Online Banking

×

Forgot Password?

×
×
For information on Payroll Protection Program loans or COVID-19 updates, click learn more.

SBA Paycheck Protection Program (PPP) Loans

The window to apply for PPP loans was closed by the SBA on August 8. Congress is still undecided on the next appropriation of PPP loan funds. We will provide updates as they are available.

Updated: 8/25/20

WEBINAR RECORDINGS:

September 17, 2020
July 16, 2020
June 11, 2020

Please see below for answers to common questions or contact our Customer Service Center at info@americanrivierabank.com or 805-965-5942.

Please review our Borrower Guide.

You can also visit the US Chamber of Commerce site to download the US Chamber Guide to Forgiveness here.

This information is not intended to be legal or professional advice, and we encourage you to seek guidance from your advisers as necessary to determine the option(s) that best meet your individual needs. We will continue to update this PPP page as we receive new information.

 

FREQUENTLY ASKED QUESTIONS

I’ve spent my PPP loan proceeds.  Can I apply for another PPP or obtain additional money now that there is a new option to elect a 24-week period to spend my loan proceeds?

SBA is no longer accepting PPP loan applications as of August 8, 2020; however, Congress is currently in discussions regarding the possibility of a new stimulus package that may allow businesses hit hardest by the pandemic to apply for a second PPP loan.  In addition, under existing SBA guidance,while you may now elect a 24-week covered period to spend the loan proceeds, your PPP loan still cannot exceed 2.5X average monthly payrolls costs.  It just provides you with a longer period to spend the loan proceeds in the event you are unable to reopen at full capacity within the initial 8 weeks.

For additional information on maximum loan amounts, please refer to the guide for calculating loan amounts issued by SBA and Treasury on June 26, 2020.

If I elect a 24-week covered period, can I apply for forgiveness earlier than the end of the covered period?

Yes, according to the Revisions to Loan Forgiveness Interim Final Rule and SBA Loan Review Procedures Interim Final Rule. In the section of the IFR, "Changes to the First Loan Forgiveness Rule," it says:

When must a borrower apply for loan forgiveness or start making payments on a loan? A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness. If the borrower applies for forgiveness before the end of the covered period and has reduced any employee’s salaries or wages in excess of 25 percent, the borrower must account for the excess salary reduction for the full 8-week or 24-week covered period.

What is the deadline to apply for loan forgiveness?

According to the Interim Final Rule Revisions on Forgiveness and Loan Review, there is no “deadline”, but borrowers that do not submit a loan forgiveness application within 10 months after the end of their loan forgiveness covered period must begin paying principal and interest at that time.

When does the "covered period" begin?

The “loan forgiveness covered period” is the 24-week period beginning on the date the PPP loan is disbursed; or, if the PPP loan was made before June 5, 2020, the borrower may elect to have the loan forgiveness covered period be the eight-week period beginning on the date the loan was disbursed. You may begin the 24 week covered period at any time; however, the latest any loan forgiveness covered period may end is December 31, 2020 so you will need to ensure you have utilized the loan proceeds prior to that date to be eligible for full loan forgiveness..

What are eligible costs for determining PPP loan forgiveness?

The Interim Final Rules issued on May 22, 2020 for Loan Forgiveness and section 1106(b) of the CARES Act indicate that PPP loans shall be eligible for forgiveness in an amount equal to the sum of the following costs (subject to several important limitations):

  1. Payroll costs (defined further below)
  2. Interest payments on any business mortgage obligation on real or personal property that was incurred before February 15, 2020 (but not any prepayment or payment of principal);
  3. Payments on business rent obligations on real or personal property under a lease agreement in force before February 15, 2020; and
  4. Business utility payments for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before February 15, 2020.

Eligible nonpayroll costs cannot exceed 40 percent of the loan forgiveness amount based on the PPP Flexibility Act signed into law on June 5, 2020. In order to qualify for partial forgiveness, 60 percent or more of the loan forgiveness amount must be used for payroll costs.

