Under the PPP, a borrower will be eligible for loan forgiveness up to the full principal amount and any accrued interest. The forgiveness amount is equal to the amount spent by the borrower during a 24-week period after the origination date of the loan on payroll costs, interest payments (but not principal) on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020. The amounts forgiven may not exceed the principal amount of the loan. The maximum amount of loan forgiveness for non-payroll expenses is 40% of the loan amount.
For example, if a borrower uses 59% of its PPP loan for payroll costs and 41% of its PPP loan for nonpayroll costs, it will not receive the full amount of loan forgiveness it might otherwise be eligible to receive. Instead, the borrower will receive partial loan forgiveness, based on the requirement that 60% of the forgiveness amount must be attributable to payroll costs. For example, if a borrower receives a $100,000 PPP loan, and during the covered period the borrower spends $54,000 (or 54%) of its loan on payroll costs, then because the borrower used less than 60% of its loan on payroll costs, the maximum amount of loan forgiveness the borrower may receive is $90,000 (with $54,000 in payroll costs constituting 60% of the forgiveness amount and $36,000 in nonpayroll costs constituting 40% of the forgiveness amount).
Eligible payroll costs include compensation up to $100,000 in prorated wages per employee.
The amount of loan forgiveness may be reduced if there is a reduction in the number of employees or a reduction more than 25 percent in wages paid to employees. To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period. The PPP also allows forgiveness for additional wages paid to tipped workers. Loan forgiveness reductions may be eliminated if the borrower is able to document certain rehiring hardships as discussed in the previous question.
Borrowers will verify through documentation to the lender their payments during the period, and lenders that receive the required documentation will not be subject to an enforcement action or penalties by the Administrator relating to loan forgiveness for eligible uses.
A lender may request that the SBA purchase the expected forgiveness amount of a PPP loan or pool of PPP loans at the end of week seven of the covered period. The lender must submit a report requesting advance purchase with the expected forgiveness amount to the SBA. The report shall include the Paycheck Protection Program Application Form and information about how the forgiveness amount was determined. The SBA will purchase the expected forgiveness amount of the PPP loan(s) within 15 days of the date on which the SBA receives a complete report that demonstrates that the expected forgiveness amount is indeed reasonable.