Hopefully you have successfully navigated round one or round two of PPP loan funding. Now, you may want to take advantage of the loan forgiveness provisions – how does forgiveness work?

Generally:

  • The amount forgiven may not exceed the principal amount of the loan,
  • Forgiveness may be equal to costs incurred and payments made during the eight-week period commencing on the loan origination date for allowable costs*,
  • Forgiveness will be reduced for employee headcount or compensation reductions, and 
  • Relief may be available for employers who rehire employees or otherwise make up for wage reductions by June 30.

Key point: maximum forgiveness may only be achieved if you spend at least 75 percent of the proceeds on allowable payroll costs* in the eight-week period. For example: if your loan is $1M, then you must spend at least $750k on payroll costs. Likewise, if your loan is $20,000, then spend at least $15,000 on payroll costs (to maximize forgiveness). However, if you spend less than 75 percent on payroll, or more than 25 percent on non-payroll, you may still achieve significant forgiveness, with favorable loan terms for the remainder.

For example, if your loan is $1M, and you spend $600k on payroll costs, then your maximum forgiveness amount would be $800k (not taking into account headcount reductions) and the remaining $200k would be a low interest loan from the government.

The various formulas and scenarios are company-specific and may get complicated; however, we can help you navigate this in advance while you are planning, and at the end when you are applying for forgiveness.

*See prior blog post, PPP Loan Forgiveness Part 1 of 2

Fournier Legal Services has been a customer-service oriented, technology-based, paperless law firm from the day we opened, and we are uniquely positioned to help our clients navigate the current environment. For any questions related to Business Law or Estate Planning, please contact us by calling 860.670.3535 or emailing info@jeflegal.com.