Covered utility payments, which are eligible for forgiveness, include a "payment for a service for the distribution of...transportation" under the CARES Act. What expenses does this category include?

SBA FAQs provide that

(a) services for the distribution of transportation refers to transportation utility fees assessed by state and local governments and payments of these fees by the borrower is eligible for loan forgiveness; and

(b) the entire electricity bill payment is eligible for loan forgiveness (even if charges are invoiced separately), including supply charges, distribution charges, and other charges such as gross receipts taxes.

Are rent payments to a related party eligible for loan forgiveness?

Yes, as long as (1) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business, and (2) the lease and the mortgage were entered into prior to February 15, 2020. Any ownership in common between the business and the property owner is a related party for these purposes. The borrower must provide its lender with mortgage interest documentation to substantiate these payments. While rent of lease payments to a related party may be eligible for forgiveness, mortgage interest payments to a related party are not eligible for forgiveness. PPP Loans are intended to help businesses cover certain non-payroll obligations that are owed to third parties, not payments to a business's owner that occur because of how the business is structured. This will maintain equitable treatment between a business owner that holds property in a separate entity and one that holds the property in the same entity as its business operations.

Are amounts attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, in the context of home-based businesses, household expenses, eligible for forgiveness?

No, the latest Interim Final Rule on Certain Nonpayroll Costs indicates that if the Borrower has a sub-tenant or leases out portion of building (on which they area claiming rent or interest) the amount of loan forgiveness requested for nonpayroll costs may not include any amount attributable to the business operation of a tenant or sub-tenant of the PPP borrower or, for home-based businesses, household expenses. 
 
The IFR also indicates that if a Borrower works out of their home they CAN include the portion of the interest expenses in the same proportion they did on their 2019 tax return, which is a deviation from prior guidance.  Finally, borrowers that are renting from a related third party (owner, closely-held passive entity, etc.)  can only seek forgiveness on the portion that is directly attributable to the amount of mortgage interest on the property.  The examples below illustrate this rule.
 
Example 1: A borrower rents an office building for $10,000 per month and sub-leases out a portion of the space to other businesses for $2,500 per month. Only $7,500 per month is eligible for loan forgiveness. 
Example 2: A borrower has a mortgage on an office building it operates out of, and it leases out a portion of the space to other businesses. The portion of mortgage interest that is eligible for loan forgiveness is limited to the percent share of the fair market value of the space that is not leased out to other businesses. As an illustration, if the leased space represents 25% of the fair market value of the office building, then the borrower may only claim forgiveness on 75% of the mortgage interest. 
Example 3: A borrower shares a rented space with another business. When determining the amount that is eligible for loan forgiveness, the borrower must prorate rent and utility payments in the same manner as on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings. 
Example 4: A borrower works out of his or her home. When determining the amount of nonpayroll costs that are eligible for loan forgiveness, the borrower may include only the share of covered expenses that were deductible on the borrower’s 2019 tax filings, or if a new business, the borrower’s expected 2020 tax filings.

What are eligible business mortgage interest payments?

Mortgage interest payments for real or personal property that were in existence prior to February 15, 2020 are eligible for loan forgiveness.  Note that interest on unsecured credit incurred before February 15, 2020, is a permissible use of loan proceeds under SBA guidance; however, this expense is not eligible for loan forgiveness.  The FAQs also provide that interest payments on a refinanced mortgage loan during the Covered Period are eligible for loan forgiveness if the mortgage loan was on real or personal property that existed prior to February 15, 2020, and is refinanced on or after February 15, 2020.

What are eligible payroll costs?

Payroll costs consist of compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation; cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips); payment for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement; payment of state and local taxes assessed on compensation of employees; and for an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation. See 15 U.S.C. 636(a)(36)(A)(viii); 85 FR 20811, 20813.

In the Final Interim Rule issued on May 22, 2020 on Loan Forgiveness, the Administrator of the SBA, in consultation with the Secretary of the Treasury, determined that if an employee’s compensation does not exceed $100,000 on an annualized basis, an employee’s hazard pay and bonuses are also eligible for loan forgiveness because they constitute a supplement to salary or wages, and are thus a similar form of compensation.

