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So you have a PPP loan – What is next?
This page has been updated for recent changes due to the enactment of the Paycheck Protection Program Flexibility Act of 2020 (PPPFA) on June 5, 2020, and will step through what you need to know to manage your loan and to obtain forgiveness.
Questions? Ask away.
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Getting Ready To File Your Forgiveness Application
Completing this Excel Document Checklist is highly recommended for all; particularly those with loan amounts over $150,000 or those complex applications such as borrowers with affiliates, multiple payroll reports, businesses that are claiming forgiveness expenses on multiple properties.
If you have just obtained a loan from CenterState Bank under the Small Business Administration’s (SBA) Paycheck Protection Program (PPP), as amended by the PPPFA, 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 easier for you to file for forgiveness and will walk you carefully through each step. If you have received a PPP loan from CenterState Bank, a link to electronically file your Forgiveness application will be emailed to you during mid-July. This will be your first opportunity to file for Forgiveness as you will need your Employer’s Quarterly Federal Tax Return (Form 941) filing to complete the application.
The Structure of Your PPP Loan
All PPP loans have the same structure. They are as follows:
Term: The term of the original PPP loan is for two years with the ability to have all or some of the loan forgiven sooner. If you are not eligible for forgiveness, should you have continued hardship, it may be possible to extend the maturity date to allow for more payment flexibility. For all PPP loans originated after June 4, 2020, the maturity will be five years.
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 until the date on which the amount of forgiveness is approved by the SBA, provided that the borrower applies for forgiveness within ten months of the last day of the Covered Period. For borrowers that do not apply within ten months of the end of the Covered period, principal and interest will start to be due immediately.
Use of Proceeds: Proceeds under PPP loans can be used for payroll costs and benefit expenses plus interest on mortgage loans, 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 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 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.
To have your loan forgiven either in total or in part, you must meet the following rules:
Covered Period: Starting from the day you received the funds of the loan from CenterState Bank (not when you electronically signed the agreement), borrowers that received their loans prior to June 5, 2020, can either elect that they will use the funds to maintain or restore hiring over an eight week period or a 24 week period. The advantage of the eight-week period is that it allows borrowers to receive their forgiveness faster while the 24-week period allows for a longer time to achieve forgiveness. If the 24-week period is chosen, borrowers must maintain staffing levels for the entire period and only expenses up to December 31, 2020, can be included.
60% to Payroll: At least 60% 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 40% 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 Covered Period (Either the eight- or 24-week period) 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. Also note that if you are a seasonal employer, you must use Option 1. Note that borrowers can adjust option for FTE safe harbor exemptions (see below).
• 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 salary below the 75% level, you can also reinstate any pay below that level. If the employee rejects your reinstatement offer, borrowers may be allowed to exclude this employee when calculating forgiveness. To qualify for this exemption, you must:
• Make a written offer to rehire in good faith;
• Have offered to rehire for the same salary/wage and the number of hours as before they were furloughed or laid off; and,
• Receive a rejection by the former employee in writing.
Other “Safe Harbor” Employee Exemptions: In addition to the above, borrowers can also qualify for an exemption for the sake of payroll calculation if an employee was fired for cause, voluntarily resigned or voluntarily requested a reduction in his or her hours. Borrowers may also be required to demonstrate that they were unable to hire similarly qualified employees for unfilled positions, or document that due to safety requirements, borrowers were unable to return to normal operating levels. It should also be noted that any employee who rejects an offer for re-employment may no longer be eligible for continued unemployment benefits.
The Forgiveness EZ Form
On June 16, 2020, the SBA issued a simplified PPP Loan Forgiveness Application called the 3508EZ Form. This “EZ Form” is designed to reduce the required calculations for those that qualify. To qualify, borrowers must:
be self-employed AND have no other employees; OR
NOT have reduced salaries or wages of their employees by more than 25%, and must not have reduced the number of hours of their employees; OR
have suffered a reduction of business activity as a result of health directives related to the COVID-19 pandemic and did not reduce salaries or wages of employees by more than 25%.
If you, a borrower, do not qualify under one of the three criteria, you must use the standard Forgiveness form called the “3508 Form”.
The EZ Form will be electronically available to you shortly in our electronic portal. However, if you want to see the current form and instructions, please go here:
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.
All CenterState PPP Borrowers will have to verify and/or input some critical pieces of information such as the Loan Number, your final loan amount, and exact form of your business name in order to complete the Forgiveness application. To assist you, CenterState will send this required data to you via secure email in the next couple of weeks. When you receive this information, please keep this information handy as it will speed your process.
Once our Forgiveness portal is open, you will need to upload 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.
2019 Payroll tax filings (Form 941)
Bank account statements showing qualified payroll, mortgage/lease payments or utility expenses.
Schedule of employees to include their name, employee number, and compensation
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)if these are being claimed.
Documents evidencing any FTE safe harbor exemptions – written evidence that previous positions were offered and declined, were fired for cause, voluntarily resigned, or voluntarily requested a reduction in hours. In all cases, the borrower only has to potentially show written evidence if the position was not filled by another employee and forgiveness is being sought.
If applicable, EIDL Advance amount and application number.
Note – If these documents are not in digital form, please 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 then upload the photo.
Documents that Borrower Must Maintain but Are Not Required to Upload
The following documents should be kept for six years after the loan is forgiven or repaid in the event the Office of the Inspector General, Bank, SBA, IRS or other entity needs to review
Compensation: Documentation (payroll records, staffing schedules, etc.) supporting the certification that annual salaries or hourly wages were not reduced by more than 25 percent during the Covered Period or the Alternative Payroll Covered Period relative to the period between January 1, 2020 and March 31, 2020.
