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Preparing for Paycheck Protection Program Loan Forgiveness

Community CARE Posted on April 27, 2020

Updated August 12, 2020 as the Forgiveness Period Approaches

As of August 10, the Small Business Administration began accepting forgiveness applications and our FI Forgiveness application portal will be available soon.

However, Congress is currently deliberating a bipartisan bill called the Paycheck Protection Small Business Forgiveness Act, that would allow small businesses who received a PPP loan of $150,000 or less to obtain full loan forgiveness upon submission of a one-page attestation form. The bill would also significantly streamline the forgiveness process for loans between $150,000 and $1,000,000.

In light of the potential for such a positive impact on our PPP customers, Carter Bank & Trust will not begin accepting PPP loan forgiveness applications until the proposed legislation (or a revised version) is signed into law, and/or final guidance is provided by the Small Business Administration.

If your business has an extenuating circumstance that requires your business to begin the forgiveness application process immediately, please contact your banker for further instruction.

Updated June 8, 2020 in response to the Paycheck Protection Program Flexibility Act

Businesses who applied for the Paycheck Protection Program will need to make sure they are able to prove their funds are being used in accordance with the guidelines for full forgiveness.

The Paycheck Protection Program (PPP) was created to provide temporary relief to your business, but to take full advantage of the forgiveness, you need to understand the rules and be ready to provide documentation on how you stayed within the guidelines. We’re here to help you do that.

Paycheck Protection Program Flexibility Act Provide Updates Guidelines

On June 5, 2020, Congress passed the Paycheck Protection Program Flexibility Act (PPPFA) to provide businesses with more flexibility to acquire full forgiveness of their loans. Because of the COVID-19 pandemic, businesses have not yet been able to return to normal operations, making it difficult for them to spend the loan money within the original 8-week guidelines. Revised guidelines are as follows:

  • No loans can be originated after June 30, 2020
  • 8-week period has been extended to December 31, 2020 (roughly 24 weeks)*
  • Requirement for percentage of funds used on payroll decreased from 75% to 60%
  • Requirement to restore number of employees extended from June 30 to December 31, 2020
  • Exceptions to employee restoration include inability to find qualified candidates or inability to return to the same level of businesses due to COVID-19 if properly documented
  • Social Security payments deferred through December 31, 2020
  • Principal and interest on unforgiven loan amounts deferred for 6 months
  • Repayment terms for unforgiven loan amounts extended from 2 years to 5 years

Paycheck Protection Program Guidelines 

This program is for companies and nonprofits with fewer than 500 workers and provides a 1% interest loan to cover two months of payroll and other expenses up to $10 million.

 As the PPP dictates, loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent and utility costs over through December 31, 2020 after the loan is made; and
  • Employee and compensation levels are maintained. 

Payroll costs are capped at $100,000 on an annualized basis for each employee. Additionally, not more than 40% of the forgiven amount may be for non-payroll costs.

Funds from your PPP loan can be used for the following purposes:

  • Payroll—salary, wage, vacation, parental, family, medical, or sick leave, health benefits
  • Mortgage interest—as long as the mortgage was signed before February 15, 2020
  • Rent—as long as the lease agreement was in effect before February 15, 2020
  • Utilities—as long as service began before February 15, 2020

If the borrower can prove that they used the money following those criteria over the eight weeks following the loan date, most of the money could be forgiven under the terms of the loan.

Given those terms, here is a game plan you can follow to prepare to quickly get the maximum forgiveness you deserve. You must begin preparing now for your loan forgiveness application.

How To Track Expenses for Forgiveness

 The following is a general breakdown of how you can begin this process.

Tracking Coverage

Eligible expenses are only those incurred during your 24-week period, which starts the date Carter Bank & Trust makes your first disbursement. It’s important to note that this may not be the date on which you signed the loan/promissory note.

Consider your payroll schedule. You may want to adjust the timing of your payroll date to accommodate as many payroll cycles as possible. This could mean distributing an extra round of payroll on an off-cycle week.

Considering the 60%/40% Rule

At least 60% of your PPP loan funds must be used for payroll costs, and no more than 40% of the funds can be used for non-payroll costs. Remember, although the following payroll costs are not eligible for loan forgiveness, you should still keep track of these:

  • Payments to independent contractors
  • Cash compensation in excess of $100,000
  • Employer’s share of federal payroll taxes
  • Qualified sick leave and qualified parental leave wages for which credit is allowed under the Families First Coronavirus Response Act (FFCRA)

Reviewing Your Staffing Requirements

To receive your highest loan forgiveness, you must maintain the number of employees on your payroll.

If you are self-employed, the guidelines are as follows:

  • 24-weeks of your 2019 net profit will be eligible for loan forgiveness
  • Mortgage interest, rent and/or utility expenses must have been claimed or are entitled to be claimed as a deduction on your 2019 Form 1040 Schedule C to qualify for loan forgiveness.

Keep a Thorough List of Documentation to Submit

Keeping a thorough, running list of all documentation will help you in submitting key information to Carter Bank & Trust for a complete loan forgiveness application. Items may include the following:

  • Documents verifying your number of Full-Time Employees on payroll and their pay rates for the periods used to verify you’ve met the staffing and pay requirements:
    • Payroll reports from your payroll provider
    • Payroll tax filings (Form 941)
    • Documents verifying any retirement and/or health insurance contributions
    • Income, payroll, and unemployment insurance filings from your State.
  • Documents verifying your eligible interest, rent, and/or utility payments including but not limited to:
    • Canceled checks
    • Payment receipts
    • Account statements
  • Documents verifying inability to return to normal levels of employment due to inability to hire similarly qualified employees
  • Documents verifying inability to return to normal levels of business due to COVID-19 restrictions

A successful forgiveness application is going to require good recordkeeping and bookkeeping in order to maximize your loan forgiveness amount.  Keep diligent track of all eligible expenses and their accompanying documentation for this period. As we near the forgiveness period, Carter Bank & Trust will be contacting you with additional information on how to submit your forgiveness application. It is recommended that you consult with your tax advisor, legal counsel, or a bookkeeping service to assist your business if necessary.

Any outstanding balance not forgiven will continue to accrue interest at 1% for the remainder of your 5-year loan term period.  Generally, there is no prepayment penalty and you can pay off that outstanding balance at any time with no additional fees.

For additional information, please refer to the U.S. Department of the Treasury’s “CARES Act Assistance for Small Businesses” webpage here:  Additional guidance is anticipated from the Treasury and the U.S. Small Business Administration in the coming weeks.

We’re Here to Help

The Carter CARES Task Force and the entire Carter Bank & Trust family is working diligently to provide continued updates and support to small businesses, individuals, and communities.

If you are in need or have questions about how we can help, please visit our COVID-19 Resource Center to explore more ways you can find relief during this difficult time.

*If loan was originated prior to June 4, 2020, businesses can choose to keep the 8 week period time frame

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