Note that documentation will be necessary to support eligible payroll costs.

What are the caps on the amount of loan forgiveness for individual employees?

If you received loan approval prior to June 5, 2020 you may elect an 8-week covered period for spending your PPP loan.  If you elect 8 weeks, an employee earning a salary of $100,000 is capped for loan forgiveness at $15,384, dividing $100,000 by 52 weeks and then multiplying that out for the 8-week period. If, however, you elect the 24-week covered period made available under the PPP Flexibility Act you are now capped under the June 26, 2020 revisions to the Loan Forgiveness and Loan Review Procedures Interim Final Rules at $46,154 per individual. Please keep in mind that you were only eligible for a maximum PPP loan amount under the SBA PPP Loan Application Form 2483 that was 2.5X your average monthly payroll costs.  So, this new per-individual maximum would only be reached if you reduced employee hours or wages from what was considered in your original loan application. 

Your total loan forgiveness amount will never be more than the full principal amount of the original loan, plus accrued interest.  In addition, if you reduced employee hours (based upon the full-time equivalent calculation described below) you must be eligible for an exemption (safe harbor) or you will reduce the total amount of your loan forgiveness.

What are the caps on the amount of loan forgiveness for owner-employees and self-employed individuals?

For self-employed borrowers, the Interim Final Rule issued on June 19, 2020 indicates that loan forgiveness continues to be capped as he rule notes,

“individuals with self-employment income who file a Schedule C or F are capped by the amount of their owner compensation replacement, calculated based on 2019 net profit (8/52 of 2019 profit) of $15,385 for an 8-week covered period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833) for a 24-week covered period per owner in total across all businesses”.

SBA clarifies that for borrowers with no employees, this limitation will have no effect, because the maximum loan amount for such borrowers already includes only 2.5 months’ worth of their 2019 net profit.  If a self-employed borrower has employees, the cap remains $20,833 for themselves over 24 weeks so as not to create a “windfall for the owner”.  The rule provides the example of a self-employed borrower with one other employee noting that without the cap the owner might otherwise receive five months of payroll instead of 2.5 months, defeating the purpose of the CARES Act of protecting the paycheck of the employee.

The June 26, 2020 revisions to the Loan Forgiveness and Loan Review Procedures Interim Final Rules also specify that:

  • C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health insurance contributions made on their behalf.
  • S-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation.
  • General partners are capped by the amount of their 2019 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235.  

No additional forgiveness is provided for retirement or health insurance contributions for self-employed individuals, including Schedule C filers and general partners, as such expenses are paid out of their net self-employment income.

According to recent SBA guidance, owners with less than 5% ownership are not subject to the owner caps.

What happens if my PPP loan isn't fully forgiven?

If we determine that only a portion of your loan is eligible for forgiveness, or if the forgiveness request is denied by us or the SBA, any remaining balance due on the loan must be repaid by the borrower on or before the two-year maturity of the loan in accordance with the terms outlined in the PPP Loan Agreement you signed with American Riviera Bank. If you received your PPP loan after June 5, 2020, the repayment term is extended to five years.

What is the status of "streamlined" loan forgiveness applications?

The Small Business Administration (SBA), in consultation with the Department of the Treasury, originally released the Paycheck Protection Program Loan Forgiveness Application on Friday, May 15, 2020, which was later reissued on June 16, 2020 along with a new EZ Forgiveness application.  The Full Forgiveness Application was reissued on June 16, 2020 to comply with the PPP Flexibility Act signed into law on June 5, 2020; however, we continue to await instructions from SBA on a new online system that will enable lenders to submit forgiveness applications to SBA.

Revisions were issued on June 26, 2020 to the May 22, 2020 Interim Final Rule issued on loan forgiveness to assist borrowers as they complete these applications. While progress continues in Congress to streamline PPP loan forgiveness application requirements for loans of $150,000 or less; however, nothing has been made final at this point. In the meantime, the EZ Forgiveness application issued in June is available to self-employed borrowers without employees and to employers who did not reduce individual employee wages or salaries by more than 25% from pre-pandemic levels.  Instructions for the new form also assist you in determining if you qualify for the EZ Forgiveness application.

