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The application process for the Small Business Administration's (SBA) Paycheck Protection Program (PPP) began on April 3. Since then, over a million businesses, including many physicians, dentists and small practice groups trying to keep their practices afloat, have scrambled to complete the borrower application form and gather the supporting documentation to submit to their lenders. Borrowers are now beginning to be notified that their application has been approved, and some have already received their loan proceeds. Those who did not act fast enough have unfortunately missed the boat—as of April 16, the SBA announced it officially ran out of money, hitting its $350 billion cap under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. It is possible that this cap will be increased by Congress by the time this article is published.

Now that many small businesses have actually received their PPP loan funds, thereby triggering the eight-week coverage period, the fundamental question has become: How much of my loan will be forgiven, and what will I need to do to apply for forgiveness?

The CARES Act places restrictions on how borrowers can use loan proceeds from the PPP and also provides for forgiveness of up to the full principal amount of a PPP loan and any interest accrued thereon, for documented, qualifying expenditures made during the specified covered period. It sets forth the qualifying expenditures, the covered period during which such expenditures must be made, the calculation to be used for determining a borrower's forgiveness amount and certain actions and expenditures that can reduce the forgiveness amount.

The Eight-Week Coverage Period

The amount of the PPP loan eligible for forgiveness will depend on how the borrower uses the loan proceeds during the eight-week period immediately following the borrower's receipt of the loan. The eight-week period begins on the date the lender makes the first disbursement of the PPP loan to the borrower. Thus, borrowers should be planning ahead to maximize their loan forgiveness. The lender must make the first loan disbursement no later than 10 calendar days from the date of loan approval.

Qualifying Expenditures

The maximum amount of a PPP loan that is eligible for forgiveness is equal to the amount an employer has both incurred and spent on qualifying expenses during the eight-week coverage period, beginning on the loan origination date. Qualifying expenses include the following:

  • Payroll costs, including salaries, wages and commissions (not to exceed $100,000 per employee) and certain other noncash benefits (e.g,. group health care benefits (including insurance premiums), retirement benefits, and state and local taxes assessed on employee compensation);
  • Paid sick, medical or family leave where no tax credits were taken;
  • Mortgage interest payments (but not mortgage prepayments or principal payments);
  • Rent payments;
  • Utilities payments; and
  • Interest payments on any other debt obligations that were incurred before Feb. 15.

Examples of ineligible expenses include: accounts payable, including payments made to proprietorships and independent contractors; life insurance costs; principal portions of mortgage or other debt payments; and payments of interest on other debt obligations established after Feb. 15.