A Guide to Paycheck Protection Program (PPP) Loan Forgiveness
June 9, 2020
Wenatchee Business Journal
Adam Lervik, Lending Programs Manager at Peoples Bank
Wenatchee, WA -- May 20, 2020 -- The Paycheck Protection Program (PPP) launched by the Small Business Administration (SBA) has provided over $500 billion in loans to more than four million small businesses impacted by the coronavirus pandemic nationwide. In Washington, approximately $15 billion in PPP loans have been disbursed. Peoples Bank – like many banks – spent the past several weeks working overtime to process a large volume of loan applications. As of mid-May, we helped over 1,600 local businesses obtain $219 million in PPP loans, which will be used to protect over 20,000 jobs.
Businesses that received a PPP loan must now begin the process of obtaining loan forgiveness. We have received many questions on this topic and are implementing a streamlined system to help our borrowers initiate forgiveness requests. The SBA also recently released a Loan Forgiveness Application that helps clarify the process. Here are important points borrowers should keep in mind.
- 75% Payroll Requirement. The SBA confirmed that payroll expenses must be at least 75% of the amount requested for forgiveness.
- Expense Accounting. The SBA clarified that payroll costs paid and incurred are eligible for forgiveness. Payroll costs are considered paid on the date that paychecks are distributed, or the date the applicant business originates payroll direct deposit. Payroll costs are considered incurred on the date the employee’s pay is earned. Accrued, unpaid payroll expenses through the last day of the 8-week covered period are eligible for forgiveness if they are paid out on or before the next payroll date. Similarly, non-payroll expenses that accrue during the covered period are eligible if they are paid on or before the next regular billing date.
For purposes of calculating eligible payroll expenses, the SBA is allowing borrowers to utilize an “Alternative Payroll Covered Period.” To select this, the borrower must have a biweekly or more frequent payroll schedule. They may then elect an 8-week alternative covered period that begins on the first day of their first pay period following the PPP loan disbursement date.
- Salary/Wage or FTE Reductions. Applicants are asked to compare payroll expenses during the “Covered Period” or “Alternative Covered Period” to actual payroll expenses during the period from January 1, 2020 to March 31, 2020. Any reductions to employee pay of 25% or more may reduce the level of forgiveness.
Similarly, applicants must calculate average FTE during their chosen covered period and compare to average FTE between either the period from (i) February 15, 2019 to June 30, 2019 or (ii) January 1, 2020 to February 29, 2020. Seasonal employers may compare using either of those periods or any 12-week period between May 1, 2019 and September 15, 2019. No employee may be considered greater than 1.0 FTE for this calculation. Exceptions are granted where an employee (1) Rejected a good-faith offer to rehire or (2) Was terminated for cause, voluntarily resigned, or voluntarily requested and received a reduction of their hours during the covered period. Borrowers who restore FTE and salary/wage levels by June 30, 2020 are generally exempt from a reduction in forgiveness.
As a community bank, we are here for our customers and the communities we serve. This means doing all we can to be a resource for families and local businesses. We understand that everyone’s situation is unique, and we encourage anyone with questions or concerns to contact us for additional guidance. Please contact the Peoples Bank Wenatchee Financial Center at 509-667-8822 for more information about PPP, commercial, or real estate lending.
Please contact the Peoples Bank Wenatchee Financial Center at 509-667-8822 for more information about PPP, commercial, or real estate lending.
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