PPP Loan Forgiveness
SBA Paycheck Protection Program Loan Forgiveness Information
Questions? Ask away.
We remain focused on providing our borrowers the best service possible, and we appreciate the trust you place in us. Please continue to visit this page often for updates regarding PPP forgiveness. We will continue to monitor all proposed legislation in Congress that could significantly impact the forgiveness process for borrowers, and will keep you informed of any changes that could impact you.
Updates to the Paycheck Protection Program
The Small Business Administration (SBA) recently released new forgiveness guidance and new application forms. The new process removes the requirement for supporting documentation for loans of $150,000 or less, with a revised and streamlined Form 3508S. Borrowers may also benefit from the expansion of covered operations expenses to include certain property damage costs, supplier costs, and worker protection expenses as eligible for forgiveness.
Capital Financial Inc has paused its acceptance of new forgiveness applications until the SBA’s systems are able to accept the new forms and apply the new guidance. We will continue to process applications for borrowers who have already applied.
We cannot guarantee we will complete the processing of existing applications and the submission of these to the SBA prior to the cut off date for the use previous application forms. If this occurs with your existing application, we will contact you via email so that you can convert your previously submitted application to the new forms and guidance. You will be able to confirm and update your existing application information and select the appropriate form to apply for forgiveness.
In March, when the SBA is ready to accept new applications, we will notify you by email to apply through our self-service PPP Forgiveness Platform. Until then, please refer to the SBA website for information on the updated forms:
PPP Forgiveness Process Overview
We know you may be eager to begin the forgiveness process. But first, it’s important to determine whether you’re eligible to apply and whether now is the right time. Please consult your CPA or accountant, and/or legal professionals, for assistance.
Please note, should you choose not to apply for loan forgiveness before the deferral period ends, you will be required to make principal and interest payments on your loan per your loan agreement. You may pay your PPP loan off in full without penalty at any time.
- Loan Forgiveness Preparedness
Learn about what you should consider prior to applying for forgiveness and the documentation you may need to prepare.
Quick Tips To Consider Before You File
Owner-Employees
In many cases, owner-employees are not providing evidence of their 2019 compensation. If you are an owner that is also an employee, please provide your W-2 and/or your K-1s for this period.
Utility Expense Evidence
Many applications have missing or incorrect utility expense baseline evidence. We need your February 2020 utility bill to prove the existence of the service prior to 02/15/2020. The invoice must be in the business’s name. If not, please offer an explanation at the end of the online section.
Missing Evidence
Borrowers must provide non-cash payroll expenses such as health care and retirement benefits or utility expense support. Both the evidence of the expense AND proof of payment, such as a bank statement or canceled checks, must be provided.
Cash Compensation Support
Many forgiveness applications are missing cash compensation payment evidence (e.g., wages, salaries, incentives). Both proof of the expense (payroll schedule and 941s, if possible) AND proof of payment (e.g., bank statement or canceled checks) must be provided.
Mortgage/Rent Evidence
Make sure to provide the rental agreement, lease, or mortgage in the name of the business, dba, or owner that you are filing for and dated prior to 2/15/2020. If not available, please provide an explanation. Also, ensure that if you have multiple companies that share the same property, each is allocated the appropriate pro-rata share of the expense.
100% Payroll
If you have opted for the 24-week Covered Period, you do not need to wait until the end of the period to apply for forgiveness. You can file once you have used your PPP loan proceeds. Further, you may qualify for full forgiveness solely using payroll expenses. If you qualify for full forgiveness solely using payroll, there is no need to include utilities or interest expense. In fact, this option is almost preferred by the SBA, as it was their original intention to support payroll for businesses. Payments to a third-party payroll processor are also acceptable.
Quick Links and Resources
Getting Started Guide
This guide will walk you through everything you need to know to get started with your PPP Forgiveness application.
PPP Document Checklist
Completing this Excel Document Checklist is highly recommended for all; particularly those with loan amounts over $150,000 or those complex applications such as borrowers with affiliates, multiple payroll reports, businesses that are claiming forgiveness expenses on multiple properties.
Frequently Asked Questions
FAQs are subject to change as more guidance becomes available.
PPP Live Presentations and Tutorials.
Keep your business going with these quick PPP Forgiveness insights and tips.
Loan Necessity Questionnaire
(Non-profit)
Loan Necessity Questionnaire
(For-profit)
Frequently Asked Questions
FAQs are subject to change as more guidance becomes available.
Yes. The SBA has stated that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.
The PPPFA provides the borrower with greater flexibility to obtain maximum forgiveness. Before and after changes can be seen in this table:
| Item | Before (PPP) | After (PPPFA) |
|---|---|---|
| Payroll | 75% of PPP must be spent on payroll | 60% of PPP must be spent on payroll |
| Time Period to use funds (Covered Period) | 8 weeks | 8 or 24 weeks
• Borrowers must choose either period but must maintain staffing and salary levels for whatever period they choose. Once the Covered Period has ended, borrowers can run their business without impact to the Forgiveness amount. |
| Rehire Requirements (for salary to count toward requirements) | Workers must be rehired by June 30, 2020 | Workers must be rehired by December 31, 2020
Exceptions: • Unable to rehire individual who was an employee on or before 2/15/2020 • Able to demonstrate inability to hire similarly qualified employees on or before 12/31/2020 • Able to demonstrate inability to return to same level of business activity as before 2/15/2020 |
| Repayment Term | 2 years (at 1% interest) | 2 or 5 years (at 1% interest)
• PPPFA Loans made after June 5, 2020, will have a 5-year maturity. • The unforgiven amount from a loan done before June 5, 2020, can be changed from 2 to 5-year maturity with Capital Financial Inc approval. |
| Deferment of payroll taxes | No deferment of taxes on forgivable portion of the loan | PPPFA allows borrowers to defer the employer portion of payroll taxes until December 21, 2020. |
| SBA loan audits | SBA can audit any loan at their discretion | No change |
| Maximum loan amount | 2.5x borrower’s 1-month average payroll cost | No change |
| Number of PPP loans | One PPP loan per borrower | No change |
| Salary calculation for loan forgiveness | Payroll calculator in the loan application | No change |
Yes. As long as a borrower pays eligible expenses on the next regular billing date, these non-payroll expenses (utilities, rent, mortgage interest) can be claimed for forgiveness, prorated to the end of the Covered Period.
You are entitled to use the PPP loan to replace lost compensation due to the impacts of COVID-19. However, you are not entitled to use the full amount to replace pay. Eight weeks’ worth of your 2019 net profit will be eligible for forgiveness.
If you have mortgage interest, rent, or utility expenses, you must have claimed or be entitled to claim a deduction for those expenses on your 2019 Form 1040 Schedule C in order to claim them for forgiveness.
For example, if you worked in an office space in 2019 and did not have a home office, you could not have claimed a deduction on your home mortgage interest. Even if you are currently working at home now, you are not eligible to claim home mortgage interest payments for forgiveness.
If you have mortgage interest, rent, or utility expenses, you must have claimed or be entitled to claim a deduction for those expenses on your 2019 Form 1040 Schedule C in order to claim them for forgiveness.
For example, if you worked in an office space in 2019 and did not have a home office, you could not have claimed a deduction on your home mortgage interest. Even if you are currently working at home now, you are not eligible to claim home mortgage interest payments for forgiveness.
For purposes of loan eligibility, the CARES Act defines the term employee to include “individuals employed on a full-time, part-time, or other basis.” Borrowers must, therefore, calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees.
By contrast, for purposes of loan forgiveness, PPP uses the standard of “full-time equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.
By contrast, for purposes of loan forgiveness, PPP uses the standard of “full-time equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.
Your net profit that was reported on your Form 1040 Schedule C is multiplied by 8/52.
No, prepayment of principal is not an allowed use of the PPP and is not eligible for forgiveness.
Any interest paid on a mortgage on a property used for business purposes is an eligible expense that the PPP can be used for and qualifies for forgiveness.
Acceptable examples include Interest on a loan to finance the real estate for your primary place of business; auto loan interest on a car you own to make business deliveries; or, mortgage interest on a warehouse you own to store inventory.
Acceptable examples include Interest on a loan to finance the real estate for your primary place of business; auto loan interest on a car you own to make business deliveries; or, mortgage interest on a warehouse you own to store inventory.
Check with your accounting professionals, but accounting standards clearly say that you only derecognize debt when you are legally released from the obligation. Based on this guidance, generally accepted accounting principles (GAAP) do not allow recording this income until you have received documentation from Capital Financial Inc that the loan is forgiven. At that point, you would debit the loan account for the amount forgiven and credit an income account for that same amount.
