Loan Forgiveness

Since the Covid-19 pandemic has hit our country, many small businesses, including FashionGo’s retailer community have found themselves applying and receiving small business loans to help them get through this time in our economy. Paycheck Protection Program (PPP) loans have a deadline of June 30, 2020 and no new loans will be available after June. If your loan funding has already begun to kick in, this may be a good time to learn about loan forgiveness as you may be eligible.

Last month, the Treasury and SBA released the official loan forgiveness application and since the release of the official application, there were some addenda that loosened the forgiveness terms. Here is some relevant information to keep in mind as retailers navigate through figuring out whether the loan must be paid back. It is also good to note that for smaller loan recipients, a separate and more streamlined application may be available as members of the Senate are backing a simplified application process especially for the smaller businesses.

Please note that this blog covers PPP loans and are different from Economic Injury Disaster Loans (EIDLs). If you have received up to $10,000 through EIDL, this is a grant and does not have to be repaid.

What is Loan Forgiveness?

The PPP loan is designed to provide small business owners support to keep workers on payroll during the pandemic. As an incentive, SBA announced that loans will be forgiven if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage, or utilities.

SBA explains that “Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease. The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers”

How does Loan Forgiveness work?

The overall process generally works as soon as you receive a PPP loan.

• During the 56-day covered period after loan disbursement (starts on the PPP loan disbursement date), funding must be spent on specific items such as payroll. For example, if you received your PPP loan on April 30, the first day of the “covered period” is April 30, and the last day of the covered period is June 24.
• For businesses with pay periods that do not align with the date PPP loan is disbursed, there is a bit of flexibility by providing an “Alternative Payroll Covered Period” which allows businesses to calculate 56-day covered period for eligible payroll costs beginning the first day of their first pay period following their PPP loan disbursement date.
• After the covered period (about 8 weeks), businesses can apply for loan forgiveness with the lender, providing required documentation. Please note that the lender may have changed for your loan.
• The lender has up to 60 days to respond to your request for forgiveness
• Any balance not forgiven will become a loan at 1% for up to 2 years.

What qualifies you for loan forgiveness?

Before the Paycheck Protection Flexibility Act, loan borrowers were required to spend at least 75% of the loan for payroll costs, however, now that requirement has lowered to only 60%. If you cannot meet this requirement, there may be a reduction in the amount of the loan that is forgiven. Below are some specifics regarding eligibility:

• Payroll and covered expenses for employees: Payroll costs include salary, wages, and tips up to a total of $100,000 annual pay per full-time employee. This can include covered benefits for employees including health expenses, retirement funds, and state taxes on an employee’s payroll.
• Payroll for self-employment: If you are self-employed at your company, your payroll will count toward payroll costs. Benefits will not count as payroll costs.
• Number of employees: The average number of employees you had prior to the pandemic must remain the same in the eight weeks following loan disbursement. You can determine the average employees based on these two time frames: February 15, 2019–July 30, 2019 or January 1, 2020–February 29, 2020. If this criteria does not match, your loan forgiveness may be reduced based on how many people are currently employed.

With the updated PPP bill, the period in which to qualify for loan forgiveness has extended from the initial eight-week period to 24 weeks or until the end of the year, whichever comes first.

How can I apply for loan forgiveness?

The lender for your loan has the option to accept loan forgiveness applications. Once you submit your application, the lender will have 60 days to review your application and make a decision. Make sure you have all of the necessary information needed when filling out your application including:

• Payroll tax filings
• Proof of mortgage payments
• Proof of rent or lease payments
• Proof of utility payments

Keep in mind that even if you receive loan forgiveness you may need to still pay taxes for the amount of the loan. We encourage you to speak with your tax advisor to find out more info regarding your specific loan.

What happens if my expenses do not qualify for loan forgiveness?

If a portion of your loan is not eligible for loan forgiveness, you may need to pay back your loans. Here are some important things to keep in mind:

• The loan repayment terms were extended from 2 to 5 years if not all of the money can be forgiven.
• Loan payments will be deferred for six months
• No fees will be charged and no collateral or personal guarantees are required

At FashionGo, we are committed to the success of your business and providing the resources you need to make these informed business decisions. We will continue to update the blog with pertinent information to aid your success.