PPP Loan Forgiveness

Falls City National Bank is proud to have helped small businesses in our community secure funds through the SBA’s Paycheck Protection Program (PPP) during this difficult time.

If you received a loan through this program, you may be eligible to request loan forgiveness.

On June 16th, the SBA released revised versions of the Paycheck Protection Program Loan Forgiveness Application including an EZ version.  We expect that they will soon release revised rules and procedures concerning loan forgiveness.

At this time, we are not accepting Forgiveness Applications as we await further guidance on how to proceed with processing those applications for our PPP loan customers.  Please check back for updates periodically to receive information on how and when to apply for loan forgiveness.

The information given below is intended to help guide our customers in this process, but as program revisions happen almost daily, please be aware that this information is not definitive or comprehensive.  Please be sure to consult the SBA and/or U.S. Treasury PPP websites for information related to loan forgiveness and the PPP program. Information from the SBA and/or the U.S. Treasury will supersede and control over any information below.

As the PPP dictates, loan amounts may be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent and utility costs over the 8-week period after the loan is made; and
  • Employee and compensation levels are maintained.

Funds from your PPP loan can be used for the following purposes:

  • Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits
  • Mortgage interest—as long as the mortgage was signed before February 15, 2020
  • Rent—as long as the lease agreement was in effect before February 15, 2020
  • Utilities—as long as service began before February 15, 2020

8-Weeks of Coverage (RULE HAS CHANGED - SEE UPDATE BELOW)

  • Eligible expenses are only those incurred during your 8-week period. Your 8-week spending period begins on the date your loan funded which is not necessarily on the date you signed your loan.  Please refer to the date of your deposit.
  • For borrowers with payroll schedules that are biweekly or more frequent, the application allows you to choose an eight-week (56-day) period that begins on the first day of the first pay period that begins after disbursement of PPP funds (the “alternative payroll covered period”).

The 75%/25% Rule (RULE HAS CHANGED - SEE UPDATE BELOW)

  • At least 75% of your PPP loan funds must be used for payroll costs.
  • No more than 25% of your PPP funds can be used for non-payroll purposes.

Review your staffing requirements

  • To receive your highest loan forgiveness, you must maintain the number of employees on your payroll.
  • If you are Self-Employed:
    • 8-weeks of your 2019 net profit will be eligible for loan forgiveness.
    • Mortgage interest, rent and/or utilities expenses must have been claimed or are entitled to be claimed as a deduction on your 2019 Form 1040 Schedule C to qualify for loan forgiveness.

Keep good records and document your PPP spending.  A successful forgiveness application is going to require good recordkeeping and bookkeeping in order to maximize your loan forgiveness amount.  Keep diligent track of all eligible expenses and their accompanying documentation for this 8-week period.

After the 8-week spending period is over you will be required to complete a loan forgiveness application with documentation. Items we might request may include the following:

  • Documents verifying your number of employees on payroll and their pay rates for the periods used to verify you’ve met the staffing and pay requirements:
    • Payroll reports from your payroll provider
    • Payroll tax filings (Form 941)
    • Documents verifying any retirement and/or health insurance contributions
    • Cancelled checks for payroll if you do not use a payroll service
  • Documents verifying your eligible interest, rent, and/or utility payments including but not limited to:
    • Cancelled checks
    • Payment receipts
    • Account statements

Lastly, FOLLOW the rules!  This program was created to assist small businesses and employees during this time of need.

Any outstanding balance not forgiven will continue to accrue interest at 1% for the remainder of your 2-year loan term period.  Generally, there is no prepayment penalty and you can pay off that outstanding balance at any time with no additional fees.

UPDATE AS OF JUNE 5TH, 2020:

On June 5, President Donald Trump signed legislation to address restrictions on the Small Business Administration’s (SBA) Paycheck Protection Program (PPP).

 

While further guidance and clarification from the SBA and Treasury is likely and necessary, here is a summary of the provisions that appear in the Paycheck Protection Program Flexibility Act.

 

Specifically, the law:

  • Extends the covered period during which the loan may be used for forgivable expenses from 8 weeks following disbursement of the loan to 24 weeks from loan disbursement or Dec. 31, 2020, whichever is earlier.  Borrowers who received loans before June 5 may elect to continue using the eight-week covered period.

 

  • Lowers the amount that must be spent on payroll costs from 75 percent to 60 percent. SBA and Treasury issued a statement that the new 60 percent threshold is not a cliff, meaning that if a borrower uses less than 60 percent of the loan amount for payroll costs during the forgiveness covered period, the borrower will continue to be eligible for partial loan forgiveness, subject to at least 60 percent of the loan forgiveness amount having been used for payroll costs.

 

  • 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 Dec. 31, 2020. However, the forgivable amount will be determined without regard to a reduction in the number of employees (compared to Feb. 15, 2020) if the recipient is (1) unable to rehire former employees and is unable to hire similarly qualified employees by Dec. 31, or (2) unable by Dec. 31 to return to the same level of business activity that existed before Feb. 15, 2020, due to compliance with federal requirements or guidance related to COVID-19.

 

  • Replaces the six-month deferral of payments due under PPP loans with deferral until the date SBA pays the lender the amount of loan forgiveness. If a borrower fails to apply for loan forgiveness within 10 months after the last day of the covered period for forgiveness, the borrower must begin to make payments of principal, interest, and fees on its PPP loan.

 

  • Establishes a minimum maturity of five years for new PPP loans as opposed to the current two-year maturity date. The five-year maturity takes effect on the date of enactment and will apply to any PPP loan made on or after June 5. Lenders and borrowers, however, may mutually agree to modify the maturity terms of prior-disbursed PPP loans.

 

  • Eliminates a provision that makes PPP loan recipients who have PPP debt forgiven ineligible to defer payroll tax payments.

For additional information, please refer to the U.S. Department of the Treasury’s “CARES Act Assistance for Small Businesses” webpage.

Falls City National Bank is here to assist you with your PPP loan should you have any other questions.