GUIDANCE ON PPP LOAN FORGIVENESS
If you received an Economic Injury Disaster Loan (EIDL), Section 1106(e)(6) of the CARES Act requires the advance to be deducted from your PPP forgiveness (up to $10,000). This will leave you with a remaining balance on your PPP Loan to be repaid per the terms of your loan agreement. If you received your loan on or before June 5, 2020, you will have a 2-year maturity. If you received your loan after June 5, 2020, you will have a 5-year maturity. In each case, the interest rate is set at 1%. More information on the EIDL advance is available on the PPP Loan Forgiveness FAQs page, under the “Economic Injury Disaster Loan (EIDL) FAQs” section on page 11. (Updated 10/26/2020)
We are aware of the recent update to PPP Forgiveness applications for loans of $50,000 or less. We anticipate a slight modification to our application process for loans of this size to become effective the week of October 19, 2020. If you have a PPP loan of $50,000 or less with First Midwest, we encourage you to wait to fill out your application until the week of October 19. This is not auto-forgiveness. Although a simpler application, the SBA is still requiring documentation submission and certification by borrowers. To view the full press release from the U.S. Department of the Treasury, click here. (Updated as of 10/12/2020)
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 Forgiveness Topics
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.
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.
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.
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
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)
- 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
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.