When can I apply to have my PPP Loan forgiven?

We have begun delivering invitations to apply for loan forgiveness via email.  If you received your PPP loan approval before June 5, 2020, you can elect to submit eligible expenses during an 8-week period following the funding (or “disbursement”) of your PPP loan as further described below.  In addition, under the PPP Flexibility Act, you may extend the timeframe for forgivable expenses to 24 weeks from loan funding.

At American Riviera Bank, we initiate the application by sending you a customized link to an online, secure portal for requesting forgiveness.  As a result, we will not be accepting paper applications. As with the initial PPP application, the online portal will include calculation tools to assist you in determining forgiveness amounts and determining the necessary supporting documentation.  We recommend you continue to collect supporting documentation to support your use of the loan proceeds for your best chance at full loan forgiveness.  Please note that copies of 941’s may be required as part of your request.  

I'm having issues with the downloadable spreadsheet. May I send in my own?

You are not required to complete the downloadable spreadsheet but will need to then complete application manually.  You will be required to input your own data and upload evidence of calculations or use alternatives (provided by payroll company, AICPA, etc.) so we can see where your figures came from.  At the top of this webpage is the sample worksheet from the AICPA if you wish to use it.

I want to use the downloadable spreadsheet, but it is not working well. What should I do?

If you are using the downloadable spreadsheet:

  1. Complete the top of the application first including 8 or 24 week covered period

    • Do not amend formatting

    • Read the descriptions at the tops of the columns carefully.  

    • When completed, check the green tabs to see if the calculated answers make sense.

  2. The functionality does not work well in Internet Explorer, so try using Chrome or Firefox.

How can I upload documents within the online portal?

To upload documents, you can only upload one at a time and each must be associated with at least one line item on the application.

When will I know what portion of my PPP Loan is forgivable?

Once a request for forgiveness is received, lenders have 60 days to make a determination on loan forgiveness under the PPP. Under the new SBA Loan Review Interim Final Rule, the SBA has up to 90 days to review a PPP Loan Forgiveness Application upon receiving a determination from a lender.

When does the 8-week period begin for tracking expenses eligible for loan forgiveness?

Prior guidance by the SBA indicated that the “covered period” for forgiveness was the 8-week period beginning when your PPP loan was funded; however, the PPP Loan Forgiveness Application issued on May 15, 2020 also provides the option for borrowers to calculate payroll costs using an “alternative payroll covered period that aligns with borrowers’ regular payroll cycles”.

Borrowers with a biweekly (or more frequent) payroll schedule may alternatively elect to calculate eligible payroll costs using the eight-week (56-day) period that begins on the first day of their first pay period following their PPP Loan Disbursement Date (the “Alternative Payroll Covered Period”).

For example:

Borrower received its PPP loan proceeds on Monday, April 20, and the first day of its first pay period following its PPP loan disbursement is Sunday, April 26

 The first day of the Alternative Payroll Covered Period is April 26 and the last day of the Alternative Payroll Covered Period is Saturday, June 20.

BUT, Borrowers must apply the Covered Period (not the Alternative Payroll Covered Period) wherever there is a reference in this application to “the Covered Period” only, such as when calculating business mortgage interest payments, utility payments, and other nonpayroll expenses.

The PPP Flexibility Act also allows borrowers to elect to extend the covered period for using the forgivable expenses to 24 weeks.

What documentation should I maintain to evidence payroll expense?

The application indicates that documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consists of each of the following:

  1. Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
  2. Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
    1. Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
    2. State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
  3. Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount (PPP Schedule A, lines (6) and (7) of the application).

NOTE: Be sure to document that expenses were both incurred and paid in the covered period (with exceptions as described below).

Do payroll costs incurred before the start of the covered period that I paid during the covered period count?

