Loan Forgiveness
Yes, if you have received a PPP loan through FirstBank you must request forgiveness through FirstBank. Now that the application approval process has concluded for Firstbank, you can expect to receive information on forgiveness in early July. We are setting up a process to handle requests and will keep you informed as we get additional SBA guidance.
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.
You will provide a formal forgiveness request to FirstBank. You can make that request anytime prior to the maturity date of your loan, and no later than December 31, 2020. You will fill out a forgiveness form and return it to us, along with documentation to verify:
The number of full-time equivalent employees and their pay rates.
Documentation of payroll expenditures covering the 8-week or 24-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.
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. 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 for loans originated prior to June 5th, 2020
5-year maturity for loans originated after June 5th, 2020
No prepayment penalties or fees
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 and other allowable purposes. These are the forgivable purposes. If you spend loan proceeds in these ways and at these ratios, you may be eligible for forgiveness:
At least 60% of proceeds: Payroll Costs
Based on full employment levels as of Feb. 15, 2020 at no less than 60 percent of 2019 annualized wages or seasonal calculation (up to $100,000 per person)
No more than 40% of proceeds: Other Covered Costs:
Mortgage Interest – For mortgage agreement in place before Feb. 15, 2020
Rent – On leases dated before Feb. 15, 2020
Utilities – Under service agreements dated before Feb. 15, 2020
If you meet these requirements, you should be eligible for full or partial forgiveness. Any use of funds for purposes other than those described above—or in different ratios than described above—will make you ineligible. You will then owe part or all of the loan proceeds, plus interest, as you would any other loan.
Funds must be spent within an eight-week or 24-week period starting the day you receive them.
Payroll costs include more than just a paycheck. The program covers salaries, commissions, tips, and other costs. It also includes employee perks, such as vacation, parental, sick, or family leave. Payments made to cover insurance premiums or retirement benefits are eligible under the PPP for certain borrowers.
If you ask forgiveness based on accrual-based accounting, you should be able to show the expense was incurred during the eight-week or 24-week period and settled in cash shortly after the conclusion of the eight-week or 24-week period. As an example, let’s assume payroll occurs every Friday and the workweek runs Thursday to Wednesday. Since June 30 is on a Tuesday, it is possible that you would have 6 days (Thursday, June 25 to Tuesday, June 30) of accrued but unpaid payroll on your forgiveness application as of June 30.
By the earlier of the date of application submission or December 31, 2020, restoration of full-employment and salary levels for any changes made between Feb. 15, 2020 and April 26, 2020 will qualify a borrower to determine loan forgiveness without regard to a reduction in FTEs.
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.
No. You must request forgiveness. We are setting up a process to handle requests and will keep you informed as we get additional SBA guidance. You can expect to receive detailed information on forgiveness in early July.
You must repay the principal and interest amount of the unforgiven portion of the two-year loan in accordance with the loan terms you agreed to.
Yes, if the expense is an eligible use of PPP proceeds under SBA and Treasury guidance.
Yes. There is no prepayment penalty.
Payroll costs (as defined by the SBA)
– Interest payments on mortgages incurred before Feb. 15 2020
– Rent payments on leases in effect before Feb. 15, 2020
– Utility payments for which service began before Feb. 15, 2020
No. However, mortgage interest payments do qualify.
1.00% fixed rate. All payments (principal, interest and fees) are deferred for 6 months; however, interest will continue to accrue over this period. Additionally, payments will continue to be deferred for up to 10 months after a forgiveness request is submitted.
Payments are due after the deferment period, and the remainder is due at maturity, which is 2 years as provided in your loan agreement, for loans originated prior to June 5th, 2020 and 5 years for loans originated after June 5th, 2020.
Yes. There are no prepayment penalties or fees.
No. Any amounts that an eligible borrower has paid to an independent
contractor or sole proprietor should be excluded from the eligible business’s payroll costs. However, an independent contractor or sole proprietor will itself be eligible for a loan under the PPP, if it satisfies the applicable requirements.
Yes. But not all. Only expenses for mortgage interest, rent, and utilities are eligible for forgiveness under the Paycheck Protection Program. All other home office expenses you could normally deduct on your tax return such as renter’s insurance, repairs, and depreciation, do not apply.
You cannot get home office expenses forgiven and also deduct them from your taxes. The IRS has stated that once an expense is forgiven, it can’t be claimed again as a deduction.
At the time of application, all borrowers certified that that “current 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. 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. We also encourage you to consult with your CPA and attorney for additional guidance, if necessary.
If you submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you will not have to make any payments of principal or interest on your loan before the date on which SBA remits the loan forgiveness amount on your loan to your lender (or notifies your lender that no loan forgiveness is allowed).
Your “loan forgiveness covered period” is the 24-week period beginning on the date your PPP loan is disbursed; however, if your PPP loan was made before June 5, 2020, you may elect to have your loan forgiveness covered period be the eight-week period beginning on the date your PPP loan was disbursed.3 Your lender must notify you of remittance by SBA of the loan forgiveness amount (or notify you that SBA determined that no loan forgiveness is allowed) and the date your first payment is due. Interest continues to accrue during the deferment period.
If you do not submit to your lender a loan forgiveness application within 10 months after the end of your loan forgiveness covered period, you must begin paying principal and interest after that period. For example, if a borrower’s PPP loan is disbursed on June 25, 2020, the 24-week period ends on December 10, 2020. If the borrower does not submit a loan forgiveness application to its lender by October 10, 2021, the borrower must begin making payments on or after October 10, 2021.
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