Stimulus loan use guidance

Guidance for small businesses on using Paycheck Protection Program (PPP) loans and Economic Injury Disaster Loans (EIDLs), including how to maximize PPP loan forgiveness and document eligible expenses.

Paycheck Protection Program

  • Once you've applied for and received a PPP loan, you must use the loan to pay approved expenses over the covered period for it to be eligible for forgiveness. Borrowers may elect to choose a covered period for loan forgiveness that is between eight and 24 weeks from loan origination. Approved, forgivable expenses include:

    • Payroll costs, including:
      • salary, wages, commissions, or similar compensation (including a housing stipend or allowance, bonuses, and hazard pay);
      • wages to cover what tipped employees would normally have earned in cash tips;
      • payroll taxes imposed on an employee and required to be withheld by an employer (such as unemployment insurance premiums);
      • payment for vacation, parental, family, medical or sick leave;
      • allowance for dismissal or separation;
      • payments for the provision of group health care benefits for employees, including insurance premiums;
      • retirement contributions; and
      • payment of state or local tax assessed on the employee.
    • Business rent payments on lease agreements in force before February 15, 2020 (such as the warehouse where you store business equipment or the vehicle you use to perform your business).
    • Business utility payments (electricity, gas, water, transportation, telephone, or internet access) under service agreements dated before February 15, 2020.
    • Mortgage interest payments (but not mortgage prepayments or principal payments) on any business mortgage obligation on real or personal property (such as the interest on your mortgage for the warehouse you purchased to store business equipment or the interest on an auto loan for a vehicle you use to perform your business). Mortgages must have been signed before February 15, 2020.
    • Interest payments on any other debt obligations incurred before February 15, 2020, but it is currently unclear if those expenses are eligible for forgiveness.
    • Covered operating expenses, including payment for any software, cloud computing, and other human resources and accounting needs.
    • Uninsured costs related to property damage, vandalism or looting during 2020 public disturbances.
    • Supplier costs according to a contract, purchase order or order for goods, in effect before taking out the loan, that are essential to the borrower’s operations.
    • Worker protection expenses incurred to comply with federal or state health and safety guidelines related to COVID-19 (for example, personal protective equipment and ventilation systems).

    Payroll costs that are not eligible for loan forgiveness include:

    • Cash compensation of an individual employee in excess of an annual salary of $100,000 in one year (for eight weeks, a maximum of $15,385 per individual).
    • An employer's share of federal payroll taxes.
    • Any compensation of an employee whose principal place of residence is outside of the US.
    • Qualified sick leave wages or family leave wages for which a credit is allowed under the Families First Coronavirus Response Act (FFCRA).
    • Payments to independent contractors.
  • If you use any part of the PPP loan for expenses not on the approved list above, that amount cannot be forgiven.

    • Step 1: Use at least 60% of the loan proceeds for approved expenses. Borrowers are eligible for loan forgiveness if 60% of the loan proceeds are used to cover approved payroll costs over the covered period after the loan is made. Not more than 40% of the loan funds can be used for approved non-payroll costs for the full loan amount to be forgiven.
    • Step 2: Maintain employee and compensation levels. Loan forgiveness will be reduced if your business:
      • Reduces its full-time employee headcount.
      • Decreases salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
      • If you made any staffing or wage reductions between February 15, 2020 and April 26, 2020, you have until December 31, 2020 to rehire or replace employees and restore salary levels (or, for a PPP loan made after December 27, 2020, before the last day of the covered period). Otherwise, your forgiveness amount will be reduced.
      • Laid-off employees that you offer to rehire (for the same salary/wages and the same number of hours) that decline the offer are excluded from the loan forgiveness reduction calculation. To qualify for this exception, you must:
        • Make a good faith, written offer of rehire.
        • Document the employee's rejection of that offer.
    • Step 3: Apply for loan forgiveness. You must apply to the lender for forgiveness within 90 days after the final day of your covered period. Applications for forgiveness will not be accepted after that time. The loan forgiveness applications and instructions are available using the links below:
    • Step 4: Provide documentation. When requesting forgiveness, provide all relevant documentation to the lender, including payroll tax filings and state income tax filings.
  • Laid-off employees that you offer to rehire (for the same salary/wages and the same number of hours) that decline the offer are excluded from the loan forgiveness reduction calculation. To qualify for this exception, you must:

    • Make a good faith, written offer of rehire.
    • Document the employee's rejection of that offer.
    • Inform the applicable state unemployment insurance office of the employee's rejected offer of reemployment within 30 days of the employee's rejection of the offer.

    Employees that are fired for cause, voluntarily resign, or voluntarily request a reduced schedule during the 24 week covered period are also excluded from the loan forgiveness reduction calculation. To qualify for this exception, you must keep records showing that each of these employees was fired for cause, voluntarily resigned, or voluntarily requested a schedule reduction.