The Interim Final Rule on Loan Forgiveness issued on May 22, 2020 indicates that payroll costs “incurred but not paid during the Borrower’s last pay period of the Covered Period” can be included if paid “on or before the next regular payroll date”. Evidence of final proof of payment will be required before we can submit your forgiveness application to the SBA. However, new FAQ’s issued by the SBA indicate that eligible business mortgage interest costs, eligible business rent or lease costs, and eligible business utility costs incurred prior to the Covered Period and paid during the Covered Period are eligible for loan forgiveness. 

Example: A borrower’s 24-week Covered Period runs from April 20 through October 4. On May 4, the borrower receives its electricity bill for April. The borrower pays its April electricity bill on May 8. Although a portion of the electricity costs were incurred before the Covered Period, these electricity costs are eligible for loan forgiveness because they were paid during the Covered Period.
 
Evidence of the period covered by the utility bill will be required.

What documents will be required to evidence my employee count before the pandemic?

Documentation showing (at the election of the Borrower) should include:

  1. the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019;
  2. the average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020 and February 29, 2020; or
  3. in the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve-week period between May 1, 2019 and September 15, 2019.

The selected time period must be the same time period selected for purposes of completing the PPP Loan Forgiveness Application. According to the application instructions, documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.

What documents will be required to prove nonpayroll, eligible expenses?

According to the application instructions, documentation verifying existence of the obligations/services prior to February 15, 2020 and eligible payments from the Covered Period includes:

  1. Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
  2. Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
  3. Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

NOTE: For nonpayroll costs, be sure to include evidence the contract/account existed on or before 2/15/2020.

Can I prepay nonpayroll expenses during the covered period and have them eligible for loan forgiveness?

No. The Interim Final Rule issued by the SBA on Loan Forgiveness indicates that an eligible nonpayroll cost is one paid during the Covered Period “or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period”.  In addition, as with payroll, we would have to wait for proof of payment prior to submitting your forgiveness application to the SBA.

While the rule indicates that nonpayroll costs can be paid “or” incurred and paid after the covered period, it does not mean that you will receive forgiveness consideration for prepaying such expenses during the Covered Period.  The rule also clarifies that advance payments of mortgage interest are not eligible for loan forgiveness.

How much of my loan will be forgiven?

To obtain loan forgiveness, 60% or more of the amount spent must have been on payroll expenses as defined above. In addition, any individual salary or wage deductions must be taken into account and could reduce the overall loan forgiveness if such deductions exceed 25% of pre-pandemic levels.  The Loan Forgiveness Interim Final Rule issued on May 22, 2020 clarifies that this reduction calculation is performed on a per employee basis, not in the aggregate.  The rule also clarifies that if the borrower restores reductions made to employee salaries and wages by not later than June 30, 2020, the borrower is exempt from any reduction in loan forgiveness that would otherwise be required. Borrowers who elect 24 weeks for using their PPP loan proceeds have until December 31, 2020 to restore any such reductions.

Finally, total FTE count must be the same or greater than pre-pandemic levels to qualify for full loan forgiveness; however, you may consider the FTE count in effect as of June 30, 2020 in determining whether you meet the threshold for full forgiveness.  In addition, the PPP Flexibility Act extends the period in which employers may rehire or eliminate a reduction in employment, salary or wages that would otherwise reduce the forgivable amount of a PPP loan to December 31, 2020.

According to the Loan Forgiveness Interim Final Rule issued on May 22, 2020, a reduction in FTE employees during the covered period or the alternative covered period reduces the loan forgiveness amount by the same percentage as the percentage reduction in FTE employees.  The example provided in the Interim Final Rule provides an example that if a borrower had 10.0 FTE employees during the reference period and this declined to 8.0 FTE employees during the covered period, the percentage of FTE employees declined by 20 percent and thus only 80 percent of otherwise eligible expenses are eligible for forgiveness (also referred to as the “quotient of the average FTE”).

How much of the forgiveness amount is reduced based upon a reduction in employees without a qualifying exemption?

