PPP Forgiveness

PPP loans can potentially be forgiven in-part or in-full.

The program dictates that loan amounts will generally be forgiven as long as the loan proceeds are used to cover eligible payroll costs and most mortgage interest, rent, and utility costs over the Covered “Forgiveness” Period after the loan is made. A loan may be fully forgiven if all of the following three conditions are met:

• The loan proceeds are spent, or qualifying costs are incurred, within the applicable Covered Period or Alternative Covered Period
• At least 60 % of the forgiveness amount was used for payroll costs, and no more than 40% was used for the other permitted Loan Uses
• Maintain staffing and pay levels during the applicable Covered Period or Alternative Payroll Covered Period

Here are some key highlights from the SBA’s most recent guidance:

Application Process:

• The SBA made some minor changes to the existing forgiveness application, Form 3508. There is also a new, streamlined version of this form requiring less documentation and fewer calculations, including no Schedule A. Clients can choose to use the form 3508EZ if they qualify. To learn more about these changes, please visit the SBA website here.
• When it is time to submit for forgiveness, you should have the correct Forgiveness Application and any applicable documentation required in connection with your application, as outlined in the instructions.
• Completed PPP Loan Forgiveness Applications and supporting documentation can be emailed to us directly at [email protected].

Eligible Expenses:

• Payroll costs, including salary, wages, vacation, parental family, medical or sick leave, and health benefits paid or incurred during the Covered Period, are generally eligible for forgiveness.
• 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

Payroll Costs:

• At least 60% of your PPP loan funds must be used for payroll costs.
• No more than 40% of your PPP funds can be used for non-payroll purposes.
• Payroll costs are capped at $100,000 on an annualized basis for each employee.
• Payments to independent contractors are not included in your payroll costs.

Maturity Date and Deferral Period:

• Borrowers are entitled to a deferral period after origination of their PPP loans during which they are not required to make loan payments. However, interest will continue to accrue on PPP loans during this deferment. The deferral period for a PPP borrower will begin on the date of disbursement of the PPP loan and end on the date that the SBA remits the loan forgiveness amount on the borrower’s loan to the lender or notifies the lender that no loan forgiveness will be allowed.
• Minimum maturity of five years for all PPP loans made on or after the date of enactment of the Flexibility Act (June 5, 2020)
• Lenders and Borrowers are permitted to extend the maturity date of earlier PPP loans by mutual agreement.
• If the borrower does not apply for forgiveness of a loan within 10 months after the last day of the Covered Period, the PPP loan is no longer deferred and the borrower must begin paying principal and interest.

Timing for Loan Forgiveness:

• After receiving your completed application and all required supporting documentation Langley will review its contents. We may follow up with you if any part of your application is incomplete or requires clarification.
• Within 60 days of receipt of a completed application, we will issue an initial decision to the SBA regarding loan forgiveness.
• Subject to any further review of the loan or application, the SBA has 90 days from receipt of our initial decision to review the application and remit the appropriate forgiveness amount to Langley Federal Credit Union.

Review your staffing requirements:

• To receive your highest loan forgiveness, you must maintain the number of employees on your payroll.
• Keep a thorough, running list of all documentation, which may include the following:
  • Documents verifying your number of FTEs 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.
• A business entity can only apply to the SBA for PPP loan forgiveness once. Please be sure to take the time to understand the forgiveness application, including consulting with relevant advisors, such as your attorney, accountant, and financial advisor, as you prepare for this next step in the PPP process so they can help with any questions or concerns.

Q. When can I start my forgiveness application?

A. Langley will begin taking applications on Monday, August 10, 2020 which coincides with the date that the SBA begins to accept forgiveness submissions from Lenders.

Q. When is the deadline to submit my forgiveness application?

A. A borrower may submit a loan forgiveness application any time on or before the maturity date of the loan – including before the end of the covered period – if the borrower has used all of the loan proceeds for which the borrower is requesting forgiveness (any remainder must be returned to Langley).

If the borrower does not apply for loan forgiveness within 10 months after the last day of the Covered Period, or if SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred and the borrower must begin paying principal and interest payments.

Q. How do I apply?

A. When it is time and you are ready to submit for forgiveness, you will need to have ready the correct form 3508 or 3508EZ forgiveness application as well as any applicable documentation that you are required to submit in connection with your application’s instructions. Completed PPP Loan Forgiveness Applications and supporting documentation can be emailed to us directly at [email protected].

Q. What do I do if I have questions while filling out my forgiveness application?

A. Please consult with relevant advisors, such as your attorney, accountant, and financial advisor, as you prepare for this next step in the PPP process so they can help with any questions or concerns before submitting.

Q. How long is my Covered “Forgiveness” Period?

A. The Flexibility Act extended the length of the Covered Period from eight to 24 weeks, while allowing borrowers that received PPP loans before June 5, 2020 to elect to use the original eight-week covered period. The Covered Period starts either the date your funds were disbursed OR the first day of your first pay period following your disbursement date. (Note: Your disbursement date may not necessarily be the date on which you signed the Promissory Note.)

Q. Am I eligible to use the simplified Form 3508EZ?

A. You can submit Form 3508EZ if:

1. you are a self/employed individual/independent contractor/sole proprietor who had no employees at the time of your PPP loan application and didn’t include employee salaries in the computation of average monthly payroll; or
2. you didn’t reduce annual salary or hourly wages by more than 25% during the Covered Period or Alternative Covered Period, compared to the period between January 1, 2020 and March 31, 2020, not including any employee who received more than $100,000 on an annualized basis during any pay period in 2019, and you did not reduce the number of employees or average paid hours of employees between January 1, 2020 and the end of the applicable Covered Period; or
3. you didn’t reduce annual salary or hourly wages by more than 25% during the Covered Period or Alternative Covered Period, compared to the period between January 1, 2020 and March 31, 2020, not including any employee who received more than $100,000 on an annualized basis during any pay period in 2019, and you were unable to operate during the applicable Covered Period at the same level of business activity as before February 15, 2020, due to compliance with certain COVID-19 related measures related to social distancing, sanitation, or other worker or customer safety requirements.

You can find more information on the Form 3508EZ at the SBA’s website as well as the CARES Act section of the Treasury’s website.

Q. How long does the forgiveness process take once I’ve submitted my application?

A. Rest assured that while we will do our best to process all forgiveness applications in a timely manner, the SBA has established that the lender (Langley Federal Credit Union) has 60 days from receipt of the completed application to review and provide an initial decision and then the SBA will have 90 days after that to review and accept the application and remit the appropriate forgiveness amount, unless the SBA requires additional review of the loan.

Q. Do I have to make payments on my loan if the forgiveness process is not yet complete?

A. No. Under the Flexibility Act, payments are deferred until the SBA has made a final decision on your forgiveness application and remitted that amount to Langley Federal Credit Union.

If you don’t apply for forgiveness within 10 months of the last day of the Covered Period, however, you will have to begin making payments of principal, interest, and fees. At that point, the terms of your promissory note will be updated to reflect updated terms.