Moss Adams and SAFE VP Commercial Lending Ken Getz gave a presentation on information businesses need to apply for loan forgiveness for the Paycheck Protection Program.
The U.S. Small Business Administration (SBA) issued new rules over Memorial Day Weekend regarding applying for forgiveness for Paycheck Protection Program (PPP) loans and on June 5, 2020, the Paycheck Protection Program Flexibility Act was enacted. We've updated our FAQs to reflect those changes. SAFE expects Congress and the SBA to continue to make changes to the program, so please check back here for new information.
Read the SBA's latest rules here.
Applications as of June 17
Read the latest SBA FAQ on the loan forgiveness process here.
The U.S. Small Business Administration (SBA) is offering forgiveness of Paycheck Protection Program (PPP) loans provided businesses successfully meet certain requirements and submit documentation to their lender that shows how the funds were used. The SBA makes the final determination whether to forgive the loan based on the information provided.
On June 4, 2020, the Paycheck Protection Program Flexibility Act was enacted that significantly changed the rules regarding the program and the forgiveness process that take effect immediately. Key changes include:
Important note: SAFE is awaiting the final interim rule from the SBA on how financial institutions will address the changes in the PPP Flexibility Act before making changes to PPP loans. We will update this information and connect to loan recipients directly as changes continue to be made to the program.
We recommend the application for forgiveness be completed following the 24-week period after the loan was disbursed. This will allow time for additional revisions to the application form or supporting documentation requirements from the SBA. Current information regarding forgiveness can be found at the SBA PPP site.
On June 17, the U.S. Small Business Administration posted a revised, borrower-friendly Paycheck Protection Program (PPP) loan forgiveness application that reflects changes made in the PPP Flexibility Act of 2020.
In addition to revising the full forgiveness application, SBA also published a new EZ version of the forgiveness application that applies to borrowers that:
The EZ application requires fewer calculations and less documentation for eligible borrowers.
Both applications give borrowers the option of using the original eight-week covered period or an extended 24-week covered period.
Applications as of June 17
Instructions as of June 17
Along with their application, the borrower must submit the following:
We strongly encourage borrowers to consult with their CPA or tax professional to assist with the preparation of their loan forgiveness documentation and application.
For the loan amount to be forgiven, at least 60% of your loan must be used for payroll costs. Payments to independent contractors cannot be included in the payroll costs. If you use more than 40% of the loan for non-payroll costs, then the amount of forgiveness will be reduced accordingly.
Lenders determined the loan amount by multiplying your monthly average payroll by 2.5. The monthly payroll average was based on IRS-reported wages, the amount paid by the employer for state taxes, retirement contributions, and healthcare costs. The monthly average used for the calculation did not include other costs such as employee-paid healthcare and retirement contributions, federal taxes, and payments to contract employees. The costs that went into the monthly average are the same the SBA use to determine forgiveness for the loan. By using more than those allowable expenses, the loan may not be entirely forgivable.
For sole proprietors, the loan amount was based on the 2019 Schedule C tax return. The net income was divided by 12 and that sum multiplied by 2.5. If a sole proprietor had employees, independent payroll information on the employees (IRS form 940 or 941) was added to the figure derived from the tax return.
Business are required to submit documentation to their lender reflecting certain expenses (detailed below) that start 24 weeks after the loan is funded.
The following expenses made during the 24 weeks of the loan can be forgiven as long as 60 percent of the amount goes toward payroll costs.
You submit your forgiveness application to SAFE after the end of the covered loan period. SAFE has 60 days after you submit the application to let you know whether and how much of the loan has been forgiven following SBA guidelines. The loan package is then sent to the SBA who has 90 days to confirm guidelines and complete the review to grant forgiveness.
You can find more information on what you will need to provide with your application on the loan forgiveness application (SBA Form 3508). It is your responsibility to provide supporting documentation to SAFE with your application to help ensure a more efficient forgiveness application process.
Documents you will need to submit with your loan forgiveness application:
Documents you’ll need to maintain for six years after the date the loan is forgiven or repaid:
How do I determine which payroll periods to include in the application? (updated 6/4/20)
You can apply for forgiveness for payroll costs incurred for the covered period beginning on either:
Payroll costs eligible for forgiveness can be for employees who are working and/or for those who are not currently working but you retained on the payroll.
You must maintain total number of employees on your payroll and their compensation levels by at least 50 percent. You have until Dec. 31, 2020, to rehire any laid-off or furloughed employees and restore salary levels.
Yes, if you follow certain steps to restore staffing levels.