Total FTE count must be the same or greater than pre-pandemic levels to qualify for full loan forgiveness; however, you may consider the FTE count in effect as of June 30, 2020 in determining whether you meet the threshold for full forgiveness.  In addition, the PPP Flexibility Act extends the period in which employers may rehire or eliminate a reduction in employment, salary or wages that would otherwise reduce the forgivable amount of a PPP loan to December 31, 2020.

According to the Loan Forgiveness Interim Final Rule issued on May 22, 2020, a reduction in FTE employees during the covered period or the alternative covered period reduces the loan forgiveness amount by the same percentage as the percentage reduction in FTE employees.  The example provided in the Interim Final Rule provides an example that if a borrower had 10.0 FTE employees during the reference period and this declined to 8.0 FTE employees during the covered period, the percentage of FTE employees declined by 20 percent and thus only 80 percent of otherwise eligible expenses are eligible for forgiveness (also referred to as the “quotient of the average FTE”).

Which employees count under the requirement to maintain salary or wages under the Full Forgiveness Application?

The EZ form includes a Borrower Certification, “The Borrower did not reduce salaries or hourly wages by more than 25 percent for any employee during the Covered Period or Alternative Payroll Covered Period compared to the period between January 1, 2020 and March 31, 2020. For purposes of this certification, the term “employee” includes only those employees that did not receive, during any single period during 2019, wages or salary at an annualized rate of pay in an amount more than $100,000.”

PPP Schedule A WorksheetIf you reduced average wages during the “covered period” or “alternative covered period” by more than 25 percent compared to the average of what that employee was receiving in Q1 2020, you may still be eligible for partial loan forgiveness but you will be required to use the Full Loan Forgiveness Application, which includes the Schedule A Worksheet depicted here.  You would list any employee paid during your elected “covered period” or “alternative covered period” who received compensation that, when annualized, is less than or equal to $100,000 and who was on your payroll during Q1 2020.

Long story short, if you did not reduce the annual salary or hourly wage during the covered period you elected for using your PPP loan proceeds, and you had no reduction in hours or any reduction in hours was because of lost business activity due to health directives related to COVID-19, you can save yourself some aggravation by electing to use the new 3508 EZ Form.

Are there any exemptions for maintaining staffing levels at pre-pandemic levels to qualify for loan forgiveness?

The applications include an exemption to the FTE count if jobs are restored by June 30.  In addition, the PPP Flexibility Act extends the period in which employers may rehire or eliminate a reduction in employment, salary or wages that would otherwise reduce the forgivable amount of a PPP loan to December 31, 2020, BUT as noted above the forgiveness amount is the smaller of the 60% payroll threshold, PPP Loan Amount, or the Total Payroll and Nonpayroll Costs.  If you did not spend sufficient money on payroll costs, you will have an outstanding loan balance with monthly payments over 2 years at a 1% interest rate, which has been extended to 5 years for PPP loans made after June 5, 2020.  There are no penalties for repayment, however, so you can also save funds not spent on payroll costs to pay down the remaining balance.

In addition, under the PPP Flexibility Act, borrowers will not be penalized for any FTE reductions if either of the following occurred:

  • The borrower is unable to rehire individuals who were employees on February 15, 2020 and unable to hire similarly qualified employees for unfiled positions before December 31, 2020

or

  • The borrower is able to document the inability to return to their February 15, 2020 level of business activity due to compliance with social distancing or other customer safety requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration “related to the maintenance of standards of sanitation, social distancing, or any other work- or customer-safety requirement related to COVID-19.

How much of the loan will be forgiven if I qualify for the 3508EZ Application because I have not reduced wages or salaries?

The PPP Loan Forgiveness Application Form 3508EZ instructions indicate that the forgiveness amount will be the smaller of the following calculations:

  • Payroll and Nonpayroll Costs
  • PPP Loan Amount
  • Total Payroll Costs DIVIDED by 60%

In accordance with the PPP Flexibility Act, no part of a loan will be forgiven if 60% or more of the reported eligible expenses are not used for “payroll costs”, specifically.

