What is Paycheck Protection Program (PPP) Loan Forgiveness, and who is eligible?

AB Financial Group has worked with multiple small businesses during the COVID-19 shutdowns to help keep employees on the payroll and buoy companies through economic uncertainty. Federal Paycheck Protection Plan (PPP) loans, managed through the Small Business Administration (SBA) were arranged for many businesses across the region, and more than 5 million businesses nationwide were allocated funds. A benefit of the program is loan forgiveness. AB Financial Group can help navigate the loan forgiveness portion of the PPP loan.

To qualify for PPP loan forgiveness, 60% of the loan amount must be used toward payroll costs. Specifically:

  • Maintenance of all full-time employees (FTE) on the payroll, or, rehiring the same number of FTEs within 24 weeks of receiving loan proceeds.
  • Given 60% of the loan amount distributed to payroll costs, the 40% balance can be used on authorized non-payroll costs, ie, facilities, utilities, etc.
  • Eligibility for partial loan forgiveness may be available for companies devoting less than 60% of the loan amount to payroll expenses. We dive more into this in the section below.
  • Sole-proprietor eligibility is based on 2.5 months of net profit, FY 2019 and 2020 to amend lost pay.

What is the PPP Loan Forgiveness process?

AB Financial Group will guide you through the complexities of the application process for PPP loan forgiveness. Our goal is to get it right on the timing, the application form and the document collection. Our partnership with you could make the difference between PPP loan forgiveness or a burdensome five year loan payback term. To complete the application, you should be prepared to:

  • Gather all required documents, and organize them, ensuring accurate dates for each.
  • Realize that work-force reduction leading to a percentage below 60% will likely reduce the forgiveness amount. Three exceptions exist:
    • Restoring wages by published deadlines.
    • Restoring full time employees (FTEs) by published deadline.
    • Operational shutdown due to government order as compared to business activity level before 2/15/2020.

Other things to keep in mind for PPP loan forgiveness:

  • Watch for PPP loan forgiveness guidance updates from the Small Business Administration. These updates, located in the SBA’s PPP loan forgiveness FAQ page, can include new parameters that favor your situation.
  • Keep in mind the 10 month mark after your loan’s “coverage period.” This is the current time marker to apply to avoid the start of the repayment term.
  • Know the final deadline for all PPP loan forgiveness applications. To date, the final deadline has yet to be set by the SBA, so vigilance is indicated.

Once the PPP loan forgiveness application is complete and the comprehensive record of all of the payroll and other cost documentation is organized, let AB Financial Group double and triple check each data point for accuracy. It is critical to verify that all calculations and documentation are aligned to avoid delays with the SBA review process. Copies of the application and all supporting records will be necessary for reference once the review process begins.

Once the loan application is submitted, the waiting begins. The SBA’s process for reviewing applications takes time. The good news is AB Financial Group can partner with you during the wait period, in particular, if any further information or clarification is needed by the SBA. No loan repayment is due during the review process. At the end of the process your lender will notify you of the SBA’s decision, and when the first payment, if any, is due.

What are the shortcuts to PPP Loan Forgiveness?

AB Financial Group can assist with the short-cut application for PPP loan forgiveness. This easier process is restricted to borrowers with loans under $150,000. Although the simplified one page application only requires you to certify as true the use of the loan monies, it is essential that documentation is gathered and organized to support the numbers. Retaining all records is required, four years for employment data, and three years for all other eligible costs. This will be especially important if there is a second loan request and forgiveness process undertaken. Partnering with us will help you be fully prepared, even with the use of the easier forgiveness process.

Form 3508S is the Small Business Administration document to use for this process. It is a one-page application. As mentioned, your signature certifies that the parameters of the PPP loan have been met and the application is accurate and true.

If the loan is greater than $50,000 certification be required on all wage and FTE reductions. Failure to provide certification will reduce the loan forgiveness portion. If a second PPP loan is awarded these records become all the more essential. Re-certifying the first loan calculations, as well as the second loan disbursements are part of the loan forgiveness process after a second draw, and must be done in order.

Other facts that can favorably affect the loan forgiveness amount include:

  • Proof that you offered restored employee hours at the same wage, even if employee refuses the offer.
  • Proof that an employee was fired for cause, seeks a reduced schedule or resigns.
  • Have a PPP loan less than or equal to $50,000.

Written verification of the above is required. If an offer to rehire is refused, the state unemployment office requires notification within 30 days. The good news, given the above exceptions, the loan forgiveness amount won’t be reduced.
All of the complexities, even with the easy application format, are easier to manage, when you partner with AB Financial Group to assist with the process.

Know the PPP definition of payroll costs

In preparation for gathering the necessary documentation for the PPP Loan Forgiveness application, it benefits the borrower to understand how the Small Business administration has officially defined payroll. Be sure to include the following costs as the basis for the 60% loan amount threshold. These costs include:

  • The gross amount of an employee’s wage or salary.
  • Any loss form of wages.
  • Health care expenses paid by the company.
  • Employer contributions to employee retirement benefits.

The gross amount, before federal and state taxes, medicare, SSI, and all other government mandated taxation, for every pay period during the loan coverage, is eligible to be added to the company wage total. This total should account for any form of lost wages during the covered period. This should include lost tips, lost sales commissions or other forms of incentive compensation, bonuses, and hazard pay. The individual employee amount cannot exceed $100,000 annualized.

Health care expenses covered by the company are included in wages. These costs are limited to the health care costs due during the covered period only, or by the next premium due date after the covered period. The expenses paid by the employee are not included in the borrowers wage total, such as health care accounts, whether pre-tax or taxable, and plan beneficiary costs.

Retirement contributions by the company are included as part of the wage total. Contributions by the employee are not included. Accelerated contributions during the covered period, if any, will not be included in the wage total.

This can all feel overwhelming, but AB Financial Group has all the information and expertise needed to navigate the PPP Loan Forgiveness process. Contact us today at: 970-444-5586.

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