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Looking ahead to PPP loan forgiveness

05.04.20
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With more than one million loans approved under the Paycheck Protection Program (PPP) so far, many loan recipients are now looking ahead to the next phase of the program: loan forgiveness.

The PPP features a loan forgiveness provision for businesses who meet a set of guidelines outlined by both the U.S. Department of Treasury and the Small Business Administration (SBA). If you’ve received funding on your PPP loan, you are likely already looking for answers to questions about loan forgiveness.

How can I request loan forgiveness?

The forgiveness process is not yet defined, as banks across the country are awaiting further guidance from the SBA. Initial guidance states you will work with your PPP lender on the forgiveness process. If that bank is Bremer, we will reach out to our customers directly once we have further guidance to act on.

What records or documentation should I be keeping?

You can start preparing for your forgiveness request by collecting clear, accurate documentation for all your business expenses in the eight weeks immediately following funding of your PPP loan. 

Start with your payroll records

With its heavy focus on payroll, it’s critical to maintain accurate and detailed payroll records for your forgiveness request. Be sure to collect payroll records such as:

  • Payroll tax filings reported to the IRS
  • Payroll summary reports reflecting FTE headcount numbers and individual salary wages for the eight-week period beginning with the funding of your PPP loan
  • State income and unemployment insurance filings

Document every transaction involving your PPP funds

You should also document and organize every transaction you use PPP funds for, including expense records for utilities, rent payments and mortgage interest. We recommend saving payment receipts, invoice or billing statements and bank statements to show these expenses.

Go digital with your records

For purposes of both efficiency and contactless delivery, you may want to store your records in digital format. Start taking the time now to scan copies of receipts and other paper documents. Be sure to save them in an organized system for easy retrieval when needed, and to create backup versions too.

 A note for sole proprietors and self-employed individuals

If you are a sole proprietor of your business or a self-employed individual, you may potentially have eight weeks of the loan forgiven as a replacement for lost income. However, the SBA has not provided clarity on how you should report your cash flow and payments spent on mortgage interest or lease, and utilities. For further guidance, speak to your PPP banker.

How should I be managing payroll?

You can make some strategic moves with your payroll decisions to better meet the forgiveness provisions laid out in PPP. Some basic guidelines from the federal government include:

  • Proportion of expenses: At least 75% of your loan must be used for payroll costs (payments to independent contractors are not eligible for loan forgiveness), and not more than 25% of the loan proceeds for rent or mortgage interest payments and utilities.
  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount. So, if you have recently furloughed or laid off employees, rehiring and reinstating their pay can increase your loan forgiveness.

Additional guidance from the SBA may be issued around payroll levels and re-hiring, so be sure to follow any updates published to sba.gov

Keep in close contact with your banker

The PPP is an evolving program, and the federal government is likely to issue new or revised guidance around loan forgiveness in the coming weeks. Your bank will be a crucial resource in navigating the forgiveness process as details emerge.

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