05.19.2020 - PPP Loan Forgiveness Application & Guidance
On Friday, May 15, the Small Business Administration (SBA) released the Paycheck Protection Program (PPP) Loan Forgiveness Application, along with detailed instructions for its completion. We are providing a link to the application for your convenience. We hope this will help you begin the process of gathering the required information, and documenting and calculating payroll costs and qualified business expenses.
We expect the SBA to provide additional guidance soon to further assist you with completing the application. FNBC Bank & Trust will use an automated platform to process our customers' applications as efficiently and quickly as possible. Please monitor your inbox and our website for future updates and instructions on submitting your application.
FNBC Bank & Trust will continue to inform you of further developments with your PPP loan and the loan forgiveness process. In the meantime, if you have any questions or need additional assistance with this or any financial matter, please contact your Relationship Manager or Loan Officer.
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05.07.2020 - PPP Loan Application & Guidance
If you have received a PPP Loan through FNBC Bank & Trust, you probably have a lot of questions. We are providing the following summary and guidance as a starting point for you to prepare your documentation in anticipation of applying for PPP loan forgiveness. Additional Small Business Association (SBA) guidance on loan forgiveness is expected but has not been published as of the date of this summary (5/7/2020), so this summary is based on the rules currently available. Guidance on the program is subject to change, without notice.
We will do the best we can to update you on final guidance when issued, including the final form of application for forgiveness. However, we strongly recommend that you consult with your legal counsel and accounting professionals as you navigate this process.
Use of PPP loan proceeds are only for the following items:
- Payroll consisting of salary, wages, vacation pay, family, medical or sick leave, health benefits, retirement benefits, and state or local payroll taxes, but not compensation to individual employees in excess of $100,000 annually, not including the value of non-cash benefits, and payments to independent contractors or employers share of federal payroll taxes
- Interest payments on a mortgage that was in place prior to February 15, 2020
- Rent as long as the lease was in place prior to February 15, 2020
- Utilities as long as service began prior to February 15, 2020
The expenditures that will count towards forgiveness calculations will only be those “incurred and paid” during the 8-week period commencing on the date you received your loan proceeds. We expect further clarification from the SBA on the meaning of “incurred and paid” costs, as it pertains to when accrued expenses are paid.
We suggest that you consider placing the loan proceeds into a segregated account to better track expenditures and consider use of a fairly simple spreadsheet to track your expenditures by category.
No less than 75% of the loan proceeds that may be forgiven must be used for payroll costs. Additionally, there are other requirements as to forgiveness calculations dealing with staffing and pay requirements that may reduce that percentage.
As to staffing, reductions in the number of employees on the payroll will reduce the amount of payroll expenses that count towards forgiveness. You must determine the average number of full-time equivalent (FTE) employees for the following periods:
- A: The 8-week period commencing on the date you received your loan proceeds
- B: The period commencing 2/15/19 and ending 6/30/19
- C: The period commencing 1/1/20 and ending 2/29/20
Divide A by B and divide B by C. Which is greater, A/B or B/C?
If the greater of the two results exceeds 1.0, you have cleared this hurdle and there will be no reduction in Payroll Costs that count towards forgiveness for failure to meet the minimum staffing requirement. However, if the greater of the two results is less than 1.0, your forgivable Payroll Costs will be reduced accordingly unless you eliminate the reductions in FTE employees on or before June 30, 2020.
If you have not calculated and documented the number of FTE employees for the periods commencing 2/15/19 and ending 6/30/19, and commencing 1/1/20 and 2/29/20, it would be a very good idea to do so now. You will need to submit payroll records to support all FTE calculations, including payroll tax filings reported to the IRS, and state income, payroll and unemployment insurance filings. Unfortunately, the definition of FTE employees is not currently very precise, so additional guidance may shed more clarity on that topic as well.
Employees that received less than $100,000 in annualized pay in 2019 may not have their pay reduced by more than 25% during the 8-week period compared to the most recent quarter they were employed. As such, if the employee’s pay over the 8-week period is less than 75% of their pay during the most recent quarter they were employed, the forgiveness will be reduced by the difference between their current pay and 75% of the original pay, unless you reinstate any decreases in pay that exceed 25% on or before June 30, 2020.
Not more than 25% of the loan forgiveness amount may be attributable to eligible non-Payroll Costs (that is, Covered Mortgage Obligations, Covered Rent Obligations, and Covered Utility Payments). Non-Payroll Expenses eligible for forgiveness inclusion should be supported by copies of leases, mortgages, and utility statements, as well as evidence of payments made during the 8-week period. Accordingly, gathering and maintaining copies of those documents will be critical. There are some open questions that the SBA has not yet addressed including whether rent includes items typically referred to in leases as “additional rent,” such as common area maintenance charges, insurance, taxes, etc., or what, if any, restrictions may be in place for leases with related parties.
Forgiveness calculations for self-employed individuals differ somewhat. Self-employed individuals may use loan proceeds to replace only up to 8 weeks of 2019 net profit as reflected on their 2019 federal income tax returns. Non-payroll expenses eligible for forgiveness must be documented as set forth above but are also subject to the requirement that said expenses were claimed or were eligible to be claimed on 2019 Form Schedule C.
If they haven’t already been filed, it would be a very good idea to file 2019 federal income tax returns before the end of the 8-week period. In the case of self-employed individuals, federal income tax returns are considered mandatory to even start forgiveness calculations. In the case of other business entities, it is plausible that final guidance will require federal income tax returns for some verification purpose that has not been disclosed yet.
In order to obtain forgiveness, you will need to submit an application to us. We will provide guidance on obtaining and completing the application as soon as it becomes available. The application will include the calculations and documentation of the items discussed above as well as any other documentation that SBA may add in its final guidance. Accordingly, complete and accurate recordkeeping will be crucial. You will also be required to make certain certifications to the SBA including attesting that documentation submitted is true and correct, and that PPP loan proceeds were only used for allowable expenses. The exact form of application is likely to be addressed further in the final guidance.
The present guidance provides for us to make a decision within 60 days of receipt of the application for forgiveness. As with other things mentioned above, the final guidance may alter that in some way. We are also aware that final guidance may alter our current understanding of the approval process we will be undertaking.
Amounts not forgiven will continue to be subject to the terms set forth in the loan documentation you executed previously. Again, final guidance may alter this somewhat, though it should be reassuring to know that it would be difficult and highly unlikely that final guidance could alter any terms to your detriment.
If you have any questions or require additional information, please contact your Relationship Manager or Loan Officer. We encourage you to monitor your email inbox for additional communications from FNBC Bank & Trust as we will continue to provide you with updated information as it becomes available to us.