The following information is based on the SBA final interim rule as of May 27, 2020. Please check back here for any updates after the SBA issues its next interim rule in response to the PPP Flexibility Act.
For the number of employees:
The amount forgiven will be reduced by the same percentage as the percentage reduction in full-time-equivalent employees. First, you need to pick a reference point to determine your initial FTE count.
Say you had an average of 10 FTEs during the reference period, but after the eight-week PPP loan period you had eight FTEs. That is a 20% reduction in the number of employees. Your loan forgiveness amount would thereby be reduced by 20%.
For more information on how to determine FTE counts in reference to the PPP forgiveness process, please see the interim rule.
For a change in salaries:
Loan forgiveness is affected if salaries are reduced by more than 25 percent. This reduction is calculated by individual employee, not in the aggregate. The amount that will not be forgiven will be the same as the amount of salary reduction over 25 percent. For example, if you reduced an employee’s salary from $1,000 a week to $750 a week, you would be eligible for loan forgiveness. But, if you reduce the salary to $700, you would not be forgiven for the $50 difference each week. After the eight-week loan period, $400 ($50 times eight weeks) of the loan would not be forgiven.
It’s important to note that you don’t have to report a change in salaries if it was due to a reduction in FTEs. That way you’re not facing double penalties.
The amount of loan forgiveness you’re eligible for is 8/52 (or 15.38%) of your 2019 compensation (eight weeks out of 52). Eligible compensation is limited to cash compensation, employer retirement, and health care contributions made on your behalf.
Schedule C filers are capped by the amount of their owner compensation replacement based on their 2019 net profit.
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
Initial payments are deferred for six months. After that, you have 18 months to repay the loan at a 1% interest rate. There is no pre-payment penalty, so you may pay off the balance at any time with no additional fees.
Please contact our Business Banking team directly at email@example.com. Due to a higher than normal activity, there may be a delay in response. We thank you for your patience and understanding.
SAFE Credit Union understands how important the Paycheck Protection Program loan program by the U.S. Small Business Administration is for our Business Banking members. This is a stressful time for many of you, and we know that the PPP process may have added to your frustration as you wait to learn the status of your application and whether you will receive funding.
If you submitted an application with SAFE, we will be in contact with you to provide an update on its status. We may require additional documentation from you to complete the process. However, please be aware that due to current circumstances, we are not able to guarantee funding.
We wish we had solid answers for you. But unfortunately many financial institutions, including SAFE, encountered numerous challenges during a rushed process compounded by extraordinary demand. SAFE made the decision to participate in the PPP because we thought it the right thing to do for our Business Banking members and our community. But we, like many other financial institutions, faced significant challenges.
We’d like to share with you some insights into some of those issues. We hope it provides some transparency into the situation and inform you about what SAFE is doing now to assist our Business Banking members.
SAFE stopped accepting PPP applications on Saturday, April 11, due to an overwhelming number submitted. SAFE made that difficult decision in order to focus our limited resources to help applicants already in the queue as it became apparent that the PPP was quickly running out of money. Our Business Banking team had been working non-stop preparing the incoming applications to ensure they were complete. However, we encountered many applications from non-qualified applicants or that were either incomplete, incorrect, or otherwise needed additional information for them to move forward.
Having accurate and complete applications is essential to ensuring a smooth lending process. SBA loans, including PPP loans, are a two-step approval process. Here’s how it works. The SBA provided lenders specific requirements that had to be met and approved by lenders’ underwriting teams. Approval from the lender and SBA on the established criteria is required to grant the loan. If either the SBA or the lender decides that the requirements have not been met, the application is denied and a loan cannot be funded.
The high number of applications also overwhelmed SAFE’s SBA loan origination process, which was not set up to handle such high and immediate demand. SAFE received more than 30 times the number of SBA loan applications it receives in an entire year. The SBA also was not prepared for the huge number of applications from across the country swamping its system, leading to backlogs and more complications for lenders.
Congress approved more additional funds for the PPP and started to accept more applications on Monday, April 27. We expect those to go more quickly than the first allocation. Because of the need to swiftly submit applications to the SBA in this second round, SAFE will not be able to accept any new PPP applications.
If you have questions on this topic, please email us at firstname.lastname@example.org. Your email will be directed to our Business Banking team. The Business Banking team has the most up-to-date information about your application. Due to the very fluid nature of the process, our call center and chat team are not able to provide you updates about the PPP. We appreciate your patience with us when responding as the Business Banking team handles the significant volume of questions. Please expect a response within 48 to 72 hours.