What you need to know about loan forgiveness as part of the Small Business Administration
(SBA) Paycheck Protection Program (PPP)*
The SBA issued interim final rules on the PPP on April 3, 2020 and updated the PPP Information Sheet for
Borrowers accordingly. The PPP allows small businesses to access unsecured loans to cover payroll,
insurance premiums, mortgage, rent, and utility costs to help retain their employees during the COVID-19
Bank Leumi is committed to supporting your needs throughout the SBA PPP process, and we now want to
ensure you have the tools you need to maximize your potential loan forgiveness for the program.
Based on the published guidance and interim final rules, it is important to consider the following factors in
determining the amount eligible for PPP loan forgiveness:
In order to be eligible for forgiveness, proceeds must be used on costs incurred and amounts paid within 8
weeks from the date of disbursement and must be used for authorized purposes (see more detail below);
No more than 25% of the proceeds will be forgiven for authorized non-payroll costs;
Loan forgiveness eligibility is dependent on maintaining employees and their corresponding salaries.
Consider restoring any reduced employees or salary levels by June 30, 2020;
Documentation to support the number of employees maintained, corresponding pay rates, and other
authorized expenses will be required to verify the eligible amount for loan forgiveness; and
Certification must be made that any supporting documentation provided to verify loan forgiveness eligibility
is accurate and that proceeds were used solely for authorized purposes.
The full text of the SBA PPP interim final rule can be accessed here.
The full text of the PPP Information Sheet for Borrowers can be accessed here.
Below are excerpts (edited for formatting only) from
- the PPP Information Sheet for Borrowers published by the Treasury, and
- the interim final rule (13 CFR 120) published by the SBA.
Excerpt from PPP Information Sheet for Borrowers
How much of my loan will be forgiven?
You will owe money when your loan is due if you use the loan amount for anything other than payroll costs,
mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high
subscription, it is anticipated that not more than 25%of the forgiven amount may be for non-payroll costs.
You will also owe money if you do not maintain your staff and payroll.
- Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee
- Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
- Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
How can I request loan forgiveness of my PPP loan?
You can submit a request to the lender that is servicing the loan. The request will include documents that verify
the number of full-time equivalent employees and pay rates, as well as the payments on an eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days.
Excerpt from Interim Final Rule (13 CFR 120)
Can my PPP loan be forgiven in whole or in part?
Yes. The amount of loan forgiveness can be up to the full principal amount of the loan and any accrued interest. That is, the borrower will not be responsible for any loan payment if the borrower uses all of the loan proceeds for forgivable purposes described below and employee and compensation levels are maintained.
The actual amount of loan forgiveness will depend, in part, on the total amount of payroll costs, payments of interest on mortgage obligations incurred before February 15, 2020, rent payments on leases dated before February 15, 2020, and utility payments under service agreements dated before February 15, 2020, over the eight-week period following the date of the loan. However, not more than 25 percent of the loan forgiveness
amount may be attributable to non-payroll costs.
While the Act provides that borrowers are eligible for forgiveness in an amount equal to the sum of payroll costs
and any payments of mortgage interest, rent, and utilities, the Administrator has determined that the non-payroll
portion of the forgivable loan amount should be limited to effectuate the core purpose of the statute and ensure finite program resources are devoted primarily to payroll. The Administrator has determined in consultation with the Secretary that 75 percent is an appropriate percentage in light of the Act’s overarching focus on keeping
workers paid and employed. Further, the Administrator and the Secretary believe that applying this threshold to loan forgiveness is consistent with the structure of the Act, which provides a loan amount 75 percent of which is equivalent to eight weeks of payroll (8 weeks / 2.5 months = 56 days / 76 days = 74 percent rounded up to 75 percent). Limiting non-payroll costs to 25 percent of the forgiveness amount will align these elements of the
program, and will also help to ensure that the finite appropriations available for PPP loan forgiveness are directed toward payroll protection. SBA will issue additional guidance on loan forgiveness.
Do independent contractors count as employees for purposes of PPP loan forgiveness?
No, independent contractors have the ability to apply for a PPP loan on their own so they do not count for purposes of a borrower’s PPP loan forgiveness.
How can PPP loans be used?
The proceeds of a PPP loan are to be used for:
- payroll costs (as defined in the Act) – You can find what qualifies as “payroll costs” in the “SBA PPP Final Rules” document Bank Leumi provided in early April );
- costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums;
- mortgage interest payments (but not mortgage prepayments or principal payments);
- rent payments;
- utility payments;
- interest payments on any other debt obligations that were incurred before February 15, 2020; and/or
- refinancing an SBA EIDL loan made between January 31, 2020 and April 3, 2020. If you received an SBA EIDL loan from January 31, 2020 through April 3, 2020, you can apply for a PPP loan. If your EIDL loan was not used for payroll costs, it does not affect your eligibility for a PPP loan. If your EIDL loan was used for payroll costs, your PPP loan must be used to refinance your EIDL loan. Proceeds from any advance up to $10,000 on the EIDL loan will be deducted from the loan forgiveness amount on the PPP loan.
However, at least 75 percent of the PPP loan proceeds shall be used for payroll costs.
For purposes of determining the percentage of use of proceeds for payroll costs, the amount of any EIDL refinanced will be
For purposes of loan forgiveness, however, the borrower will have to document the proceeds used for payroll costs in order to determine the amount of forgiveness.
While the Act provides that PPP loan proceeds may be used for the purposes listed above and for other
allowable uses described in section 7(a) of the Small Business Act (15 U.S.C. 636(a)), the Administrator
believes that finite appropriations and the structure of the Act warrant a requirement that borrowers use a
substantial portion of the loan proceeds for payroll costs, consistent with Congress’ overarching goal of keeping workers paid and employed. As with the similar limitation on the forgiveness amount explained earlier,
the Administrator, in consultation with the Secretary, has determined that 75 percent is an appropriate percentage that will align this element of the program with the loan amount, 75 percent of which is equivalent
to eight weeks of payroll. This limitation on use of the loan funds will help to ensure that the finite appropriations available for these loans are directed toward payroll protection, as each loan that is issued
depletes the appropriation, regardless of whether portions of the loan are later forgiven.
What happens if PPP loan funds are misused?
If you use PPP funds for unauthorized purposes, SBA will direct you to repay those amounts.
If you knowingly use the funds for unauthorized purposes, you will be subject to additional liability such as charges for fraud. If one of your shareholders, members, or partners uses PPP funds for unauthorized
purposes, SBA will have recourse against the shareholder, member, or partner for the unauthorized use.
*This communication is for informational purposes only and is not legal advice. Please contact your legal
counsel for information related to how the SBA PPP impacts your business specifically.