    The loan forgiveness reduction calculation also excludes a proportional reduction in full-time employees if you, in good faith, are:

    • Unable to rehire employees who were employees on February 15, 2020, and unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020 (or, for a PPP loan made after December 27, 2020, before the last day of the covered period).
    • Unable to return to the same level of business activity as the business was operating before February 15, 2020, due to compliance with requirements and guidelines issued by federal agencies during the period beginning on March 1, 2020, and ending December 31, 2020 (or, for a PPP loan made after December 27, 2020, requirements established or guidance issued before the last day of the Covered Period), related to the maintenance of standards for sanitation, social distancing, or other worker or customer safety requirement related to COVID-19.
  • In your application for loan forgiveness (if using SBA Form 3508), you must submit the following documentation:

    • The Loan Forgiveness Application (SBA Form 3508).
    • Verification of the number of full-time employees and pay rates your business maintained during the covered period, by submitting:
      • payroll tax filings with the IRS (such as IRS Forms 941 or 940 and IRS Forms W-2 and W-3); and
      • state income, payroll, and unemployment insurance filings.
    • Proof of mortgage, lease, and utility payments, including cancelled checks, receipts, and other documentation.
    • A certification from a representative of the business that is authorized to certify that:
      • all the information you provided is accurate; and
      • the amount that is being forgiven was used in accordance with the PPP guidelines.
    • Any other documentation that SBA determines is necessary. Check with your lender for any additional information required.
    • Track your spending. Beginning on the first day of the covered period after your loan is disbursed, track everything you spend your PPP funds on. Make sure the items match up with the list of forgivable expenses. Try to keep amounts spent on non-payroll costs under 40% of the full amount spent.
    • Prepare your payroll report. At the end of the covered period, use your federal and state payroll tax filings to prepare a report of all your qualifying payroll expenses, including employer contributions to health plan premiums and unemployment insurance.
    • Gather documentation for non-payroll expenses. During the covered period, make sure you obtain receipts for all expenses paid using PPP funds. Collect proof of payment for your qualifying non-payroll expenses, such as rent, mortgage interest, and utility payments. Organize your records in one place.
    • Retain PPP documentation for six years after the loan is forgiven or repaid. Permit authorized representatives of the SBA, including representatives of its Office of Inspector General, to access the files upon request.
  • As you weigh the benefits of maximizing your loan forgiveness amount against the short- and long-term needs of your business, consider the following:

    • Depending on your situation, it may help your business to continue furloughs or other workforce reductions in the short-term, and pay back any unforgiven loan amount over time at a low interest rate.
    • On the other hand, you may want to increase payroll costs during the covered period to maximize loan forgiveness. The loan forgiveness window begins on the first day of your covered period. You may want to:
      • notify employees of your rehiring plans as soon as your PPP loan is approved so you can get a jump start on the rehiring process; and
      • provide incentive bonuses to get employees back on payroll immediately.
    • In either case, good recordkeeping is important for maximizing your loan forgiveness.

    The government continues to issue rules clarifying the forgiveness process. Check regularly for updates and confirm with your lender for its specific requirements.

  • Lenders have 60 days from the date that you apply for forgiveness to decide whether or not you qualify. SBA, in consultation with the US Treasury Department, will review all loans over $2 million, and may spot-check other loans before making a determination of forgiveness.

  • If any portion of your loan is not forgiven, the loan terms are as follows:

    • The loan amount and any accrued interest that is not forgiven must be repaid within two years from the date of disbursement, but can be modified with the lender's agreement. For loans made after June 5, 2020, the loan must be repaid within five years.
    • The loan accrues interest at a rate of 1% per annum.
    • Loan repayments are deferred until the date on which you apply for loan forgiveness. If you fail to apply for forgiveness within 10 months after the last day of the covered period, you must make payments of principal, interest, and fees beginning 10 months after the last day of that covered period.
    • There is no prepayment penalty.

    For additional PPP guidance from the Treasury Department, see:

Economic Injury Disaster Loan

  • You can use EIDL funds to meet financial obligations and operating expenses that your business would otherwise have been able to meet had the disaster not occurred.

  • If you received an EIDL loan:

    • From January 31, 2020 through April 3, 2020, and your EIDL loan was not used for payroll costs, then your EIDL loan is not required to be refinanced with your PPP loan.
    • From January 31, 2020 through April 3, 2020, and your EIDL loan was used for payroll costs, then your PPP loan must be used to refinance the full amount of your EIDL loan.
    • Before January 31, 2020 or after April 3, 2020, then your EIDL loan may not be refinanced with your PPP loan.

    The amount of the EIDL loan to be refinanced does not include the amount of any EIDL advance (also referred to as an EIDL grant) received by the business, because the EIDL advance does not need to be repaid.

  • EIDLs are offered on these terms:

    • 3.75 percent fixed interest rate on loans to for-profit companies.
    • 2.75 percent fixed interest rate on loans to non-profit companies.
    • Up to 30-year term and amortization, depending on the needs of the borrower.
    • Automatic one-year deferment on repayment, so the first payment is not due for a full year.

For resources to help you navigate COVID-related issues generally, go to the Thomson Reuters COVID-19 Resource Center.

Last updated 4/27/2021

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