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Maximizing PPP Loan Forgiveness

Ed McLeod

May 27, 2020


The following are the rules for the Paycheck Protection Program — especially in relation to maximizing Loan Forgiveness. Regulations and guidance from the government have evolved and we will continue to keep you updated on changes moving forward.

General Rules

Borrowers are eligible for loan forgiveness equal to the amount the borrower spent during the eight-week period—beginning from the date you received loan funds. Also, not more than 25% of the forgiven amount may be used for non-payroll costs.

The following items qualify for loan forgiveness:

  1. Payroll costs, including benefits.
  2. Interest on business mortgage obligations incurred before February 15, 2020.
  3. Business rent under lease agreements in force before February 15, 2020.
  4. Utility costs for business — including electricity, gas, water, transportation, telephone, and internet.

To Maximize Loan Forgiveness, Keep a Few Critical Items In Mind

The Paycheck Protection Program is intended to help businesses maintain employees. Therefore, using the PPP loan for payroll purposes, first and foremost, is the best way to help ensure maximum loan forgiveness.

The following items can reduce your loan forgiveness:

  1. Reduction of full-time equivalent employees.
  2. Reduction of more than 25% of wages to individual employees.
  3. If more than 25% of the qualified expenses are for non-payroll costs.

NOTE: If you received an EIDL Advance of up to $10,000, that amount will reduce loan forgiveness. 

To Maximize Loan Forgiveness, Consider the Following:

  1. If you laid off employees or reduced employee salaries after February 15, 2020, and before April 26, 2020, rehire employees or increase their salaries if possible.
  2. You have until June 30, 2020, to restore full-time equivalent employees and salary levels for changes made between February 15 and April 26, 2020.
  3. Other than payroll, ensure that you allocate loan funds to qualifying expenses, including rent, mortgage interest, and utilities (although these expenses do not support full forgiveness).

NOTE: We recommend that if you extend an offer to rehire an employee, do so in writing. In the event the person chooses to not return to work, you now have documentation that the offer was made and the employee declined it. This protects you from being penalized for not re-hiring.

The Importance of Record-Keeping: 

Ensure that you follow the specific guidelines provided by your lender in relation to documentation. You will be asked to provide documentation when it comes time to determine the amount of loan forgiveness. Maintain detailed records of loan spending, especially on payroll costs. Also, be sure to record other qualifying expenses like rent and utilities.

Next Steps

Lenders will collect documentation in order to calculate your forgiveness amount. Lenders have 60 days to make a determination on the amount of loan forgiveness.

Any amount that is not forgiven must be repaid like a normal loan. While interest begins accruing immediately (at the 1.0% rate), the first loan payment is not due for six months after the loan originated. The outstanding amount must be repaid within two years. 

Prepayments are allowed if it’s determined that a portion of the loan must be repaid—beginning any time or paid over 18 months if you begin making payments at the six-month mark.

Not Too Late

You should note that as of 5 pm yesterday, May 20, 2020, $148 billion of the $660 billion approved for the program has not been committed. So, if you were considering applying for PPP funds but thought it was too late, that is not the case.

We Are Here to Help

Please reach out and let us know how we can help you. Our team can assist with record-keeping and provide sound advice to ensure you follow the guidelines to maximize loan forgiveness.

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