SBA releases coronavirus PPP loan forgiveness application

Complete forgiveness may not be as simple as some business owners think

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The Small Business Administration and Treasury Department on Friday released the application for business owners to fill out in order to have their Paycheck Protection Program loans forgiven.

The borrower is expected to complete the application and submit it to their lender, who will ultimately be responsible for assessing forgiveness. The process can be completed electronically.

The application requires that borrowers submit the forgiveness calculation form and an additional schedule.

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Notably, the form asks whether borrowers received a loan in excess of $2 million. Not only did the government indicate its plans to audit all loans over $2 million, but also companies receiving those loans will be required to show the money was necessary to keep operations running and they had limited access to other sources of liquidity.

The government said more guidance is forthcoming to assist both borrowers and lenders as they begin the process.

PPP is designed to incentivize companies with fewer than 500 employees to keep staff despite difficult economic conditions that have resulted from the coronavirus pandemic. Applicants can receive up to $10 million – at least 75 percent of the money must be put toward payroll costs, while the other portion can be used for mortgage interest, utilities and rent.

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As previously reported by FOX Business, it may not be as simple as some business owners think to have loans completely forgiven.

One of the first issues is that while loan amounts are based on either 2.5 times average monthly payroll costs for 2019 or the trailing 12 months (up to $10 million), the window to use it is only eight weeks.

The loan amount is also based on prior staffing levels – before many small businesses laid people off or reduced salaries. Therefore, it may be even more difficult for business owners to use at least 75 percent of their loan on payroll.

Forgiveness will be prorated if payroll isn’t maintained at levels seen before Feb. 15 – so it will be reduced proportionally to how many jobs were cut or the amount by which salaries were reduced. It will also be reduced if you don’t follow the allocation specifications.

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However, complete forgiveness doesn’t need to be the end goal for every business. The loan has a low, 1 percent interest rate over the course of two years – and no payments are necessary during the first six months.

L.J. Suzuki, the founder of CFOShares.org, said he would tell clients who could benefit to take the “high-quality” loan – even if it weren’t forgivable. He also cautioned people not to turn their businesses “inside-out” to have the loan forgiven at the expense of the long-term viability of their business.

As of Tuesday, the SBA said paycheck protection lenders had distributed more than $191.3 billion, and the average loan size was about $72,296.

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