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Calculating Loan Forgiveness

7/14/20 – Emir Hodzic

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Follow These Steps to Maximize Your Relief

Businesses across the country are anxious to maximize their loan forgiveness as the economy continues to recover from the effects of the COVID-19 pandemic. This article provides guidance for calculating forgiveness and other considerations to help you make the most of the relief offered to business owners.

1. Calculate payroll and non-payroll costs incurred and paid during the covered period.

    • Payroll costs
    • Mortgage interest payments on real or personal property
    • Rent or lease payments on real or personal property
    • Utility payments

2. Make adjustments for any reduction in payroll over 25%

    • For employees who did not receive wages at an annualized rate of pay over $100,000 (during any single pay period in 2019).
    • If the employee’s average annual salary or wages decreased by more than 25% between March 1, 2020 and March 31, 2020, reduce the forgivable amount by the reduction exceeding 25%.

3. Calculate the decrease in FTE’s during the covered period against one of the following periods (the selected period is at the discretion of the borrower):

    • February 15, 2019 through June 30, 2019 or January 1, 2020 through February 2020.
    • In addition to the aforementioned periods, seasonal businesses may select any consecutive 12-week period between May 1, 2019 and September 15, 2019.

4. Calculate an adjustment if FTE’s and salaries and wages were restored by December 31, 2020.

    • In the instance the restore criteria is met, the forgiveness decreases from steps 3 and 4 are ignored.

5. Determine forgiveness floor by calculating payroll costs

    • 60% of eligible costs must be allocated to payroll; if under 60%, forgiveness is reduced.

It is important to note that there are exceptions for FTE reductions. In order to be qualify for these reductions, the borrower must clearly document the inability to re-hire individuals who were eligible on February 15, 2020, as well as, the inability to hire qualified employees for those vacant positions by December 31, 2020. If the borrower does not meet these qualifications, he/she can alternatively document their inability to recover the level of business activity to which they were performing prior to February 15, 2020, as a result of their compliance with COVID-19 requirements and guidance.

As you calculate your loan forgiveness, be cognizant of the payroll cost exclusions as outlined in the CARES Act, as well as helpful resources including PPP-compliant reports that track payroll and benefits and the EZ loan forgiveness application. For any questions or guidance related to the loan forgiveness process, contact VonLehman’s experts today at ehodzic@vlcpa.com or 800.887.0437