Any loan principal not forgiven will carry an interest rate at 1% for the two-year standard maturity (which could be eligible for an extension to five years) for loans made prior to June 5, 2020, and for the five-year period for any loans made after June 5, 2020. Please keep in mind that no payments are due until after the Deferral Period which starts after a forgiven decision is rendered by the SBA.
Borrowers that can EITHER rehire their workforce or hire and replace those workers AND maintain at least 75% of the same level of compensation as payroll calculation Option 1 or Option 2 as outlined above, can be eligible for forgiveness.
No. Under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and the same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
No. Unfortunately, if you took a PPP loan you are no longer eligible for employee retention tax credit which is up to $5,000 per employee to be received on your quarterly 941 tax form. If you still want to maintain those credits, consult with your financial professionals, and consider repaying the PPP loan immediately. For more information, go here: https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-overview
In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
This is a good question to check with your tax professional as it gets complicated. The IRS recently issued Notice 2020-32, which clarified that no deduction is allowed under the Internal Revenue Code (Code) for PPP loan expenses if the payment of those expenses results in forgiveness of the PPP loan, and that forgiven amount is excluded from gross income via section 1106(i) of the CARES Act. Section 1106(i) of the CARES Act excludes the PPP loan forgiveness amount from gross income, even though it would ordinarily be characterized as “cancellation of indebtedness income” (CODI).
Typically, sections 162 and 163(a) of the Code would allow for deductions for expenses paid related to (1) payroll costs, (2) any payment of interest on any covered mortgage obligation, (3) any payment on any covered rent obligation, and (4) any covered utility payment. Here, absent any further clarification, the IRS has stated they will rely on section 265(a)(1) and the applicable regulations to disallow any otherwise allowable deduction under the Code for the amount of any payment of an eligible PPP expense to the extent of the resulting covered loan forgiveness (up to the aggregate amount forgiven) because such payment is allocable to tax-exempt income. In other words, the IRS is trying to prevent a double tax benefit, i.e., receiving a deduction for spending loan proceeds that are eventually forgiven and excluded from gross income.
Typically, sections 162 and 163(a) of the Code would allow for deductions for expenses paid related to (1) payroll costs, (2) any payment of interest on any covered mortgage obligation, (3) any payment on any covered rent obligation, and (4) any covered utility payment. Here, absent any further clarification, the IRS has stated they will rely on section 265(a)(1) and the applicable regulations to disallow any otherwise allowable deduction under the Code for the amount of any payment of an eligible PPP expense to the extent of the resulting covered loan forgiveness (up to the aggregate amount forgiven) because such payment is allocable to tax-exempt income. In other words, the IRS is trying to prevent a double tax benefit, i.e., receiving a deduction for spending loan proceeds that are eventually forgiven and excluded from gross income.
No. Check with your tax professionals but per the SBA, any expenses that a borrower claims for forgiveness under the PPP cannot then be deducted from the borrower’s business expenses. A forgivable PPP loan is already tax-free, so the IRS wants to prevent “double-dipping” (i.e, benefiting from both the IRS and SBA).
This depends on the timing of the EIDL loan. The answer is no when the EIDL loan was received prior to January 31, 2020, or after April 3, 2020. You may use the proceed from a PPP loan to payoff your EIDL loan if you received the EIDL loan between January 31st and April 3rd of 2020 AND you used the EIDL loan for purposes other than payroll costs. You MUST payoff your EIDL loan from PPP proceeds where you received your EIDL loan between January 31st and April 3rd of 2020 AND you used the EIDL proceeds to pay payroll costs. Please note that the amount of the EIDL loan to be refinanced does not include the amount of any EIDL “Advance” (also referred to as an EIDL “grant”) received by the PPP Borrower, because the EIDL advance does not need to be repaid. To payoff your EIDL loan, you can go here: https://pay.gov/public/form/start/3723407 and for more specific information you can call the SBA’s EIDL hotline at 800-736-6048.
IMPORTANT LEGAL DISCLOSURES AND INFORMATION
The information provided does not and is not intended to, constitute legal advice. All information is for informational purposes only, is subject to change, and may not constitute the most up-to-date information. You should contact your legal advisor to obtain advice with respect to any particular legal matter, and you should not act or refrain from acting on the basis of information contained herein without first seeking advice from your attorney. All liability with respect to actions taken or not taken based on the information contained herein is expressly disclaimed.
Have Additional Questions?
Should you need further assistance, please contact your Capital Financial Inc Relationship Manager.