How does loan forgiveness work?

For borrowers under the Paycheck Protection Program, the loan forgiveness will equal the amount spent by the borrower in the eight-week period after the loan origination date on the following items (not to exceed the original principal amount of the loan):

• payroll costs (not to exceed $100,000 of annualized compensation per employee); and
• payments of interest on any mortgage loan incurred prior to February 15, 2020; and
• 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.[1]

Important notes and considerations:

• The amount forgiven is not considered taxable income to the borrower.
• Any loan amount outstanding after considering the amount forgiven will be repayable over a term not to exceed 10 years.

Applying for Loan Forgiveness

• Borrowers apply directly to the lender for loan forgiveness and include supporting documentation:
  • Documentation verifying the number of full-time equivalent employees on payroll and pay rates for the periods during the covered period, including payroll tax filings reported to the IRS and state income, payroll, and unemployment insurance filings
  • Documentation, including canceled checks, payment receipts, transcripts of accounts, or other documents
  • Verifying payments on covered mortgage obligations, payments on covered lease obligations, and covered utility payments
  • A certification that the documentation presented is true and correct and that the amount for which for which forgiveness is requested was used for allowable uses
  • Any other documentation the administrator determines necessary

NOTE:  The amount of the loan forgiveness may be reduced if the borrower reduces the number of employees or salaries and wages (for employees with annual salaries less than $100,000) during the 8-week period following the origination of the loan. However, this reduction penalty doesn’t apply to the extent the borrower restores their workforce count and salaries/wages by June 30, 2020.

[1] Wagner, Jeffrey, D., Sargent, Scott, and Saville Chris, “CARES Act: Understanding SBA Loan Programs to Determine Eligibility and Best Fit for Your Company,” https://www.bakerdonelson.com/cares-act-understanding-sba-loan-programs-to-determine-eligibility-and-best-fit-for-your-company (Last Accessed: March 30, 2020).