• As noted, the policy goal of these loans is to maintain and/or restore
  payroll
• Formula for loan forgiveness directly linked to maintaining and/or
  restoring payroll

What is the General Rule for Loan Forgiveness?

Up to 100% of principal may be forgiven, subject to:

• The type of expenses funded with the loan proceeds
• Reductions based on headcount and/or level of pay
  • Reductions may be waived if headcount or level of pay restored
• The 8-week period following the loan is important

What Expenses Can Be Forgiven?

• First, a limited timeframe:
  • Only expenses incurred during the 8-weeks following the loan
• Second, the following expenses may be included in the forgiveness:
  • Payroll Costs
  • The same categories of Payroll Costs used to determine the size of the initial
    loan
• With two major differences:
  • These are ACTUAL Payroll Costs
  • For the period 8 weeks after the date of the loan origination.
• Other expenses listed under permitted use, with more specific
  definitions
• Interest on an indebtedness or debt instrument that:
  • Is a liability of the borrower,
  • Is a mortgage on real or personal property, AND
  • Was incurred before February 15, 2020
  • Guidance is needed on whether this includes floor plan interest; answer depends on what
    the term “mortgage” means as used in the statute
• Rent paid on a lease in force before February 15, 2020
• Utilities paid for services which began before February 15, 2020

General Limitations Applicable to Loan Forgiveness

• Reductions in headcount
• Reductions in level of pay

Reductions Based on Headcount

• If the number of employees is reduced during the 8-week period, the forgiveness amount will be reduced proportionally.
• Formula to determine the percentage reduction in headcount:
  • Average number of full-time employees (AFTEs) per month employed
    during the 8 weeks following the loan date
  • DIVIDED BY, at the election of the borrower
    • AFTEs employed by the borrower from February 15, 2019 to June 30, 2019, or
    • AFTEs per month employed by the borrower from January 1, 2020 to February 29,
      2020
  • AFTEs is determined by calculating the average number of FTEs for each
    pay period falling within a month.

Reductions Based on Level of Pay

• In addition, loan forgiveness will be REDUCED, by:
  • The amount of any employee’s reduction in total salary or wages in
    excess of 25 percent of that employee’s total salary or wages from the
    most recent full quarter prior to the date of the loan.
  • NOT applicable to employees with annual rate of salary or wages greater
    than $100,000 for any single pay period during 2019

Restoration of Loan Forgiveness

• Loan forgiveness reductions may be restored by rehires
• The effect of reduced pay rate will NOT apply if:
  • Headcount: Between February 15, 2020 and 30 days after the effective date of the Act,
    there is a reduction of FTEs compared to February 15, 2020, and the reduction in FTEs
    is eliminated by June 30, 2020; [Restoration of the overall number]
  • Level of pay: Between February 15, 2020 and 30 days after the effective date of the
    Act, there is a reduction in salary and wages of one or more employees, and the
    employer eliminates reduction in salary or wages of such employees by June 30, 2020;
    [Restoration of specific pay cuts] OR
  • A combination of both circumstances occurs.

What Documentation Will I Have to Provide for Loan Forgiveness?

• More documentation than required to obtain the loan
• Without documentation, no loan amount will be forgiven
• Proof of payroll payments:
  • Verification of number of full-time equivalents and pay rates for the relevant period,
    such as,
  • Payroll tax filings reported to the IRS, and
  • State income tax, payroll and unemployment insurance filings
  • Verification of other expenses
    • Cancelled checks, payment receipts, etc.
• Certification from the borrower that:
  • The documentation is true and correct, and
  • The amount of the forgiveness was used for the intended purposes
• Any other documentation the SBA/lender requires.

Other Key Issues for Loan Forgiveness

• As a practical matter, cannot file until after the 8-week period (and possibly 6/30 because of the effect of rehires)
• The lender will issue a decision within 60 days of borrower’s
  application for forgiveness.
• The amount of the forgiveness will NOT trigger Federal income tax.