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WHAT TO KNOW ABOUT PPP FORGIVENESS

A guide to the forgiveness application process.

GUIDANCE ON PPP LOAN FORGIVENESS

We want to provide helpful tips as you navigate the PPP Forgiveness process. Since First Midwest started accepting Forgiveness Applications on July 7, 2020, we have received numerous questions, primarily around the four topics below. (Updated as of 9/18/2020)

The Paycheck Protection Flexibility Act was signed into law on June 5. On June 16, borrowers got the option of choosing between two applications, depending on their situation. The new EZ Forgiveness Application is a simpler option for borrowers that qualify.

Important PPP Foregiveness Topics

Clarity on Dates and Expenses

A loan forgiveness application must be submitted within 10 months of the completion of the Covered Period. An applicant may select a Covered Period up to 24 weeks after the funded date in order to maximize their potential forgiveness.

  • All non-payroll costs must be incurred or paid during the Covered Period.
  • Payroll and non-payroll expenses are eligible for forgiveness if:
    • Incurred prior to the Covered Period but paid during the selected Covered Period (up to 24 weeks from funded date); or
    • Incurred during the Covered Period and paid on or before the next payroll or billing cycle
  • December 31, 2020 payroll cost extension: An applicant may apply payroll costs to their forgiveness up to, but not after, December 31, 2020 to maximize forgiveness. This extension does not apply to non-payroll expenses.
Ownership Compensation Caps

If you are an owner of a C Corp, an S Corp, or a partnership, please note that there are additional rules and exceptions. You can find more information on the SBA’s August 11th update on page #4. Click here to access this page from the SBA website.

Seasonal Employment

If a seasonal employer elected to use a 12-week period between May 1, 2019 and September 15, 2019 to calculate the loan amount, the same 12-week period must be used for the forgiveness calculation.

Employees Making Over $100,000

Total cash compensation, which includes compensation, tips, commissions, bonuses and hazard pay, is limited to $100,000 per employee on an annualized basis. However, the gross payroll amount continues to be what is used for the forgiveness calculation, rather than cash compensation.

PPP LOAN FORGIVENESS APPLICATIONS

“EZ” Version of the Forgiveness Application

Borrowers qualify for this option if they:

  • Are self-employed and have no employees; OR
  • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

View the EZ Forgiveness Application (Form 3508EZ)

Full Version of the Forgiveness Application
  • Borrowers that do not meet the above criteria must apply via the full forgiveness application.
  • View the Full Forgiveness Application (Form 3508)

Paycheck Protection Flexibility Act of 2020

Key Improvements of the Law Signed on June 5

The Paycheck Protection Flexibility Act of 2020 was signed into law on June 5, dramatically improving several critical forgiveness terms of the PPP. The key improvements:

  • Extends the 8-week forgiveness period to 24 weeks, permitting any borrower to use the extended time-frame or the original 8-week period.
  • Changes the 75%-25% breakdown of payroll to non-payroll expenses to 60%-40%. A minimum of 60% of the loan proceeds must be used for payroll to be eligible for full forgiveness.
  • Extends the loan maturity to 5 years for all loans funded June 5th and beyond. Any pre-existing loans may amend the note to reflect new maturity terms if lender and borrower mutually agree.
  • Extends the loan forgiveness period from June 30, 2020 to December 31, 2020.
  • Does not impact forgiveness application.
  • The deferral period of the loan is pegged to date the forgiveness application is submitted to the lender or 10 months after the end of the 24-week covered period.
  • Expands safe harbor rules for rehiring employees by allowing for a reduction in employees if borrower is able to document:
    • Inability to rehire employees
    • Inability to hire similarly qualified employees
    • Lack of return to same level of business activity as existed at or before February 15, 2020

 

IMPORTANT INFORMATION ABOUT PPP APPLICATIONS

This summary information is not a substitute for the detailed review and analysis required to complete the forgiveness application process. The SBA continues to issue guidance and clarifications regarding the PPP and loan forgiveness process and we will continue to update you with new developments as they become known.

First Midwest Bank does not provide tax, legal, or accounting advice to our bank clients or borrowers for the SBA PPP. Please consult with your tax, legal and accounting advisors. As the borrower under the program, it is your obligation to understand the SBA’s rules on eligibility and the documentation requirements associated with your loan.

SBA PPP FAQs

Application Information and Options for Our Clients

  • When can I apply?

    First Midwest is now accepting PPP forgiveness applications in waves based on when you received your PPP funds. We emailed you the date you can expect to begin your application. You will also receive an email from First Midwest prior to your window opening with instructions on how to fill out the application. It is recommended to use this email when you begin the forgiveness process.

  • How do I apply?

