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  • Writer's pictureMichael Habif

Guidance for completing PPP Loan Forgiveness Application Form

Congratulations if you received a Paycheck Protection Program (PPP) loan due to the impact of COVID-19 on your business.  If you did not receive a PPP loan, there are still funds available in the program.  Many banks are now processing previously submitted applications as well as accepting new applications for these loans.

Loan Forgiveness Application Form

Once you receive a PPP loan, start planning immediately to qualify for the maximum amount of loan forgiveness available under the CARES act. The SBA issued the Loan Forgiveness Application Form on Friday, May 15, 2020, along with detailed instructions for completing the form.  Instructions for the 11 lines of the form provide a guideline for the type of records you will need to begin keeping now and retain for six years after the loan.  If possible, consider opening a new checking account for use when paying qualifying loan forgiveness expenses. This account will help simplify your record keeping requirements.

Before submitting your loan forgiveness application, be sure to download the most up to date version of the form from the SBA website.  I believe the form will be revised by the SBA in coming weeks due to mounting pressure on the SBA to ease the requirements for loan forgiveness. Among the forgiveness changes recommended by some legislators are increasing the amount that can be spent on non payroll expenses and extending the eight week period during which certain expenses qualify for forgiveness.

To the extent your loan is not forgiven, borrowed funds will be due at the end of 24 months with an annual interest rate of 1%.

Effective Date to Start Counting Qualified Payroll

Currently, loan forgiveness includes up to 100% of qualified payroll for eight weeks after you receive the loan (provided employment levels and employment pay meet SBA guidelines provided in the form).  The application gives you the opportunity to choose either the eight-week (56 day) period following the date when your loan was funded (the Covered Period) or to select an Alternative Payroll Covered Period that begins the first day of the first pay period following your PPP loan disbursement date.  The alternate period will be particularly helpful if you pay employees bi-weekly.  Payroll costs incurred but not paid during the last pay period of the Covered Period (or Alternative Payroll Covered Period) are still eligible for forgiveness provided they are paid before the next payroll date. Payroll expenses include health insurance costs for employees other than employee owners.

75% of Payroll Rule

Initial guidance from the SBA provided that to the extent you use 75% of the loan for payroll, you can also include up to 25% of rent, utilities and certain interest payments when calculating the amount of loan forgiveness.  Some commentators worried that the 75% rule was an all or nothing requirement.  The application now makes it clear that even if you do not spend 75% of the loan on payroll costs, you can still include a portion of your rent, utilities, and certain interest expenses in determining the amount of loan forgiveness.  If you spend less than 75% of the loan for payroll, the amount of rent, utilities and certain interest expenses that can be included in loan forgiveness is calculated by multiplying your payroll expenses during the eight week period by .3333 (25 / 75). Utilities include electricity, gas, water, transportation, telephone, and internet access.

Additional Guidance for Independent Contractors

If you are an independent contractor, proprietor, or an individual partner, you cannot include your own health insurance costs or retirement plan contributions when calculating payroll. Line 9 of the application provides that the amount paid to an owner employee, self-employed individual or partner is capped at $15,385 during the eight-week period ($100,000/52 * 8).

Loan Forgiveness Calculator

You may find the loan forgiveness calculator available on the AICPA website helpful in determining the amount of your eligible loan forgiveness.  The AICPA indicates they will update this calculator as additional guidance is issued by the SBA.  The AICPA also provides additional PPP references on their website.

I am pleased to provide this brief outline for loan forgiveness but strongly recommend that you consult with a professional advisor for guidance when completing your loan forgiveness form



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