The Basics

If you have just obtained a loan from CenterState under the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), below are some things you need to know. First, you should know the structure of the loan and what your obligations are. Second, you need to decide if you want the loan forgiven. Finally, if you decide all or a part of the loan cannot be forgiven, you will need to plan to make principal and interest payments to pay off the loan per your loan agreement.

We have created a program that will make it easy for you to file for forgiveness and will walk you carefully through each step. A link will be provided to you prior to the end of the eight-week forgiveness period currently mandated by the SBA.

The Structure of Your PPP Loan

All PPP loans have the same structure. They are as follows:

  • Term: The term of the loan is for two years with the ability to have all or some of the loan forgiven sooner.
  • Payments and Rate: After the Deferral Period, if the loan is not forgiven, you will pay monthly principal and interest according to your note. The interest rate for all loans is set by the SBA at 1.00% per annum
  • Deferral Period: All payments on the loan are deferred for six months. That means that if your loan documents are dated in April, your first payment will not be due until September. If your loan was funded in May, then your first payment will be due in October.
  • Use of Proceeds: Proceeds under PPP loans can be used for payroll costs and benefit expenses plus interest on mortgage applications, rent, and utilities as long as these obligations were in force prior to February 15th, 2020.
  • Early payoffs: You can pay off your loan at any time, without notice and without penalty.

How You Can Use PPP Funds

While you can use the proceeds of the PPP loan for a wide range of expenses, if you want to obtain forgiveness, you are restricted in your what you can use your PPP Loan for. Remember that the loan amount was based on 2.5 times your average monthly payroll from 2019. However, you can USE these funds for the following purposes and still get all or a portion of your loan forgiven:

  • Payroll: Salary, wage, vacation, parental, family, medical, or sick leave, health benefits
  • Mortgage interest: Interest must be from a mortgage that was signed before February 15, 2020.
  • Rent: Rent must be from a lease or rental agreement that was in effect before February 15, 2020.
  • Utilities: Utilities that are critical for your business, such as electricity, gas, water, waste, telecommunications, and other charges, must be from a service that began prior to February 15, 2020.

How To Manage Forgiveness Under PPP

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How To Get Your Loan Forgiven

The single largest advantage of the PPP program is the ability to have your loan forgiven, so you are not obligated to make interest or principal payments. This will require following the rules of the Program and providing good records proving that you have followed those rules.

You will be able to let us know in week seven of your loan if you want to apply for forgiveness and make that application for forgiveness in week eight.

To have your loan forgiven either in total or in part, you must meet the following rules:

Payroll Formula

  • Eight Weeks of Testing: Starting from the day you received the funds of the loan from CenterState (not when you electronically signed the agreement)
  • 75% to Payroll: At least 75% of your loan proceeds must be used to pay for payroll costs. Payments to independent contractors CANNOT be included in your payroll cost. You can use the remaining 25% of the loan proceeds to pay eligible expenses such as mortgage interest, rent, and utilities.
  • Headcount: The most important part of forgiveness is to maintain your staffing levels. To understand how much you need to spend on payroll to achieve forgiveness, calculate the average number of full-time equivalent (FTE) employees by using the following calculation:
        • Calculate the average number of employees during the eight weeks following the date at which you obtained your loan proceeds. Call this “Base Amount”
        • Calculate the number of FTE employees you had between February 15, 2019, and June 30, 2019. Call this “Option 1.”
        • Calculate the number of FTE employees you had between January 1, 2020, and February 29, 2020. Call this “Option 2.”
  • Base Amount: Take the Base Amount and divide by Option 1 then do the same by dividing by Option 2. Take the largest number between your Option 1 and Option 2 calculation. Note that if you are a seasonal employer, you must use Option 1.
        • • If the result of your calculation is larger than “1,” then you successfully maintained your headcount, and you meet this requirement in full.
        • If you get a number smaller than “1,” then you did not maintain your original headcount and the amount for which the PPP loan can be forgiven will be reduced proportionately. For example, if your calculation resulted in a “0.75” result, then you could be eligible for getting up to 75% of your loan forgiven provided you meet the other criteria.
  • Salary/Wage Amount: For every employee that did not make more than $100,000 of annualized pay for 2019, you must maintain 75% of the pay received during the eight-week test period compared to the most recent quarter they were employed. If pay was reduced below 75% compared to the quarter prior to the eight-week test period, then forgiveness will be reduced by that difference. For example, if you reduced pay by 50%, then 75% – 50% equals a reduction of forgiveness by 25%.
  • Rehiring: If you furloughed, laid off, or terminated staff prior to the eight-week test period, you can hire them back on prior to June 30th, 2020, to still qualify for all or a portion of forgiveness. Further, if you reduced the salary below the 75% level, you can also reinstate any pay below that level.

The Forgiveness Application

While we will have this form online in our digital forgiveness process, PPP borrowers can download the application below to get a sense of what will be required. To be clear, CenterState PPP borrowers WILL NOT be submitting this form by email or sending it to their bankers but will be completing a digital application when the regulation and guidance is finalized. Download the application and instructions.

The Documents You Will Need for Forgiveness

You will need to provide CenterState with documents verifying the number of full-time equivalent employees on payroll and their pay rates for the periods used to verify you met the staffing and pay requirements. These documents can be one or more of the following:

  • Payroll reports from your payroll provider. We have automated links to ADP, Gusto, and many others to make this as easy as possible.
  • 2019 Payroll tax filings (Form 941)
  • Income, payroll, and unemployment insurance filings from your state
  • Documents verifying any retirement and health insurance contributions
  • Documents verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements).

Note – We will ask you to upload these documents. If these documents are not in digital form, take the time soon to scan these and get them ready for upload using an Adobe PDF, JPEG, or PNG file format. Please note that you can take a high-quality picture of the document and upload that.

Loan Forgiveness Details and Limits

  • Timing your payroll: Depending on your payroll schedule and systems, you may want to adjust the timing of your payroll date to accommodate as many payroll cycles as possible since it appears that forgiveness is calculated on a cash, not accrual basis. As such, keeping all cash payroll payments within the eight-week test period window makes cash flow more manageable. For example, if your PPP loan got deposited in your bank account on April 30, you could only use the funds on expenses incurred during the eight weeks following April 30.
  • $100,000 Limit: Be aware that if you pay any single employee (including yourself) more than $3,846.15 per 2-week pay period (an annualized $100,000 per year), that amount will not count towards the loan forgiveness. At the time of this posting, the SBA has been vague about the exact way ineligible pay is deducted from the forgiveness amount, so, for best results, be conservative.

EIDL Grant Recipients

If you received a grant up to $10,000 from the Economic Injury Disaster Loan (EIDL) program, these proceeds will be deducted from your PPP forgiveness amount. For example, if you have a $10,000 EIDL grant and a $100,000 PPP loan in which you qualify for 100% forgiveness, then your forgiveness amount will be $90,000, and you will then be required to pay off the $10,000 remaining over the term of the loan.

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If your loan is NOT forgiven

Your loan may not be approved for forgiveness or you may decide not to ask for forgiveness because you do not meet the forgiveness requirements. In this case, you will continue to make your principal and interest payments after the Deferral Period until the loan is extinguished.

Ineligible Borrowers

The SBA has stated they will be reviewing ALL loans above $2 million and will sample the rest. Thus it is highly recommended if you do NOT meet the PPP requirements that you contact CenterState to cancel your loan immediately, no later than May 7th. While not an exhaustive list, borrowers that meet any of the following criteria are those that may not qualify for PPP loans and should consult with their legal and financial professionals to consider repaying their PPP loan. For further information on this topic, consult 13 CFR 120.110.

  • Borrowers that knowingly provided false information during their application process
  • Financial businesses primarily engaged in lending or life insurance (e.g., banks and credit unions)
  • Businesses headquartered outside of the U.S. or owned by undocumented aliens
  • Businesses involved in any illegal activity
  • Businesses involved with pyramid sales distribution plans
  • Businesses that derive more than one-third of their gross annual revenue from legal gambling
  • Private clubs and businesses which limit the number of members for reasons other than capacity
  • Businesses with an associate who is incarcerated, on probation, parole or who have been indicted for a felony or crime of moral turpitude
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Frequently Asked Questions

FAQs are subject to change as more guidance becomes available.

Yes. The SBA has stated that it will review all loans in excess of $2 million, in addition to other loans as appropriate, following the lender’s submission of the borrower’s loan forgiveness application.
You are entitled to use the PPP loan to replace lost compensation due to the impacts of COVID-19. However, you are not entitled to use the full amount to replace pay. Eight weeks’ worth of your 2019 net profit will be eligible for forgiveness.

If you have mortgage interest, rent, or utility expenses, you must have claimed or be entitled to claim a deduction for those expenses on your 2019 Form 1040 Schedule C in order to claim them for forgiveness.

