Knowledge Base

The second round of the PPP loans ended on May 31, 2021 and borrowers need to start preparing for the loan forgiveness application.

The Paycheck Protection Program (PPP) was created as part of the Coronavirus Aid, Relief, and
Economic Security (CARES) Act, which was signed into law on March 27, 2020. Congress created the PPP to assist millions of small businesses that were facing an uncertain future.

Deadline to Apply for Loan Forgiveness
There is not a fixed deadline for borrowers to apply for loan forgiveness, but there are some key timelines to know.
– Borrowers have 10 months from the end of their covered period to apply for loan forgiveness or they will have to start making PPP loan payments to their lender. The covered period is the 8 to 24 week period immediately following disbursement of the PPP loan proceeds.
– Loans issued on or after June 5, 2020, have a maturity date of five years. Loans approved before June 5, 2020, have a maturity date of two years, unless the borrower and lender agree to extend it. Interest accrues from the origination date.
– Borrowers can defer repayment of principal and interest until the time when the SBA compensates their lender for forgiven amounts of the loan as long as borrowers apply for forgiveness within 10 months of the end of their covered period.

Second Draw PPP Loan Forgiveness Terms
Second draw PPP loans made to eligible borrowers qualifying for full loan forgiveness if during the 8 to 24 week covered period following the loan disbursement:
– Employee and compensation levels are maintained in the same manner as required for the First
Draw PPP loan,
– The PPP loan proceeds are spent on payroll costs and other eligible expenses, and
– At least 60% of the PPP loan proceeds are spent on payroll costs.

What does payroll costs include?
Payroll costs includes salaries, wages or similar forms of compensation; payment of cash tips or
equivalent; payment for vacations or parental, family, medical, or sick leave; severance for dismissal or separation; payments for employee benefits, including health insurance premiums; payment of retirement benefits; and state or local tax assessed on employee compensation of employees.

PPP reimbursement covers salaries with a cap of $100,000. All employees regardless of salary above $100,000 are eligible to be counted in PPP loan forgiveness. However, anything above the $100,000 threshold is not covered. For example, if an employee’s total paid compensation is $125,000, then PPP will cover $100,000 of that individual’s compensation, the remaining $25,000 will not be covered by the program.

Part-time employees do count toward total payroll for PPP calculations. To calculate the compensation amount for part-time employees, take the average of hours worked multiplied by the employee’s hourly rate. However, it is important to note that contractors and other 1099 workers do not count toward the payroll of a business. The reason is that 1099 workers and other self-employed contractors can apply for PPP independently.

Check with your PPP loan lender for further information about submitting your forgiveness application.