Preparing for PPP Loan “Forgiveness” Applications

Margie Swoyer NPA News

Pawnbrokers who have received PPP loans need to take steps now to calculate and prove the amount of loan “forgiveness” that the PPP program may allow them to receive.

The PPP program covers eight weeks of certain expenses to encourage the retention of employees or their rehiring as the business reopens. Specific types of business expenses and in certain proportions to the PPP funding the business received must be proven in detail to qualify for loan forgiveness.

PPP loans are eligible for 100% forgiveness under the CARES Act and current SBA regulations if they were spent during the eight-week period beginning on the date you received the first disbursement of PPP funding on:

  1. wages and salaries for all employees who earn less than $100,000 in cash compensation and other employee benefits. This category includes:
    1. Gross-basis wages and salaries without subtracting federal income taxes imposed on the employee or withheld from the employee’s paycheck, but subtracting any reimbursements to employees that are paid in the same paycheck.
    2. Employee benefits such as payments for group health care insurance/premiums, retirement benefits, state and local employment taxes, applicable housing stipends or allowances, vacation time, and sick leave or family medical leave unless the sick or family leave is eligible for income-tax credits for the employer under the March 2020 Families First Coronavirus Response Act (sections 7001 or 7003).
    3. These expenses, according to SBA regulations, must be at least 75 percent of the PPP funding received.
  2. Non-wage expenses that qualify for forgiveness limited to
    1. Interest (not principal) on mortgage obligations incurred prior to February 15, 2020,
    2. Rent under lease obligations dated prior to February 15, 2020, and
    3. Utilities.
    4. These expenses must be less than 25% of the PPP funding received.

However, loan forgiveness amounts will be reduced if the employer

  1. reduced the number of full-time equivalent (FTE) employees in the eight-week period following the first receipt of PPP funding, or
  2. reduced the pay of any employee making less than $100,000 by more than 25% compared to the prior complete calendar quarter.

The formula for determining reductions in FTEs uses either

  1. the average number of employees from February 15, 2019 to June 30, 2019 OR from January 1, 2020 to February 29, 2020, or
  2. the number of FTEs calculated by the average number of FTEs for each pay period falling within a month.

Reductions will not apply to

  1. employees laid off between February 15, 2020 and April 26, 2020 if the employer’s FTE count on June 30, 2020 is equal to the number of FTEs employed as of February 15, 2020. Only employees whose cash compensation was less than $100,000 on an annual basis count for this FTE calculation. Reductions are not required for employees who had offers to return to work at the same pay rate and the same number of hours weekly, but declined to return to your employ. Or,
  2. salary reductions between February 15, 2020 and April 26, 2020 if the employer restores the salary to the original, pre-February 15th amount by June 30, 2020. Only employees whose cash compensation was less than $100,000 on an annual basis count for this salary- reduction-and-restoration calculation.

PPP recipients should make loan-forgiveness applications to the same lender that processed their original PPP loan application. Lenders have 60 days to process loan-forgiveness applications.

When you submit your loan-forgiveness application, be prepared to prove expenditures on the items and in the percentages described above AND to certify that:

  1. the documentation supporting the loan-forgiveness application is “true and correct,
  2. the amount of the loan-forgiveness requested was used to “retain employees” and to make payments for qualified expenses of mortgage interest, rent, or utilities, and
  3. the percentages of expenditures for employees (see item 1 on page 1) was at least 75% of the PPP funding you received.

The SBA announced intentions to provide more guidance on the form of loan-forgiveness applications and documentation requirements. Lenders may require additional information and documentation from PPP recipients seeking loan-forgiveness. It is unclear whether or how a PPP loan recipient may appeal a denial of forgiveness or a reduction in the forgiveness amount that the recipient does not believe is justified.

The next GRC Update will describe the types of documentation that employers should prepare to support their loan-forgiveness applications.


This GRC Update is not intended and should not be construed as legal advice to NPA members.
Members should consult their own lawyers for legal advice.

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