For example, if you worked in an office space in 2019 and did not have a home office, you could not have claimed a deduction on your home mortgage interest. Even if you are currently working at home now, you are not eligible to claim home mortgage interest payments for forgiveness.
For purposes of loan eligibility, the CARES Act defines the term employee to include “individuals employed on a full-time, part-time, or other basis.” Borrowers must, therefore, calculate the total number of employees, including part-time employees, when determining their employee headcount for purposes of the eligibility threshold. For example, if a borrower has 200 full-time employees and 50 part-time employees each working 10 hours per week, the borrower has a total of 250 employees.

By contrast, for purposes of loan forgiveness, PPP uses the standard of “full-time equivalent employees” to determine the extent to which the loan forgiveness amount will be reduced in the event of workforce reductions.
Your net profit that was reported on your Form 1040 Schedule C is multiplied by 8/52.
No, prepayment of principal is not an allowed use of the PPP and is not eligible for forgiveness.
Any interest paid on a mortgage on a property used for business purposes is an eligible expense that the PPP can be used for and qualifies for forgiveness.

Acceptable examples include interest on a loan to finance the real estate for your primary place of business; auto loan interest on a car you own to make business deliveries; or mortgage interest on a warehouse you own to store inventory.
Check with your accounting professionals, but accounting standards clearly say that you only derecognize debt when you are legally released from the obligation. Based on this guidance, generally accepted accounting principles (GAAP) do not allow recording this income until you have received documentation from CenterState that the loan is forgiven. At that point, you would debit the loan account for the amount forgiven and credit an income account for that same amount.
Any loan principal not forgiven will carry an interest rate at 1% for the two-year standard maturity. Please keep in mind that no payments are due until after the six-month Deferral Period.
Borrowers that can EITHER rehire their workforce or hire and replace those workers AND maintain at least 75% of the same level of compensation as payroll calculation Option 1 or Option 2 as outlined above, can be eligible for forgiveness.
No. Under Section 1106(d)(6) of the CARES Act to prescribe regulations granting de minimis exemptions from the Act’s limits on loan forgiveness, SBA and Treasury intend to issue an interim final rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and the same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.
No. Unfortunately, if you took a PPP loan, you are no longer eligible for employee retention tax credit, which is up to $5,000 per employee to be received on your quarterly 941 tax form. If you still want to maintain those credits, consult with your financial professionals, and consider repaying the PPP loan immediately.
In addition to reviewing applicable affiliation rules to determine eligibility, all borrowers must assess their economic need for a PPP loan under the standard established by the CARES Act and the PPP regulations at the time of the loan application. Although the CARES Act suspends the ordinary requirement that borrowers must be unable to obtain credit elsewhere (as defined in section 3(h) of the Small Business Act), borrowers still must certify in good faith that their PPP loan request is necessary. Specifically, before submitting a PPP application, all borrowers should review carefully the required certification that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant.” Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification.
This is a good question to check with your tax professional as it gets complicated. The IRS recently issued Notice 2020-32, which clarified that no deduction is allowed under the Internal Revenue Code (Code) for PPP loan expenses if the payment of those expenses results in forgiveness of the PPP loan, and that forgiven amount is excluded from gross income via section 1106(i) of the CARES Act. Section 1106(i) of the CARES Act excludes the PPP loan forgiveness amount from gross income, even though it would ordinarily be characterized as “cancellation of indebtedness income” (CODI).

Typically, sections 162 and 163(a) of the Code would allow for deductions for expenses paid related to (1) payroll costs, (2) any payment of interest on any covered mortgage obligation, (3) any payment on any covered rent obligation, and (4) any covered utility payment. Here, absent any further clarification, the IRS has stated they will rely on section 265(a)(1) and the applicable regulations to disallow any otherwise allowable deduction under the Code for the amount of any payment of an eligible PPP expense to the extent of the resulting covered loan forgiveness (up to the aggregate amount forgiven) because such payment is allocable to tax-exempt income. In other words, the IRS is trying to prevent a double tax benefit, i.e., receiving a deduction for spending loan proceeds that are eventually forgiven and excluded from gross income.
No. The SBA has clarified in an interim final rule that excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and the same number of hours) from the CARES Act’s loan forgiveness reduction calculation. The interim final rule will specify that to qualify for this exception, the borrower must have made a good faith, written offer of rehire, and the employee’s rejection of that offer must be documented by the borrower. Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.