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PPP Loan Forgiveness

While there remain some outstanding questions when it comes to the process of loan forgiveness, this blog will assist you in preparing for the forgiveness application. According to current SBA guidance the loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent and utility costs over the 8-week period after the loan is made; and

  • Employee and compensation levels are maintained. Payroll costs are capped at $100,000 on an annualized basis for each employee.

  • Additionally, not more than 25% of the forgiven amount may be for non-payroll costs.

Valid purposes for PPP loan forgiveness:

  • Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits

  • Mortgage interest—as long as the mortgage was signed before February 15, 2020

  • Rent—as long as the lease agreement was in effect before February 15, 2020

  • Utilities—as long as service began before February 15, 2020

Timeline -8 Weeks of Coverage

Eligible expenses are only those incurred during your 8-week period, which starts the date you receive the loan proceeds. Note: This may not necessarily be the date on which you signed the loan agreement. Consider your payroll schedule, you may want to adjust the timing of your payroll date to accommodate as many payroll cycles as possible. Review your staffing requirements: to receive maximum loan forgiveness, you must maintain the number of employees on your payroll.

The 75%-25% Rule

  • At least 75% of your SBA PPP loan funds must be used for payroll costs.

  • No more than 25% of your SBA PPP funds can be used for non-payroll purposes.

  • Payments to independent contractors are not included in your payroll costs.

While the following payroll costs are not eligible for loan forgiveness you should nevertheless be keeping track of these:

  • Cash compensation in excess of $100,000

  • The employer’s share of federal payroll taxes

  • Qualified sick leave and qualified parental leave wages for which credit is allowed under the Families First Coronavirus Response Act (FFCRA)

Start gathering your documentation that will need to be submitted by you for a complete loan forgiveness application.

Examples of documents verifying your number of FTEs on payroll and their pay rates for the 8 week coverage period:

  • Payroll reports from your payroll provider

  • Payroll tax filings (Form 941)

  • Documents verifying any retirement and/or health insurance contributions.

Examples of documents verifying your eligible interest, rent, and/or utility payments including but not limited to:

  • Lease or mortgage signed prior to Feb 15th 2020

  • Cancelled checks showing rent or mortgage payments and utilities.

  • Payment receipts

  • Rent, mortgage or utilities account statements

A successful forgiveness application is going to require good recordkeeping and bookkeeping in order to maximize your loan forgiveness amount. Our team will help you keep track of all eligible expenses and their accompanying documentation for this 8-week period.

Any outstanding balance not forgiven will continue to accrue interest at 1% for the remainder of your 2-year loan term period. Generally, there is no prepayment penalty and you can pay off that outstanding balance at any time with no additional fees.

For additional information, please refer to the U.S. Department of the Treasury’s “CARES Act Assistance for Small Businesses” webpage here: Additional guidance is anticipated from the Treasury and the U.S. Small Business Administration in the coming weeks.

Feel free to reach to our team if you have questions #SeattleControllerCARES

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