In an effort to combat the economic struggles created by the COVID-19 pandemic, the United States Government has authorized $349 billion in small business loans in accordance with the CARES Act’s paycheck protection program. So far, over $1.5 million in loans have been approved, and this number is expected to rise as more funding is appropriated. Loans can be guaranteed approval if they are used for designated purposes, such as rent and other expenses.  

The CARES act observes no difference between rent paid to third party landlords and rent paid to entities related to the business in question. So, for small businesses involved in “lease-back” arrangements with their real estate, payments can still be forgiven, even if the business owner also owns the real estate where rent is being paid.  

How to Maximize Forgiveness 

To achieve full forgiveness, the loan recipient must provide proof that the funds issued were used for “Allowable Uses,” and that expenses were incurred within eight weeks of when funds were received. PPP loan funds can still be used after the specific eight week period, but the recipient must repay that portion of the loan (at 1% interest) within two years of when funds were initially received.  

To qualify for full forgiveness, business owners must present: 

• Documentation verifying the number of full-time employees they had on payroll for both the pre-shutdown measurement period and the eight week loan period. (including income tax filings and state income, payroll, and unemployment insurance filings)
• Documentation (checks, receipts, transcripts) verifying payment of covered expenses such as mortgage, lease, and utility payments
• A certification from the eligible loan recipient confirming that all documentation is accurate and that the amount being requested was used for approved payment obligations such as rent, utilities, and payroll
• Any other documentation deemed necessary by your SBA administrator

What Can Reduce Forgiveness? 

Of course, the goal of every business owner is to have their PPP loans forgiven in full, and the goal of the program is to forgive as many loans as possible. However, in accordance with the CARES Act, there are some specific circumstances under which the amount of loan forgiveness can be reduced: 

• A reduction in the number full-time employees that occurs within the eight week loan period following the loan 
• A reduction of any employee’s salary totaling more than 25% that occurs during the eight week loan period. These reductions will be measured based on the employees’ earnings in the most recent full quarter before the loan period began   

The circumstances of the COVID-19 pandemic are challenging small business owners in unprecedented ways, but the Paycheck Protection Loan Program can help. To learn more about the practical steps that small business owners can take to maximize the benefits of this program, reach out to Kalray Law today.