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PPP – What we know about loan forgiveness (and what we don’t)

The Coronavirus Aid, Relief and Economic Security Act (CARES Act) allocated $349 billion to the Paycheck Protection Program (PPP) to be administered through the Small Business Administration (SBA). In just 12 days of the program being open all of the funds were distributed. While many applicants are still wondering if they made the cut to receive funds, questions surrounding how much qualifies for forgiveness are already bubbling to the surface.

First, Don’t Miss Out – Again

If you missed the first round of funding, don’t delay.  If you have not already applied, do so now with your bank as many are holding the applications awaiting the start of the new funding.  

Additional Funding Approved

The Interim Stimulus Plan added another $310 billion to the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA). The CARES Act originally allotted $349 billion to the program, but those funds were depleted in less than two weeks. The bill added $310 billion in funding for the PPP and $60 billion to the Emergency Economic Injury Disaster Loan (EIDL) program. The bill did not expand eligibility or increase loan caps. So, if you were not eligible to receive funding in the last round, you still will not qualify in this round (sorry 501(c)(6) organizations). Below is what we know right now about the new funds:

  • The addition will provide $310 billion for the PPP. To somewhat help disperse funds more equally, the bill set parameters around how much would be made available to lenders by size:
    • $250 billion for unrestricted PPP loans made through banks and credit unions of all sizes
    • $30 billion for loans to be made by smaller banks and credit unions (with less than $10 billion in assets)
    • $30 billion for loans to be made by mid-sized banks and credit unions (with assets between $10 billion and $50 billion) 

You received the funds – now what? What We Know About PPP Loan Forgiveness

We know there are four categories of expenses that will qualify for forgiveness under the CARES Act.  Payroll, Rent, Utilities, and Interest.  Let’s go into a bit more detail on each of these.  

Payroll costs

Include the following:           

  • gross salary, wage, commission, or similar compensation of employees 
  • employer-paid health insurance
  • employer-paid 401(k) matching contributions
  • employer-paid state and local taxes on payroll such as VA unemployment insurance

Payroll does NOT include the following:

  • Compensation of an employee excess of the cap of $100,000 per year (pro-rated = 100,000 divided by 52 weeks times 8 weeks or $15,385)
  • Employers portion of payroll taxes such as social security and Medicare


This would include payments under a lease that was in signed before February 15, 2020.  It is inferred but unknown if this is intended to only covers space(s) used for your business or would also cover personal property leases.  We are inclined to think that it was intended to cover real property leases.


This is defined as electricity, gas, water, transportation, telephone and internet services.  The service must have begun before February 15, 2020.


The obligation must have begun before February 15, 2020.  This covers both real and personal property where a UCC-1 was filed.  This does not include unsecured debt.  Further principal payments are not considered in the forgiveness of the PPP.

What rules must you follow?

  1. While the CARES Act provides that a borrower can spend up to 50% of loan proceeds on nonpayroll costs and still qualify for forgiveness, the final regulations indicate that no more than 25% of the loan proceeds can be used for such costs and benefit from forgiveness. 
  2. Borrowers must maintain (and likely increase) staff and payroll to qualify for full forgiveness. Loan forgiveness will be reduced if salaries and wages are reduced by more than 25% for any employee who made less than $100,000 annualized in 2019. Businesses will have until June 30, 2020, to restore full-time employment and salary levels from reductions made between February 15, 2020, and April 26, 2020.
  3. The funds must be used for the forgiveness eligible items listed above.  

To apply parts of the loan for forgiveness, businesses can submit a request to their lenders. We encourage you to talk with your YHB team member to assure you are calculating and tracking use of these funds appropriately. Requests must include documents verifying the number of full-time equivalent employees and pay rates, as well as the payments on eligible loan, lease and utility obligations. 

Important Requirements on PPP Notice

What We Don’t Know (the short version)

As quickly as the Act was passed and funds distributed, questions regarding specific requirements about forgiveness remain unanswered. Below are questions the SBA has yet to provide clear guidance on:

  • Is there a requirement that 75% of the original loan OR 75% of the loan forgiveness amount must be used to pay payroll costs during the eight weeks following funding? This could make a huge difference in the amount of loan that could be forgiven for some organizations.
  • Can organizations give bonuses to ensure meeting the aforementioned 75% requirement?
  • Are allowable Payroll Costs based on when they are paid or when they are accrued?  
  • How are Full Time Equivalent employees computed?  Is it based on a headcount or is it based on hours paid?

Make Smart Moves Now

While specific guidance to the many unique situations our clients encounter isn’t available yet, there are some smart moves you can make now to assure you receive the maximum forgivable amount.

  • Create a copy of the invoices, cancelled check or electronic funds transfer for all eligible expenses
  • Create a spreadsheet or tracking mechanism to track how your using the funds in an obvious manner.
  • Possibly open a separate bank account to deposit the PPP funds into to allow for easy tracking.
  • Use this unique opportunity for the betterment of your business and employees
  • If you are unable to fully utilize your staff productively, consider training options or volunteer services

With the size of this unprecedented program and speed at which it was passed and funded, there are still too many unanswered questions.  We are watching the SBA, Treasury and other governing bodies for further guidance.  What we do realize is that this funding is needed, welcomed by many, and making a significant difference in our client’s businesses and lives. We encourage you to contact your YHB team member with questions as each situation is unique and to continue to check our COVID-19 Resource page for updates.

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