SBA guidance indicates that the EZ form can only be used when you:

  • Are self-employed and have no employees; OR
  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number of hours of their employees; OR
  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

If you do not qualify for the EZ form, additional calculations will be necessary to determine your eligible loan forgiveness amount.

Why does line 8 of the PPP Loan Forgiveness Application Form 3508EZ have me divide expenses by .60?

Under the PPP Flexibility Act signed into law on June 5, 2020, a borrower can now be eligible for full loan forgiveness if 60% or more of their loan forgiveness amount went towards payroll costs rather than the 75% originally mandated by the CARES Act.  Loan forgiveness is based upon the smaller of your original loan amount, your eligible expenses, or your payroll costs plus up to 40% eligible nonpayroll expenses (which, algebraically, is payroll costs divided by 60% or .60).

So, let’s say you received a loan for $100,000. You spent $100,000 over the covered period.

  • $75,000 on payroll costs
  • $20,000 on rent
  • $5,000 in mortgage interest. 

Forgiveness Amount CalculationYou spent 60% or more on payroll expense so you could have received forgiveness for up to $125,000 if you divided those expenses by .60 per line 7 of the application form.

BUT, you cannot receive forgiveness for more than the original loan amount OR more than your actual expenses, so you would still only receive forgiveness for $100,000.

If that same borrower only spent $50,000 on payroll costs, they are only eligible for a maximum of $83,333 in total loan forgiveness.  The remaining balance of the $100,000 loan would be have to be paid back at a rate of 1%, following a 10-month deferment of interest and principal.

Basically, the change allows someone who only spent $60,000 of the original $100,000 loan amount on payroll expense to be eligible for full loan forgiveness, assuming the remaining amount is used for eligible expenses. Loan forgiveness can also be reduced if you did not maintain or restore your FTE (and don’t have an eligible exemption) or if you reduced the salaries or wages of individual employees. 

  • You cannot use the new EZ form if you reduced the salaries or wages of your employees by more than 25%.

What happens to loan forgiveness if an employee declines an offer to rehire and/or is terminated or resigns?

SBA and Treasury instituted an exception excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the CARES Act’s loan forgiveness reduction calculation.  According to SBA FAQ 40 issued on May 13, 2020, the forgiveness amount will not be reduced for employee reductions related to:

  1. Individuals to whom the borrower has made a written offer in good faith to rehire but the employee declined;
  2. Employees whose employment was terminated for cause; or
  3. Employees who voluntarily resigned.

Documentation will be required to support any such exemptions.  In addition, according to the Interim Final Rule on Loan Forgiveness issued on May 22, 2020, the exemption for an employee who declined an offer of rehire only applies if:

  1. The written offer to rehire was for the same salary or wages as earned by the employee in the last pay period prior to the separation or reduction in hours; and
  2. The borrower informed the applicable state unemployment insurance office of such employee’s written rejection of the offer of reemployment within 30 days of the employee’s rejection of the offer. 

The SBA notes that information regarding how a borrower is to report information concerning rejected offers to rehire will be provided on the SBA website. In addition, the PPP Flexibility Act includes an exception to the requirement for rehiring or eliminating the reduction in employment, salary or wages if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees by December 31, 2020, or (2) unable by December 31, 2020 to return to the same level of business activity that existed prior to February 15, 2020, as a result of complying with federal COVID-19 requirements or guidance.

How to I calculate my Full-Time Equivalent?

Borrowers must use their average employment over the same time periods to determine their number of employees, for the purposes of applying an employee-based size standard. In determining pre-pandemic Full-Time Equivalent (FTE) levels or the “selected reference period” for comparing to new levels, the instructions for line 11 of the application indicate that it is the Borrower’s election, to use either

  1. February 15, 2019 to June 30, 2019;
  2. January 1, 2020 to February 29, 2020; or
  3. In the case of seasonal employers, either of the preceding periods or a consecutive twelve-week period between May 1, 2019 and September 15, 2019.

