Posted by ACCU Staff ● Apr 28, 2020 3:25:16 PM

Prepare Your Paycheck Protection Program Loan Forgiveness


Paycheck Protection Program (PPP) Loan Forgiveness

How will the loan be forgiven?

If your nonprofit organization applied for and received a loan through the Paycheck Protection Program (PPP), it’s important to take immediate steps to ensure the funds are correctly handled and tracked during the next 24-weeks (previously eight weeks). A minimum of 60% (previously 75%) must be spent on payroll and benefits as defined by the program. You can only use up to 25% of the SBA/PPP loan on occupancy/utilities expense. This will help your organization provide sound stewardship of these funds during the disruption of the COVID-19 pandemic. It will also position your organization to receive forgiveness for the loan, converting it into a nontaxable grant.

How much will be forgiven?

Up to 100% of a PPP loan will be forgiven. The loan forgiveness amount is determined by first computing the amount of payments made for qualifying payroll costs, mortgage interest payments (but not payments or prepayments of principal), rent payments, and utility payments for the 24-week (previously eight-week) period that begins on the date the lender makes the first disbursement of the PPP loan to the borrower.

How to Apply for Loan Forgiveness?

The CARES Act makes clear that the recipient of a PPP loan must apply to their lender for loan forgiveness. This application cannot be made any sooner than eight weeks after the loan originates. The U.S. Small Business Administration (SBA) has stated that it will issue additional guidance on the manner in which an application for forgiveness will be made.

How to Prepare Your Documentation to Obtain Loan Forgiveness?

Start planning now for the documentation you’ll need to provide to your lender. It’s important to note that forgiveness is prohibited if a borrower fails to comply with these documentation requirements. You will need to submit an application for loan forgiveness that includes:
  • Documentation verifying the number of full-time equivalent (FTE) employees on your payroll, hours worked by part-time employees (to facilitate the FTE computation), and rates of pay during both the eight-week period and the prior year measurement periods discussed in the section below regarding the headcount reduction factor. This documentation may include payroll tax filings filed with the IRS (e.g., IRS Form 941) and income, payroll, and unemployment insurance filings filed with state authorities. However, those documents may or may not include detail to the employee level. So be prepared to supplement this information with reports from your payroll processor that provide detail to the individual employee level.
  • Documentation, such as invoices, canceled checks, payment receipts, and account statements or transcripts showing mortgage payments, rent payments, and utility payments.
  • A mortgage statement or transcript from your lender verifying the amount of interest paid with each mortgage payment.
  • A certification by an officer of your organization as to the truthfulness of the information submitted and certifying that the loan proceeds were used to retain employees; make mortgage interest, rent, or utility payments; or used for some combination of these purposes. This officer is often your CEO or CFO, but may be your board chair, board treasurer, board secretary, or, in the case of a church, your senior or executive pastor. Substantial penalties may apply if the signer knowingly makes a false statement.
  • Any other documentation the SBA Administrator determines is necessary.


Are PPP loan proceeds required to be deposited into — and accounted from — a separate bank account?

There is nothing in the CARES Act or subsequent SBA guidance, as of April 28, 2020, that requires this. However, at ACCU, we require a single-use PPP loan checking account for the funds to be deposited into in order to keep the SBA/PPP funding segregated. We do this, because this falls in line with best practices when documenting expenditures. We encourage you to take advantage of our Online Banking system to help you document your expenses, or transfers into your payroll and operating accounts. Generally, this will better equip you in creating a paper trail and when preparing your documents for loan forgiveness.

Additional resources pertaining to loan forgiveness can be found on Capin Crouse’s website.

We encourage you to stay abreast as to the rules for loan forgiveness as they become available or are updated by the Small Business Administration (SBA). We recommend frequently visiting the SBA’s Payment protection FAQ download, which is available at this link. Be sure to check this page regularly to remain apprised of any changes, updates, and add-ons that may affect your loan in any part of the process. FAQ’s pertaining specifically to ministries can be found here.