    We will send you an email with an application link the day you are able to apply for forgiveness through First Midwest. Forgiveness is only available via this link online, the same portal you used while applying for the PPP loan originally.

  • FULL APPLICATION

    If you do not meet the criteria for the EZ Application, you must apply via the full forgiveness application.

  • EZ Application

    Available to borrowers that:

    • Are self-employed and have no employees; OR
    • Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
    • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.

Stages of Forgiveness: A Step-by-Step Process

1. STARTING THE FORGIVENESS APPLICATION
  • Receive a PPP Loan Forgiveness email prior to your initial eligibility date for application (56 days post funding of your loan)
  • Decide if intend to use the funds past 8 weeks, up to 24 weeks
  • Once ready to apply for forgiveness, click the application link embedded in the email and begin the application
  • Calculate forgiveness
    • We advise working with a financial advisor or accountant when performing calculations
  • Upload supporting documents
  • Confirmation / What to Expect Email sent
  • Forgiveness application submitted
2. LENDER REVIEW: 30 - 60 days
  • May be contacted to provide more information
  • Email sent to inform application decision
  • Borrower can withdraw forgiveness request
  • If only portion of loan forgiven, updated loan information email sent
  • Execute SBA Form 3508 and First Midwest additional documentation
3. SBA REVIEW: 90 days
  • Signed package sent to First Midwest and forgiveness reported to SBA
  • Email sent if SBA Approved. Email and phone call if rejected
4. COMPLETED
  • Thank You! Email from First Midwest

PPP Forgiveness Questions You May Have

What Do I Need to Apply?

You will need to provide proof of proper use of funds, within each of the three documentation categories:

  1. Payroll expenses:
    • IRS payroll tax filings (typically form 941)
    • State income and payroll filings
    • State unemployment insurance filings
  2. Non-payroll expenses:
    • Receipts for mortgage interest
    • Receipts for rent payments
    • Receipts for utility payments
  3. You will be required to:
    • Certify that the information and documentation provided is true and accurate
    • That the PPP funds were used within the program’s guidelines

Full details on required documentation are available on page 10 of the SBA PPP Loan Forgiveness Application.

PPP Loan Forgiveness is not automatic and must be applied for along with all required supporting documentation. If supporting documentation is not provided, the loan will not be eligible for forgiveness. Borrowers may have some or all the loan forgiven.  If not fully forgiven, borrowers will be responsible for repaying any loan amounts not forgiven by the SBA.

What Costs Are Eligible?

The covered period to use the proceeds of your PPP loan for eligible expenses has been expanded to up to 24 weeks., Eligible  expenses for forgiveness fall into two categories:

Payroll*

  • Salary, wages, commission and tips
  • Payroll taxes
  • Employee benefits:
    • Vacation pay
    • Healthcare benefits
    • Insurance benefits
    • Retirement benefits

*At least 60% of the PPP loan proceeds must be used towards payroll to be eligible for forgiveness

Non-Payroll**

  • Rent
  • Mortgage interest
  • Utilities:
    • Electricity and gas
    • Water
    • Transportation
    • Telephone and internet

**Non-payroll covered costs must have been in force prior to 2/15/2020. Up to 40% of the PPP proceeds can be used towards non-payroll.

 

What if I Do Not Qualify for Forgiveness?

If the SBA determines you did not use all your funds as authorized by the PPP, you may not be granted forgiveness or only given partial forgiveness.

No Forgiveness

  • Your loan is due as per terms outlined below.

Partial Forgiveness

  • A portion of your loan will be forgiven, with the remainder due as per terms outlined below.

Loans carry a 1% interest rate. Loans originated prior to the enactment of PPP Flexibility Act of 2020 on June 5 are due for full repayment at minimum in 2 years, while loans originated after this act are due at minimum in 5 years. If you have a 2-year loan, you may convert to a 5-year loan if you and your lender mutually agree to this update. There is no prepayment penalty on PPP loans.

What Are Reasons I Might Not Qualify?

The following must be met for you to qualify for full forgiveness:

  • At least 60% of funds must be spent on payroll expenses
  • No more than 40% of funds can be spent on non-payroll expenses
  • Funds were used within the 24-week covered period
  • You maintain full-employment and salaries at your business***
  • Provide supporting documentation for payroll and non-payroll expenses

***Several safe harbor provisions exist for this requirement. Please talk with your financial consultant or lawyer for more details.

FOR OUR COMMERCIAL AND SMALL BUSINESS CLIENTS

Learn more about programs, accommodations and safe financial practices for your business during COVID-19.

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FREQUENTLY ASKED QUESTIONS

You want to find an answer easily. We get that. Get a list of answers to your most frequently asked questions.

COVID-19 FAQs

REVIEW THE SBA PPP FORGIVENESS APPLICATION

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Forgiveness Application

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