FTE and Hours: If applicable, documentation supporting that the Borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020 and the end of the Covered Period (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the Borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020). This documentation must include payroll records that separately list each employee and show the amounts paid to each employee between January 1, 2020 and the end of the Covered Period.
Safe Harbor Employees: Documentation regarding any job offers and refusals, refusals to accept restoration of reductions in hours, firings for cause, voluntary resignations, written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020.
Operations: If applicable, documentation supporting that the Borrower was unable to operate between February 15, 2020 and the end of the Covered Period at the same level of business activity as before February 15, 2020 due to compliance with requirements established or guidance issued between March 1, 2020 and December 31, 2020 by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.
Other Supporting Materials: Borrowers should retain all worksheets, calculations, schedule or other records relating to the Borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the Borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan, documentation necessary to support the Borrower’s loan forgiveness application, and documentation demonstrating the Borrower’s material compliance with PPP requirements.
Loan Forgiveness Details and Limits
Self-Employed: Borrowers that are self-employed are entitled to use PPP funds to replace lost compensation due to the impacts of COVID-19. It is important to note, however, that borrowers are not entitled to use the full amount of the loan to replace pay. Only eight-weeks’ worth of a borrower’s 2019 net profit is eligible for forgiveness. Borrowers with mortgage interest, rent, or utilities expenses must have claimed (or be entitled to claim) these expenses as a deduction on their 2019 Form 1040 Schedule C in order for these expenses to be eligible for forgiveness.
Partnerships: Borrowers that are general partners in a partnership are eligible to claim the same level of compensation as they were making as partner compensation when they applied for the PPP. Partner compensation is capped at the 2019 Schedule K-1 net earnings from self-employment (reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties), all multiplied by 0.9235.
Non-Payroll Expenses: All eligible non-payroll expenses must be paid during the Covered Period (not the Alternative Payroll Covered Period) OR incurred and paid on or before the next regular billing date, even if the billing date is after the Covered Period.
$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 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.
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 begin to make your principal and interest payments after the Deferral Period until the loan is extinguished.
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 Bank to pay off your loan immediately. 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, 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
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.
The PPPFA provides the borrower with greater flexibility to obtain maximum forgiveness. Before and after changes can be seen in this table:
75% of PPP must be spent on payroll
60% of PPP must be spent on payroll
Time Period to use funds (Covered Period)
8 or 24 weeks
• Borrowers must choose either period but must maintain staffing and salary levels for whatever period they choose. Once the Covered Period has ended, borrowers can run their business without impact to the Forgiveness amount.
Rehire Requirements (for salary to count toward requirements)
Workers must be rehired by June 30, 2020
Workers must be rehired by December 31, 2020
Exceptions: • Unable to rehire individual who was an employee on or before 2/15/2020
• Able to demonstrate inability to hire similarly qualified employees on or before 12/31/2020
• Able to demonstrate inability to return to same level of business activity as before 2/15/2020
2 years (at 1% interest)
2 or 5 years (at 1% interest)
• PPPFA Loans made after June 5, 2020, will have a 5-year maturity.
• The unforgiven amount from a loan done before June 5, 2020, can be changed from 2 to 5-year maturity with CenterState’s approval.
Deferment of payroll taxes
No deferment of taxes on forgivable portion of the loan
PPPFA allows borrowers to defer the employer portion of payroll taxes until December 21, 2020.
SBA loan audits
SBA can audit any loan at their discretion
Maximum loan amount
2.5x borrower’s 1-month average payroll cost
Number of PPP loans
One PPP loan per borrower
Salary calculation for loan forgiveness
Payroll calculator in the loan application
Yes. As long as a borrower pays eligible expenses on the next regular billing date, these non-payroll expenses (utilities, rent, mortgage interest) can be claimed for forgiveness, prorated to the end of the Covered Period.
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 (which could be eligible for an extension to five years) for loans made prior to June 5, 2020, and for the five-year period for any loans made after June 5, 2020. Please keep in mind that no payments are due until after the Deferral Period which starts after a forgiven decision is rendered by the SBA.
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. For more information, go here: https://www.irs.gov/newsroom/covid-19-related-employee-retention-credits-overview
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. Check with your tax professionals but per the SBA, any expenses that a borrower claims for forgiveness under the PPP cannot then be deducted from the borrower’s business expenses. A forgivable PPP loan is already tax-free, so the IRS wants to prevent “double-dipping” (i.e, benefiting from both the IRS and SBA).
This depends on the timing of the EIDL loan. The answer is no when the EIDL loan was received prior to January 31, 2020, or after April 3, 2020. You may use the proceed from a PPP loan to payoff your EIDL loan if you received the EIDL loan between January 31st and April 3rd of 2020 AND you used the EIDL loan for purposes other than payroll costs. You MUST payoff your EIDL loan from PPP proceeds where you received your EIDL loan between January 31st and April 3rd of 2020 AND you used the EIDL proceeds to pay payroll costs. Please note that the amount of the EIDL loan to be refinanced does not include the amount of any EIDL “Advance” (also referred to as an EIDL “grant”) received by the PPP Borrower, because the EIDL advance does not need to be repaid. To payoff your EIDL loan, you can go here: https://pay.gov/public/form/start/3723407 and for more specific information you can call the SBA’s EIDL hotline at 800-736-6048.
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