The Loan Forgiveness Interim Final Rule issued on May 22, 2020 also indicates that in recognition that not all borrowers maintain hours-worked data, borrowers have flexibility in calculating the full-time equivalency of their part-time employees, and can either divide hour-worked by 40 hours, or adopt an alternative method by assigning 1.0 for employees working 40 hours or more per week, and .5 for employees who work fewer than 40 hours:

Average FTE

The application instructions remind the Borrower that the calculations on lines 11, 12, and 13 will be used to determine whether the Borrower’s loan forgiveness amount must be reduced based on reductions in full-time equivalent employees, as required by the statute.

It again reminds borrowers that the actual loan forgiveness amount that the Borrower will receive may be reduced if the Borrower’s average weekly FTE employees during the Covered Period (or the Alternative Payroll Covered Period) was less than during the Borrower’s chosen reference period. The Borrower is only exempt from such a reduction if the FTE Reduction Safe Harbor applies, which we discuss above.

What happens if I received an EIDL after I applied for the PPP?

The CARES Act only contemplated refinancing EIDLs received before April 3; however, the latest FAQs on Loan Forgiveness indicate that SBA will deduct the amount of any Economic Injury Loan (EIDL) advance received by a PPP borrower from the forgiveness amount remitted to the lender.

Will the SBA review individual PPP loans?

Yes. SBA may review any PPP loan as deemed “appropriate”, which could delay the decision on loan forgiveness by up to 90 days following the lender’s submission of their loan forgiveness determination to the SBA.  In addition, for those loans that the SBA selects for review, the lender will be required to submit information to allow the SBA to review the loans for borrower eligibility, loan amount eligibility, and loan forgiveness eligibility.  This last part is important as the new rule specifies that the “SBA may begin a review of any PPP loan of any size at any time in SBA’s discretion.”

Previously issued FAQ #46 indicated that PPP loans with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in “good faith”.  It also reminds borrowers that the SBA has previously stated that all PPP loans in excess of $2 million, and other PPP loans as appropriate, will be subject to review by SBA for compliance with program requirements set forth in the PPP Interim Final Rules and in the borrower Application Form. This new rule makes it clear that while loans over $2 million are subject to review for the “necessity of the loan request”, any loan may be subject to a review for compliance with eligibility, loan amount, and forgiveness.

According to the Interim Final Rule on SBA Loan Review procedures, a lender must notify a borrower within 5 business days of receipt of such a request by the SBA.  The rule also states that the SBA may reach out directly to the borrower for such requests.  The SBA anticipates issuing a separate interim final rule addressing the appeals process for SBA determinations that the borrower is ineligible for a PPP loan or ineligible for the loan amount OR the loan forgiveness amount claimed by the borrower.

When the applicant calculates the amount of compensation to be deducted from employees making more than $100,000 per year, does the applicant need to deduct all employee benefits?

No. The applicant is only required to deduct cash compensation. Non-cash benefits like employer contributions to defined benefit or defined contribution retirement plans, payment for the provision of employee health benefits consisting of group health care coverage (including insurance premiums), and payment of state and local taxes assessed on compensation of employees.

How does the applicant consider federal payroll taxes when determining payroll costs to compute the maximum loan amount, allowable uses of the loan, and loan forgiveness?

Payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs.

How long must I retain documents to support my PPP loan?

As noted in the Loan Forgiveness Application Form, the borrower must retain PPP documentation in its files for six years after the date the loan is forgiven or repaid in full, and permit authorized representatives of the SBA, including representatives of its Office of Inspector General, to access such files upon request.

Other Helpful Information

Non-Affiliated PPP Providers

We are unable to accept additional PPP applications, but we have been told that the following organizations may be able to provide assistance.  Please note that this listing is not intended to be a complete list of available providers nor does inclusion on this list represent ARB’s support or endorsement of these providers:

Harvest Small Business Finance
Mason Hobson (619) 541-0875
https://www.harvestsbf.com/

Kabbage.com
https://www.kabbage.com/paycheck-protection-program-loans/

Lendio.com
https://www.lendio.com/covid-relief/sba-paycheck-protection-program-loans/

Heartland.com
https://www.heartlandpaymentsystems.com/cares-act