PPP Loan Forgiveness Update


Last Friday, the Small Business Administration released its standard application for the PPP loan forgiveness which can be found here. We have spent the past several days analyzing the application and instructions to understand both the new answers these bring as well as the new questions they bring.


Must I spend 75% of the loan proceeds on payroll costs?

No. What was once thought of as a “cliff” is no longer the case. You are not required to meet a 75% spending threshold of your total loan proceeds to comply with the loan provisions. There may be some portion of the loan not forgiven as a result, however. Also, your authorized nonpayroll costs cannot exceed 25% of your loan forgiveness; so, your qualified nonpayroll costs may be limited as well.


Was there any clarity on what is defined as mortgage interest?

Yes. This now applies to interest expenses tied to real property and personal property, meaning the building you are in and the equipment that was purchased with a loan. The interest expenses paid during these 8 weeks is now eligible to be included as a nonpayroll cost.


Any updates on what constitutes as a rental expense for the purposes of PPP forgiveness?

Yes. This not only includes the physical space that you are renting, but any equipment rental/lease payments that you make are eligible expenses.


If I have money left over (not forgiven), what does that mean?

The amount not forgiven will become a 2-year loan with a 1% interest rate and a 6-month deferment of loan payments from the date the funds were disbursed to you.


I received money from the EIDL program. Does that change anything for the PPP forgiveness?

Yes. Any amount you received from the EIDL advance will reduce your PPP forgiveness amount dollar for dollar.


Was there any change on when my 8-week period starts?

Yes. The instructions provided an “Alternative Payroll Covered Period” for payroll expenses only. You can choose to count payroll expenses starting with the first day of the first payroll period after receiving the PPP loan. So, if you received the loan on April 22nd, and the first day of the next payroll period is April 26th, you can count payroll expenses starting with April 26th. Furthermore, if the last payroll ends on the last day of the eight-week period, you can still count the payroll expense even if paid a few days later. Simply said, you should be able to get 8 weeks of payroll in, even if your timing is not perfect with your disbursement date.


What counts as related retirement plan expenses?

No more guidance was made available on this. The safest approach is to compute the retirement plan contributions based on the wages paid during the 8-week period and pay it during the 8-week period. We will assist with these calculations.


Once I rehire employees, how much should I be paying them? I heard that I must restore their pay. What does that mean?

If employees’ hourly/salary pay rate was dropped (potentially due to decreased job responsibilities), you must at least restore their pay to their calculated hourly pay pre-Covid 19 by June 30th to avoid a decrease in the forgiveness amount.


When do I need to rehire employees by?

To avoid a reduction in your FTE count, you have until June 30th to bring your FTE count back up to pre-Covid 19 levels.


What is considered an FTE (Full Time Equivalent)?

The instructions define this as 40 hours per week. For an employee working 40 hours or more a week, they are 1.0 FTE. You have an option for how to calculate employees below 40 hours a week. You can either calculate their average weekly hours rounded to the tenth of an hour, or you can assign them as 0.5 FTE. You must choose the same approach for all employees. PBM automatically calculates both ways and uses the best result. Good news is that this will be the same on the baseline period and the covered period, in theory, it shouldn’t matter that much. It could matter if you were paying someone for 40 hours a week in baseline and now you paid them for 30, thinking it would be equivalent.  It isn’t.


My FTE number has dropped because I have employees refusing to come back, or because I terminated an employee, they voluntarily resigned, or voluntarily reduced their hours. Will this affect my forgiveness?

Not necessarily. If an employee is refusing to come back, you must show proof that you extended a job offer to them and they are refusing. Best if you have it in writing, such as an email exchange. You can claim an exemption for this FTE reduction. You will also not be penalized for a reduction in FTE’s if you have terminated an employee for cause, or if the employee voluntarily resigned or voluntarily reduced their hours if this position is not refiled.


If you have employees that are refusing to come back to work, you should file a notice with your state unemployment agency

Illinois-Illinois-Refusal of Work Reporting Form.pdf

Indiana-Indiana-Notice of Work Recall Refusal.pdf


How can get PBM help with all of this?

PBM has pushed out two questionnaires pertaining to the various stimulus programs which many of you have already answered. If you have not done so already, please complete both so we know to dedicate resources to your practice in the coming weeks and months.




Disclaimer: The information contained within this communication represents our best understanding of the rules and regulations as of the time of writing. PBM may make updates to the contents of this communication to incorporate future changes. These resources are not a substitute for the original authoritative guidance. This communication is provided with the understanding that PBM is not engaged in rendering legal services. All such information is provided without warranty of any kind. Readers are encouraged to have any advice herein reviewed by their own legal counsel for suitability to their particular circumstances.

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