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PPP Loan Forgiveness Application Details

As PPP loan recipients start to take stock of how they’ve used funds over the eight-week period, many businesses are eager to move ahead with the forgiveness portion of the program. How much of the loan will be forgiven is determined by the Small Business Administration (“SBA”), as provided in the CARES Act.[1] Over the weekend, the Department of Treasury released details on the forgiveness application, which can be found here.

Fund Usage

If the PPP funds are used to make payments on (1) payroll costs, (2) interest on mortgage obligations, (3) rent/lease payments for real and personal property, and (4) utility payments, those funds will be forgiven. However, a borrower’s use of PPP funds may only be forgiven if payroll costs account for 75% or more of the payments. That means only 25% of the payments forgiven can be for used for interest on mortgage obligations, rent, and utility payments.

Note that this is the first time that rent/lease payments from personal property have been indicated under the PPP forgiveness program. 

Payroll Cost Details

Eligible payroll costs are considered paid on the date payroll checks are distributed. The payroll costs are considered “incurred” on the day the employee’s pay is earned. Payroll costs incurred but not paid during the borrower’s last pay period of the covered period are eligible for forgiveness if paid on or before the next regular payroll date. Recall that the covered period as specified in the CARES Act begins at the time of receipt of the PPP funds. This may cause difficulty for many borrowers that use bi-weekly (or more frequent) pay periods if the receipt of the loan proceeds didn’t line up with the first day of their specific pay period. Under the guidance indicated in the Forgiveness Application, borrowers may elect to use an Alternative Payroll Covered Period which would begin on the first day of the first pay period occurring after their receipt of the PPP loan funds.

The Other 25%

Payments on mortgage interest, rent, and utility payments must be paid or incurred during the covered period and paid by the next regular billing date (even if payments occur after the covered period).  Utility payments include electricity, gas, water, transportation, telephone, or internet access. 

Forgiveness Formula

Any amounts forgiven under the PPP will be considered “canceled indebtedness” by the SBA. Such canceled indebtedness will not be taxed by the federal government.

The amount forgiven cannot exceed the principal amount of the financing originally made from the SBA. Additionally, the amount forgiven will be decreased proportionately based on the reduction in the number of employees on a borrower’s payroll. This reduction will only occur if the borrower does not maintain the same number of employees the borrower listed in its’ application. There is, however, an exception: if a borrower lays off an employee, offers to rehire the employee, and the employee refuses, the reduction in the number of employees of borrower will not penalize the borrower for loan forgiveness purposes. Further, the amount forgiven will be decreased proportionately based on the reduction in the salary of employees on a borrower’s payroll, if that salary decrease is greater than 25% of employee’s original salary. 

Application & Forgiveness Approval Protocol

A borrower seeking loan forgiveness must submit a forgiveness application to its SBA lender. The lender’s application must include documentation that:

  • Verifies the number of full-time equivalent employees,
  • Includes pay rates (IRS payroll taxes, state income, payroll, and unemployment insurance filings),
  • Verifies payments on mortgage interest, rent, or utilities, and
  • Certifies the use of funds is true, correct, and complies with the CARES Act.

The verification of full-time equivalents may be calculated, at the election of the borrower, on either of the following time frames: 02/15/2019 – 06/30/2019 or 01/01/2020 – 02/29/2020. The verification of pay rates will be calculated by the employee’s most recent full quarter during which the employee was employed before the covered period. All of this documentation must be maintained for at least 6 years by the borrower.

The lender must issue the borrower a decision on the amount of the loan forgiven within 60 days after the borrower files the loan forgiveness application. All loans in excess of $2 million will be reviewed by the Department of Treasury when a loan forgiveness application is received.

[1] CARE Act Section 1106: Loan Forgiveness.

New NIL Opportunities for Student-Athletes Require Diligent Review

On June 28, 2021, Governor Mike DeWine signed Executive Order 2021-10D, “Establishing the Duties of Colleges and Universities as to Name, Image, and Likeness Compensation of Student-Athletes.” The Executive Order was motivated by the passage of similar name, image, and likeness (“NIL”) regulations in seventeen (17) other states; Ohio followed suit to avoid a significant competitive disadvantage in attracting student-athletes to the state.

Tax Savings Potentially on the Chopping Block under President Biden’s American Jobs Plan and American Families Plan

Recently, President Biden has proposed several tax law changes in his American Jobs Plan and American Families Plan. Outlined below, are a few of the tax savings that could be significantly changed or eliminated under Biden’s plans.

Here are the Final Candidates for Mayor of Cleveland

Earlier this year, current Cleveland Mayor, Frank Jackson, announced he would not run for re-election this fall. With no need to beat an incumbent, the Cleveland mayoral race suddenly became competitive. Thirteen individuals declared their intent to run for mayor. The City of Cleveland, however, has a difficult qualification requirement to run: 3,000 valid signatures from Cleveland residents. The deadline to file a petition to run, with the 3,000 valid signatures, had to be submitted by June 16 (yesterday).

What Happens to a Pandemic Stimulus Payment Upon Death?

On January 1, 2021, the federal government issued stimulus payments (also known as Economic Impact Payments) to American citizens – on paper. However, many of the stimulus payments were not received until several months later. Sometimes the stimulus payments did not arrive until after an individual died.

The Masks Are Back: New OSHA Regulations for Healthcare Employers

Employment Law After Hours is back with a News Break Episode. Yesterday, OSHA published new rules for healthcare facilities, including hospitals, home health employers, nursing homes, ambulance companies, and assisted living facilities. These new rules are very cumbersome, requiring mask wearing for all employees, even those that are vaccinated. The only exception is for fully vaccinated employees (2 weeks post final dose) who are in a "well-defined" area where there is no reasonable expectation that any person with suspected or confirmed COVID-19 will be present.