PREPARING FOR PPP LOAN FORGIVENESS
You have a PPP Loan. What comes next?
The Paycheck Protection Program has provided relief for businesses across the nation that have been impacted by the COVID-19 pandemic. The program provides funds from the government through Small Business Administration (SBA) lenders, and if the funds are used in a particular time frame and for certain expenses, some or all of the loan may be forgiven. Forgiveness simply means the loan proceeds that you received do not have to be paid back. Below, we've outlined some of the steps you should be taking now to ensure that you're ready to apply for forgiveness.
1. Verify eligible expenses
To qualify for loan forgiveness, PPP funds must be used for the following expenses, and they must have been billed or incurred in the 8-week or 24-week period (the "covered period") from the date you received your loan funds (disbursement date):
- At least 60% of the funds must be spent on payroll costs, including employee benefits
- No more than 40% of the funds can be spent on:
- Interest on mortgage obligations, where the mortgage obligations originated before February 15, 2020
- Rent, under lease agreements in force before February 15, 2020
- Certain utilities, for which service began before February 15, 2020
2. Understand potential missteps
You'll owe money when your loan is due if you use the loan proceeds for anything other than payroll costs, mortgage interest, rent, and utilities payments over the covered period or alternative covered period. Payroll costs must represent at least 60% of the forgiveness amount.
You may also owe money - and your loan forgiveness may be reduced - if you do not maintain your staff and payroll, such as:
- If you decrease your full-time employee headcount.
- If you decrease salaries or wages by more than 25% for any employee who made $100,000 or less (annualized) in 2019.
You might avoid a reduction in forgiveness if:
- You restore your full-time employment and salary levels by December 31, 2020.
- You can document an inability to return to your standard level of business activity due to compliance with COVID-19 requirements or guidance issued by the Centers for Disease Control (CDC) or other specific federal entities.
If you were unable to restore full-time employment and salary levels by December 31, 2020 you may also be able to avoid a reduction in forgiveness if you have documentation showing that:
- You offered to restore employee hours and the employee(s) refused.
- You made a good-faith, written offer to rehire furloughed or fired workers who were employed on February 15, 2020, and the employee(s) rejected your offer.
- You were unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
- Employees voluntarily resigned, requested reduced hours or were fired for cause.
3. Gather documentation
Documentation requirements are subject to change, but your business will likely need to submit documentation to:
- Verify the number of employees on your payroll and their pay rates.
- Record expenses, including collecting cancelled checks, payment receipts, transcripts of accounts, and documents verifying payments for mortgage, lease, and utilities.
4. Apply for loan forgiveness
First Bank of Montana is developing a streamlined version of the forgiveness application. Once we are prepared to accept your application for loan forgiveness, we will contact you. You will be able to complete your application for forgiveness and submit the required documentation directly to us from your home or office. If you have any questions regarding the forgiveness application process, please reach out to your local lender.
5. Understand the time frame for loan forgiveness
Once you submit your application, First Bank of Montana will review it within 60 days; you will hear from us during that time if we have any questions. We will then submit your application to the SBA, who has 90 days to review and respond to us. We will contact you as soon as we hear from the SBA regarding your loan.
6. Manage funds that aren't forgiven
First Bank of Montana will notify you if and when the SBA determines the amount of loan forgiveness. More information will be forthcoming from the SBA on this process. The remainder of the PPP funds that aren't forgiven will become a loan with an interest rate of 1%. As long and you submit your forgiveness application within 10 months of the end of your covered period, your principal and interest payments may be deferred until the forgiveness amount is finalized. Any amount of the loan that is not forgiven must be repaid at a 1% interest rate over two years (or five years for loans originated after June 5, 2020). If a mutual agreement is reached by First Bank of Montana and the borrower, loans with a term of two years may be extended to a term of five years. There are no prepayment penalties.
A note on EIDL grant recipients
If you received a grant up to $10,000 from the Economic Injury Disaster Loan (EIDL) program, these proceeds will be deducted from your PPP forgiveness amount. For example, if you have a $10,000 EIDL grant and a $100,000 PPP loan in which you qualify for 100% forgiveness, then your forgiveness amount will be $90,000, and you will then be required to pay off the $10,000 remaining over the term of the loan.
Have more questions regarding loan forgiveness?
See our PPP Loan Forgiveness FAQs