Many of ASA’s members obtained Paycheck Protection Program (PPP) Loans. The US Treasury Department has issued a loan forgiveness application, and even though it is likely too early to early to start applying today, you can still use this application as a guide to the sort of documentation you should be gathering and retaining in support of your PPP loan forgiveness application.
Your bank may ask you to complete a slightly different form – with additional information that the bank desires – but this appears to be the form that will have to be submitted on your behalf to the SBA to obtain loan forgiveness (which involves the SBA reimbursing your bank for the loan.
The application includes the following simple calculation mechanism:
Forgiveness Amount Calculation: Payroll and Nonpayroll Costs
Line 1.Payroll Costs (enter the amount from PPP Schedule A, line 10):_____________________
Line 2.Business Mortgage Interest Payments: ____________________
Line 3.Business Rent or Lease Payments:_____________________
Line 4.Business Utility Payments:_____________________Adjustments for Full-Time Equivalency (FTE) and Salary/Hourly Wage Reductions
Line 5.Total Salary/Hourly Wage Reduction (enter the amount from PPP Schedule A, line 3): _____________________
Line 6.Add the amounts on lines 1, 2, 3, and 4, then subtract the amount entered in line 5:_____________________
Line 7.FTE Reduction Quotient (enter the number from PPP Schedule A, line 13): _____________________Potential Forgiveness Amounts
Line 8.Modified Total (multiply line 6 by line 7):_____________________
Line 9.PPP Loan Amount:_____________________
Line 10.Payroll Cost 75% Requirement (divide line 1 by 0.75): _____________________Forgiveness Amount
Line 11.Forgiveness Amount (enter the smallest of lines 8, 9, and 10):_____________________
The referenced “PPP schedule A” is a worksheet that is included as part of the application form.
Part of the criteria for loan forgiveness include retaining headcount. The loan forgiveness is reduced by the percentage by which your headcount was reduced. Companies have until June 30 to rehire workers to satisfy the headcount conditions. But what if the workers do not want to come back? The worksheets and their supporting calculations include “safe harbors” for borrowers who have
- made a good-faith, written offer to rehire workers, if that offer was rejected;
- fired employees for cause
- had employees who voluntarily resigned or requested reduced hours
If you had any of these events occur and you did not refill the position, then you can still count these as full time equivalents for employee headcount purposes under the loan forgiveness application. If you did refill the position then you haven’t lost headcount in that position and there is no problem under the loan forgiveness-headcount rules!
You should plan on submitting certain documents in support of your loan forgiveness application:
- PPP Loan Forgiveness Calculation Form
- PPP Schedule A (from the application)
- Payroll documentation to verify the payments for the covered period
- Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
- Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
- Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state
- Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount
- Headcount: Documentation showing (your choice):
- the average number of full time equivalent (FTE) employees on payroll per month between February 15, 2019 and June 30, 2019;
- the average number of FTE employees on payroll per month between January 1, 2020 and February 29, 2020; or
- there are additional rules for seasonal employers.
- Nonpayroll: Documentation (1) verifying existence of the obligations/services prior to February 15, 2020 and (2) showing eligible payments from the Covered Period.
- Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.
- Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.
- Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.
You will want to keep copies of all of the submitted documentation, and all of the non-submitted supporting documentation, for at least six years after loan forgiveness. The terms of the loan forgiveness application state that all records relating to the Borrower’s PPP loan must be made available to authorized representatives of SBA, including representatives of its Office of Inspector General, upon request.