You probably spent numerous hours meticulously making sure that all of your numbers were right. You heard a lot about this “forgivable loan” and you wanted in. Well now you’ve made it. The money was deposited into your account and you can breathe a sigh of relief. The money you received is not automatically forgiven. Here are the key points that you need to keep track of in order to maximize your loan forgiveness:
What can it pay for?
At least 75% of the loan must be put toward Payroll Costs for the eight weeks immediately following the receipt of the loan. Payroll Costs include:
- Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee);
- Employee benefits including cost for vacation, parental, family, medical, or sick leave (not including leave under the FFCRA); allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit;
- State and local taxes assessed on compensation; and
- For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.
The other 25% is still forgivable, but can only be used for Eligible Non-Payroll Costs for the eight weeks immediately following the loan. Eligible Non-Payroll costs include:
- Interest on mortgage obligations incurred before February 15, 2020;
- Rent, under lease agreements in force before February 15, 2020; and
- Utilities, for which service began before February 15, 2020.
Are there any reductions to my loan forgiveness eligibility?
Yes. There are two possible reductions which are discussed in detail HERE. But briefly, they are:
- Employee Retention: Your loan forgiveness will be reduced if you decrease your full-time employee headcount compared to the same time as last year.
- Employee Compensation: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
What happens if a portion of my loan is not forgiven?
All payments are deferred for six months, however, your loan will accrue interest over this period and is locked in at a 1.00% fixed rate. The loan matures in two years and there are no prepayment penalties or fees.
How do I apply for the forgiveness?
The short answer is to stay in contact with your lender and keep an eye out for any of their press releases or notifications.
When you submit your application for loan forgiveness to your lender, your lender is required to make a decision within 60 days. At a minimum, you will need to provide documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of Payroll Costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan.