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As a top-10 Small Business Administration lender1, we’re using our expertise to help thousands of businesses quickly gain funds through the Paycheck Protection Program, a federally provided, forgivable loan that covers certain business costs. Here, you'll find details including the eligibility criteria, how to apply and frequently asked questions.

Latest Updates

Recently, the President signed into law the extension of the Paycheck Protection Program (PPP) beyond March 31, 2021, as follows:

  • 60-day extension for lenders to submit applications to the Small Business Administration (SBA) through May 31, 2021; and
  • 30-day extension for the SBA only to process loans through June 30, 2021; loans must be submitted before June 1, 2021.

With this new law becoming effective, we reopened our digital application on April 1, 2021, and the deadline to submit an application is Friday, April 30, 2021, at 5:00 p.m. ET (or earlier if the PPP funding is exhausted). This timing will allow us to focus on the completed applications in our queue before the new program deadline.

For common questions, see our FAQs

Applying for the Paycheck Protection Program

To apply for a PPP loan through KeyBank, you must have an active KeyBank business checking account, and you can open it any time before applying for your loan.

First-time applicants: Apply by contacting your banker or branch manager.

Second-time applicants: Apply through our online application. To find the application link, check your email inbox for an email called, "This is Your PPP Portal Link" or contact your relationship manager.

Applying for loan forgiveness

Our digital loan forgiveness application will be available in April. All clients who have been approved for a PPP loan through Key will receive an automated email with login information. These emails will be sent in waves over the month of April.

Frequently asked questions2

What supporting documentation do I need?

In addition to the PPP updates given above, you can find out more about what supporting documentation you need for the application on the Paycheck Protection Program checklist.

First Draw Loans

What types of borrowers are eligible for a first-time loan?

The following businesses are eligible for a PPP loan:

  • a small business concern under the applicable revenue-based size standard established by the SBA for the business’s industry or under the SBA alternative size standard;
  • an independent contractor, eligible self-employed individual, or sole proprietor;
  • a business concern, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or a tribal business concern, in each case that employs no more than the greater of 500 employees or, if applicable, the standard in number of employees established by the SBA (any single business entity that is assigned a NAICS code beginning with 72 may employ not more than 500 employees per physical location);
  • a housing cooperative, an eligible 501(c)(6) organization, or an eligible destination marketing organization, in each case that employs no more than 300 employees;
  • a news organization that is majority owned or controlled by a NAICS code 511110 or 5151 business or a nonprofit public broadcasting entity with a trade or business under NAICS code 511110 or 5151 that employs no more than 500 employees (or if applicable, the size standard in number of employees established by the SBA) per location;
  • a 501(c)(3) nonprofit organization that employs not more than 500 employees per physical location;
  • a tax-exempt nonprofit organization described in any paragraph of Section 501(c) of the Internal Revenue Code, other than paragraph (3), (4), (6), or (19) that employs not more than 300 employees per physical location; and
  • an internet-only news publisher or internet-only periodical publisher that is assigned a NAICS code 519130 that employs not more than 500 employees (or the size standard in number of employees established by the SBA) per physical location.

The applicant must have been in operation on February 15, 2020, and either had employees for whom it paid salaries and payroll taxes or paid independent contractors (as reported on a Form 1099-MISC) or the applicant was an eligible self-employed individual, independent contractor, or sole proprietorship with no employees. Publicly traded companies are not eligible for a PPP loan.

What types of expenses may a borrower use the PPP loan for?

A borrower may use the loan proceeds for payroll costs, costs related to the continuation of group health care, life disability, vision or dental benefits, mortgage interest payments, rent payments, utility payments, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures. At least 60% of the PPP loan proceeds shall be used for payroll costs.

Covered operations expenditures refers to payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the process, payment or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.

Covered property damage costs refers to costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.

Covered supplier costs refers to expenditures made by a borrower to a supplier of goods for the supply of goods that (a) are essential to the operations of the borrower at the time at which the expenditure is made; and (b) is made pursuant to a contract, order, or purchase order (i) in effect at any time before the covered period with respect to the loan, or (ii) with respect to perishable goods, in effect before or at any time during the covered period with respect to the loan.

Covered worker protection expenditures refers to (a) operating or capital expenditures to facilitate the adaptation of the business activities of an entity to comply with requirements established or guidance issued by federal, state, or local government during the period beginning on March 1, 2020, and ending the date on which the national emergency related to COVID-19 expires related to the maintenance of standards for sanitation, social distancing, or other worker or customer safety requirement related to COVID-19.

How is the loan amount calculated for a first-time loan?

The loan amount is calculated as 2.5 times the applicant’s average monthly payroll costs. An applicant may use 2019 or 2020 payroll figures to determine its average monthly payroll costs. Applicants who file a Form 1040 Schedule C and who have no employees may use either the net profit line (line 31) or the gross income line (line 7) from the Schedule C and divide that amount by 12 to determine average monthly net profit or gross income (as applicable). The average monthly net profit or gross income (as applicable) will be multiplied by 2.5 to calculate the loan amount. Applicants who file a Form 1040 Schedule C and who have employees may use either the net profit line (line 31) from the Schedule C or the gross income line (line 7) minus lines 14, 19, and 26 from the Schedule C in calculating the owner compensation share of payroll costs. The maximum loan amount is $10 million for a single borrower or $20 million for a corporate group.

How long of a time period does a borrower have to use the loan proceeds?

A borrower can determine its "covered period" for using the loan proceeds. The covered period can range from 8 weeks after the loan disbursement date up to the 24 weeks after the loan disbursement date. The borrower can select the ending date of the covered period any time between that 8 weeks and 24 weeks after the loan disbursement date.

Second Draw Loans

Who is eligible for a second draw PPP loan?

A borrower who already received a PPP loan is eligible for a second draw loan if the borrower:

  • has used, or will use by the date the second draw loan is disbursed, the full amount of the first PPP loan on authorized expenses;
  • employs 300 or fewer employees (there are exceptions for businesses with a NAICS code beginning with 72 and eligible news organizations that can have 300 or fewer employees per physical location); and
  • experienced at least a 25% reduction in any quarter of 2020 compared to the same quarter in 2019.
How is the loan amount calculated for a second draw PPP loan?

The loan amount is calculated as the lesser of (a) $2 million, or (b) the average total monthly payment for payroll costs incurred or paid by the borrower during 2019 or 2020 multiplied by 2.5. For a borrower that is assigned a NAICS code beginning with 72, the average total monthly payroll costs are multiplied by 3.5.

The borrower can choose to use average monthly payroll costs based on calendar year 2020 or calendar year 2019. A seasonal employer may use average total monthly payments for payroll costs incurred or paid by the borrower for any 12-week period between February 15, 2019, and February 15, 2020.

How is the 25% revenue reduction measured?

A borrower must have experienced at least a 25% reduction in any quarter of 2020 compared to the same quarter in 2019. "Revenue" means gross receipts, which includes all revenue in whatever form received or accrued (in accordance with the borrower’s accounting method) from whatever source, including from the sales of products or services, interest, dividends, rents, royalties, fees, or commissions, reduced by returns and allowances. Gross receipts do not include (a) taxes collected for and remitted to a taxing authority if included in gross or total income (such as sales or other taxes collected from customers and excluding taxes levied on the entity or its employees); (b) proceeds from transactions between the borrower and its domestic or foreign affiliates; and (c) amounts collected for another by a travel agent, real estate agent, advertising agent, conference management service provider, freight forwarder, or customs broker. The amount of a borrower’s forgiven initial PPP loan is not included in gross receipts.

If a borrower was not in business all four quarters of 2019, the requirement varies slightly as follows:

  • If a borrower was not in business during the first or second quarter of 2019, the applicant must have had gross receipts during the first, second, third, or fourth quarter of 2020 that demonstrate at least a 25% reduction from the gross receipts during the third or fourth quarter of 2019.
  • If the borrower was not in business during the first, second, or third quarter of 2019, the applicant must have had gross receipts during the first, second, third, or fourth quarter of 2020 that demonstrate at least a 25% reduction from the gross receipts of the fourth quarter of 2019.
  • If a borrower was not in business during 2019 but was in operation on February 15, 2020, the applicant must have had gross receipts during the second, third, or fourth quarter of 2020 that demonstrate at least a 25% reduction from the gross receipts during the first quarter of 2020.
What documentation will a borrower need to submit to demonstrate a 25% reduction in revenue?

For second draw loans with a principal amount greater than $150,000, the borrower will need to provide documentation sufficient to establish that the applicant experienced a 25% reduction in revenue as explained in the question directly above. Such documentation must be provided at the time of application and may include relevant tax forms, including annual tax forms, or quarterly income statements or bank statements.

If the borrower provides quarterly financial statements that are not audited, the borrower must sign and date the first page of the financial statement and initial all other pages, attesting to their accuracy. If the financial statements do not specifically identify the line item(s) that constitute gross receipts, the borrower must annotate which line item(s) constitute gross receipts. If the borrower provides bank statements, the borrower must annotate, if it is not clear, which deposits listed on the bank statement constitute gross receipts and which do not.

An applicant that was in operation in all four quarters of 2019 is deemed to have experienced a 25% revenue reduction if it experienced a reduction in annual receipts of 25% or more in 2020 compared to 2019 and the borrower submits copies of its annual tax forms substantiating the revenue decline.

If the borrower has not yet filed its tax return for 2020, the borrower must fill out the return forms, compute the relevant gross receipts value and sign and date the return, attesting that the values that enter into the gross receipts computation are the same values that will be filed on the borrower’s tax return.

For loans with a principal amount of $150,000 or less, the applicant must submit such documentation on or before the date the borrower submits an application for loan forgiveness.

Loan Forgiveness

Which application do I use to apply for forgiveness?

There are three forms of forgiveness applications: (1) a simplified form for loans of $150,000 or less (Form 3508S); (2) an EZ form (Form 3508EZ); and (3) the standard form (Form 3508).

Borrowers whose PPP loan is $150,000 or less will use the simplified form of loan forgiveness application.

For loans over $150,000, to use the EZ PPP loan forgiveness application, borrowers must:

  • Not have reduced the salaries or wages of their employees by more than 25% during the Covered Period compared to the most recent full quarter before the Covered Period, and not have reduced the number of employees or average paid hours of their employees between January 1, 2020, and the end of the Covered Period; OR
  • Have been unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, as a result of health directives related to COVID-19 and not have reduced the salaries or wages of their employees by more than 25% during the Covered Period compared to the most recent full quarter before the Covered Period.

Any borrowers that do not fit in the above categories for the simplified form or the EZ form will complete the standard forgiveness application. Our digital forgiveness portal will accommodate all the application forms, and the portal will select the appropriate form based on questions answered by the borrower.

What time period do I use to calculate the forgiveness amount?

The loan forgiveness covered period is the period beginning on the date the lender disburses the PPP loan and ends on any date selected by the borrower that occurs during the period 8 weeks after the loan disbursement date and 24 weeks after the loan disbursement date (whichever time period is chosen, referred to as the "Covered Period" herein).

A borrower may submit a loan forgiveness application before the end of the Covered Period if the borrower has used all the loan proceeds for which the borrower is requesting forgiveness.

When will I know if my loan forgiveness application was approved?

Key must issue a decision to the SBA on a loan forgiveness application not later than 60 days after receipt of a complete loan forgiveness application from the borrower. After Key issues its forgiveness decision to the SBA, the SBA has 90 days to remit the forgiveness amount to Key.

What expenses are forgivable and what documentation do I need to submit for those expenses?

Payments of interest on debt obligations incurred prior to 2/15/2020 are a permitted use of PPP loan proceeds but do not count toward the forgiveness amount. Borrowers with loans of $150,000 or less will use the simplified forgiveness application, which does not require the borrower to submit supporting documentation with the forgiveness application (but the borrower must retain the documentation in its files for the required time frame).

Forgivable Expenses

Amount and Details

Documentation to be Submitted

Payroll costs

Payroll costs paid and incurred during the Covered Period.

Payroll costs are considered paid on the day that paychecks are distributed, or the borrower originates an ACH credit transaction. Payroll costs are considered incurred on the day that the employee’s pay is earned. Payroll costs incurred but not paid during the borrower’s last pay period of the Covered Period are eligible for forgiveness if paid on or before the next regular payroll date. Otherwise, payroll costs must be paid during the Covered Period. Count payroll costs that were both paid and incurred only once.

Must be at least 60% of the forgiveness amount. Forgiveness amount will be reduced if the borrower reduced any employee salaries or hourly wages by more than 25% during the Covered Period as compared to the most recent full quarter before the Covered Period, unless prior salaries/wages are restored by 12/31/2020 (for a PPP loan made in 2020) or the last day of the Covered Period (for a PPP loan made in 2021).

Forgiveness amount will also be reduced if the borrower’s average weekly number of FTE employees during the Covered Period was less than during the borrower’s chosen reference period (can be 2/15/2019 – 6/30/2019; 1/1/2020 – 2/29/2020; or for seasonal employers, either of the preceding periods or a consecutive 12-week period between 2/15/2019 and 2/15/2020). The reduction will not apply if the borrower reduced its FTE employee levels from 2/15/2020 through 4/26/2020 and then restored its FTE employee levels by 12/31/2020 (for a PPP loan made in 2020) or the last day of the Covered Period (for a PPP loan made in 2021) in the pay period that included 2/15/2020. Employees who were fired for cause, who voluntarily resigned, or who voluntarily requested and received a reduction of their hours will not be counted against the borrower. Any positions for which the borrower made a good-faith, written offer to rehire an employee or to restore any reduction in hours during the Covered Period which was rejected by the employee will also not be counted against the borrower. If a borrower can, in good faith, document an inability to hire similarly qualified employees for unfilled positions on or before 12/31/2020 (for a PPP loan made in 2020) or the last day of the Covered Period (for a PPP loan made in 2021), the reduction in FTE employees will not be counted against the borrower.

The borrower is also exempt from the reduction in loan forgiveness based on a reduction in FTE employees described above if the borrower, in good faith, is able to document that it was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020 (for a PPP loan made in 2020), or the last day of the Covered Period (for a PPP loan made in 2021), by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period consisting of each of the following:

  • Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
  • Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period:
    • Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
    • State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
  • Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount.

Documentation showing the average number of FTE employees on payroll during the borrower’s chosen reference period. Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period. Borrowers that submit the EZ form of application because they did not reduce the salaries or wages of their employees by more than 25% during the Covered Period compared to the most recent full quarter before the Covered Period, and were unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, as a result of health directives related to COVID-19 must provide the average number of FTE employees on payroll employed by the borrower on January 1, 2020, and at the end of the Covered Period.

Covered mortgage obligations

Payments of interest on any business mortgage obligation on real or personal property incurred before 2/15/2020.

Must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Count covered mortgage obligations that were both paid and incurred only once.

Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.

Covered rent obligations

Business rent or lease payments pursuant to lease agreements for real or personal property in force before 2/15/2020.

Must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Count covered rent obligations that were both paid and incurred only once.

Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.

Covered utility payments

Business payments for a service for the distribution of electricity, gas, water, transportation, telephone, or internet access for which service began before 2/15/2020.

Must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period. Count covered utility obligations that were both paid and incurred only once.

Copy of invoices from February 2020 and those paid during the Covered Period along with the associated receipts, cancelled checks, or account statements verifying those eligible payments.

Covered operations expenditures

Payments for any business software or cloud computing service that facilitates business operations, product or service delivery, the processing, payment, or tracking of payroll expenses, human resources, sales and billing functions, or accounting or tracking of supplies, inventory, records and expenses.

Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

Covered property damage costs

Costs related to property damage and vandalism or looting due to public disturbances that occurred during 2020 that was not covered by insurance or other compensation.

Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments, and documentation that the costs were related to property damage and vandalism or looting due to public disturbances that occurred during 2020 and such costs were not covered by insurance or other compensation.

Covered supplier costs

Expenditures made by a borrower to a supplier of goods for the supply of goods that (A) are essential to the operations of the borrower at the time at which the expenditure is made; and (B) is made purchase to a contract, order, or purchase order (i) in effect at any time before the Covered Period; or (ii) with respect to perishable goods, in effect before or at any time during the Covered Period.

Copy of contracts, orders, or purchase orders in effect at any time before the Covered Period (except for perishable goods), copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

Covered worker protection expenditures

Operating or capital expenditures to facilitate the adaptation of the business activities to comply with requirements established or guidance issued by federal, state, or local government related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.

Examples include the purchase, maintenance, or renovation of assets that create or expand (A) a drive-through window facility; (B) an air pressure ventilation or filtration system; (C) a physical barrier such as a sneeze guard; (D) an expansion of additional indoor, outdoor, or combined business space; and (E) health screening capability. Other examples include the purchase of particulate filtering facepiece respirators and other kinds of personal protective equipment.

Copy of invoices, orders, or purchase orders paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments, and documentation that the expenditures were used by the borrower to comply with applicable COVID-19 guidance during the Covered Period.

What qualifies as "payroll costs"?
  • Payroll costs consist of (1) Cash Compensation; (2) Non-Cash Compensation; and (3) Compensation to Owners (if applicable):
    • Cash Compensation:
      • compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation
      • cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)
      • payment for vacation, parental, family, medical, or sick leave
      • allowance for separation or dismissal
    • Non-Cash Compensation:
      • payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement
      • payment of state and local taxes assessed on compensation of employees
    • Compensation to Owners (if applicable):
      • Amounts paid to owner-employees/self-employed individual/general partners (for an independent contractor or sole proprietor, this includes wages, commissions, income or net earnings from self-employment)
  • The following are excluded from payroll costs:
    • Cash compensation of an individual employee in excess of $100,000, prorated as necessary
    • Federal employment taxes imposed or withheld during the applicable covered period, including the employee’s and employer’s share of FICA and Railroad Retirement Act taxes, and income taxes required to be withheld from employees*
      • *The SBA interprets this exclusion to mean that payroll costs are calculated on a gross basis, without subtracting federal taxes that are imposed on the employee or withheld from employee wages
    • Any compensation of an employee whose principal place of residence is outside of the United States
    • Qualified sick and family leave wages for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act (Public Law 116–27).
  • If a borrower pays furloughed employees their salary, wages, or commissions during the covered period, those payments are eligible for forgiveness if they do not exceed an annual salary of $100,000, prorated as necessary.
  • The amount of loan forgiveness requested for owner-employees and self-employed individuals’ payroll compensation can be no more than 2.5 months’ worth (2.5/12) of an owner-employee or self-employed individual’s 2019 or 2020 compensation (up to a maximum of $20,833 per individual in total across all businesses). C-corporation owner-employees are capped by the pro-rated amount of their 2019 or 2020 (whichever year was used to calculate the loan amount) employee cash compensation and employer retirement and health care contributions made on their behalf. S-corporation owner-employees are capped by the pro-rated amount of their 2019 or 2020 (whichever year was used to calculate the loan amount) employee cash compensation and employer retirement contributions made on their behalf, but employer health insurance contributions made on their behalf cannot be separately added because those payments are already included in their employee cash compensation. Schedule C or F filers are capped by the pro-rated amount of their owner compensation replacement, calculated based on 2019 or 2020 net profit. General partners are capped by the pro-rated amount of their 2019 or 2020 net earnings from self-employment (reduced by claimed section 179 expense reduction, unreimbursed partnership expenses, and depletion from oil and gas properties) multiplied by 0.9235. No additional forgiveness is provided for retirement or health care insurance contributions for self-employed individuals, including Schedule C or F filers and general partners, as such expenses are paid out of their net self-employment income.
How do I calculate full-time equivalent (FTE) employees?

"Full-time equivalent employee" means an employee who works 40 hours or more, on average, each week. The hours of employees who work less than 40 hours are calculated as proportions of a single full-time equivalent employee and aggregated, as explained below. To calculate FTE employees, divide the average number of hours paid for each employee per week by 40, capping this quotient at 1.0. Borrowers may choose to calculate full-time equivalency in one of two ways for employees who were paid for less than 40 hours per week. First, the borrower may calculate the average number of hours a part-time employee was paid per week during the covered period. Second, for administrative convenience, borrowers may elect to use a full-time equivalency of 0.5 for each part-time employee.

Example: An employee who was paid 48 hours per week during the covered period would be an FTE employee of 1.0.

Example: If an employee was paid for 30 hours per week on average during the covered period, the employee would be considered an FTE employee of 0.75 (30 hours / 40 hours = 0.75). If an employee was paid for ten hours per week on average during the covered period, the employee would be considered an FTE employee of 0.25 (10 hours / 40 hours = 0.25). Alternatively, the borrower could elect to use 0.5 for each part-time employee for administrative convenience.

Borrowers may select only one of the two methods and must apply that method consistently to all part-time employees. In either case, the borrower must provide the aggregate total of all FTE employees by adding together all of the employee-level FTE employee calculations.

How do I calculate the required reduction in the forgiveness amount for a reduction in FTEs?

In general, a reduction in FTE employees during the Covered Period reduces the loan forgiveness amount by the same percentage as the percentage reduction in FTE employees. The borrower must first select a reference period: (i) February 15, 2019, through June 30, 2019; (ii) January 1, 2020, through February 29, 2020; or (iii) in the case of a seasonal employer, either of the two preceding methods or a consecutive 12-week period between February 15, 2019, and February 15, 2020. If the average number of FTE employees during the Covered Period is less than during the chosen reference period, the total eligible expenses available for forgiveness is reduced proportionally by the percentage reduction in FTE employees.

Example: If a borrower had 10.0 FTE employees during the reference period and this declined to 8.0 FTE during the Covered Period, the percentage of FTE employees declined by 20%. Thus, only 80% of otherwise eligible expenses are available for forgiveness.

Borrowers are exempted from the loan forgiveness reduction if the borrower is able to document in good faith (i) an inability to rehire individuals who were employees of the borrower on February 15, 2020; and (ii) an inability to hire similarly qualified individuals for unfilled positions on or before December 31, 2020 (for a PPP loan made in 2020) or the last day of the Covered Period (for a PPP loan made in 2021). Borrowers are also exempted from the loan forgiveness reduction if the borrower is able to document in good faith an inability to return to the same level of business activity as the borrower was operating at before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020 (for a PPP Loan made in 2020), or the last day of the Covered Period (for a PPP loan made in 2021), by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety. If an employee of the borrower is fired for cause, voluntarily resigns, or voluntarily requests a reduced schedule (an FTE reduction event) during the Covered Period, the borrower may count such employee at the same full-time equivalency level before the FTE reduction event when calculating the FTE employee reduction penalty. The borrower should maintain all documentation regarding any such terminations and schedule reductions.

Borrowers with loans of $50,000 or less (except those that, together with their affiliates, received PPP loans totaling $2 million or more) are exempt from any reductions in the forgiveness amount based on reductions in FTEs.

How do I calculate the required reduction in the forgiveness amount for a reduction in employees’ salary or wages?

A reduction in an employee’s salary or wages in excess of 25% will generally result in a reduction in the loan forgiveness amount, unless an exception applies. For each new employee in 2020 and 2021, as well as each existing employee who was not paid more than the annualized equivalent of $100,000 in any pay period in 2019, the borrower must reduce the total forgiveness amount by the total dollar amount of the salary or wage reductions that are in excess of 25% of base salary or wages of the employee during the most recent full quarter during which the employee was employed before the Covered Period (subject to exceptions for borrowers who restore reduced wages or salaries). The instructions to the application instruct the borrower to compare the average annual salary or hourly wage during the Covered Period to the average annual salary or hourly wage during the most recent full quarter before the Covered Period. This reduction calculation is performed on a per employee basis, not in the aggregate. This reduction is performed based on the Covered Period.

Excerpt from application instructions:

Step 1. Determine if pay was reduced more than 25%.

  1. Enter average annual salary or hourly wage during Covered Period: ______________.
  2. Enter average annual salary or hourly wage during the most recent full quarter before the Covered Period: ______________.
  3. Divide the value entered in 1.a. by 1.b.: ______________.
    If 1.c. is 0.75 or more, enter zero in the column above box 3 for that employee; otherwise proceed to Step 2.

Example: A borrower has elected to use an eight-week Covered Period. This borrower reduced a full-time employee’s weekly salary from $1,000 per week during the reference period to $700 per week during the Covered Period. The employee continued to work on a full-time basis during the Covered Period with an FTE of 1.0. In this case, the first $250 (25% of $1,000) is exempted from the reduction. The borrower seeking forgiveness would list $400 as the salary/hourly wage reduction for that employee, which equates to the extra $50 weekly reduction multiplied by eight weeks in the covered period.

To ensure that borrowers are not doubly penalized, the salary/wage reduction applies only to the portion of the decline in employee salary and wages that is not attributable to an FTE reduction.

Example: An hourly wage employee had been working 40 hours per week during the borrower selected reference period (FTE employee of 1.0), and the borrower reduced the employee’s hours to 20 hours per week during the Covered Period (FTE employee of 0.5). There was no change to the employee’s hourly wage during the Covered Period. Because the hourly wage did not change, the reduction in the employee’s total wages is entirely attributable to the FTE employee reduction, and the borrower is not required to conduct a salary/wage reduction calculation for that employee.

Borrowers with loans of $50,000 or less (except those that, together with their affiliates, received PPP loans totaling $2 million or more) are exempt from any reductions in the forgiveness amount based on reductions in employee salaries or wages.

If I restore reductions in employee salaries/wages and FTE count, can I avoid a reduction in my loan forgiveness amount?

Yes. If employee salaries and wages were reduced between February 15, 2020, and April 26, 2020 (the safe harbor period), but the borrower eliminated those reductions by December 31, 2020 (for a PPP loan made in 2020), or eliminates those reductions by the last day of the Covered Period (for a PPP loan made in 2021), the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in salaries and wages. Similarly, if a borrower reduced FTEs during the safe harbor period and eliminated those reductions by the earlier of December 31, 2020 (for a PPP loan made in 2020), or eliminates those reductions by the last day of the Covered Period (for a PPP loan made in 2021), the borrower is exempt from any reduction in loan forgiveness amount that would otherwise be required due to reductions in FTE employees.

The borrower is also exempt from the reduction in loan forgiveness based on a reduction in FTE employees if the borrower, in good faith, is able to document that it was unable to return to the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020 (for a PPP Loan made in 2020), or the last day of the Covered Period (for a PPP loan made in 2021), by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety.

Borrowers with loans of $50,000 or less (except those that, together with their affiliates, received PPP loans totaling $2 million or more) are exempt from any reductions in the forgiveness amount based on reductions in FTEs or employee salaries or wages.

What documentation do I need to keep in my files?
  • In addition to the documentation listed above that is required to be submitted to us for the EZ version and the standard application form, borrowers must maintain the following documentation:
    • For standard application form:
      • PPP Schedule A Worksheet or its equivalent and documentation supporting the content of the Schedule A Worksheet, including the listing of each individual employee in Table 1 and 2 of such worksheet and the FTE employee information in such worksheet.
      • For EZ version of application:
        • Documentation supporting the certification that annual salaries or hourly wages were not reduced by more than 25% during the Covered Period relative to the most recent full quarter before the Covered Period. This documentation must include payroll records that separately list each employee and show the amounts paid to each employee during the most recent full quarter before the Covered Period, and the amounts paid to each employee during the Covered Period.
        • Documentation supporting the certification, if applicable, that the borrower did not reduce the number of employees or the average paid hours of employees between January 1, 2020, and the end of the Covered Period (other than any reductions that arose from an inability to rehire individuals who were employees on February 15, 2020, if the borrower was unable to hire similarly qualified employees for unfilled positions on or before December 31, 2020, (for PPP loans made in 2020), or the last day of the Covered Period (for PPP loans made in 2021). This documentation must include payroll records that separately list each employee and show the amounts paid to each employee between January 1, 2020, and the end of the Covered Period.
        • Documentation supporting the certification, if applicable, that the borrower was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020 (for a PPP loan made in 2020), or the last day of the Covered Period (for a PPP loan made in 2021) by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.
      • For EZ version and standard application form:
        • Documentation regarding any employee job offers and refusals, refusals to accept restoration of reductions in hours, firings for cause, voluntary resignations, written requests by any employee for reductions in work schedule, and any inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020 (for a PPP loan made in 2020), or the last day of the Covered Period (for a PPP loan made in 2021).
        • Documentation supporting the certification, if applicable, that the borrower was unable to operate between February 15, 2020, and the end of the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020 (for a PPP loan made in 2020), or the last day of the Covered Period (for a PPP loan made in 2021) by the Secretary of Health and Human Services, the Director of the Centers for Disease Control and Prevention, or the Occupational Safety and Health Administration, related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. This documentation must include copies of the applicable requirements for each borrower location and relevant borrower financial records.
      • For all borrowers:
        • All records relating to the borrower’s PPP loan, including documentation submitted with its PPP loan application, documentation supporting the borrower’s certifications as to the necessity of the loan request and its eligibility for a PPP loan (including the borrower’s gross receipt reduction certification for a Second Draw PPP Loan, if applicable), documentation necessary to support the borrower’s loan forgiveness application, and documentation demonstrating the borrower’s material compliance with PPP requirements.
    • Borrowers using the simplified application form must retain all employment records/payroll documentation for four years and all other documentation for three years after the date the loan application is submitted to the lender. Borrowers using the EZ version or standard application form must retain all documentation for six years after the date the loan is forgiven or repaid in full. Borrowers must permit authorized representatives of the SBA to access such files upon request.
Where can I find additional information?

All the information shared here is based on guidance released by the SBA. Please visit sba.gov or treasury.gov for any updates.

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1

Source: U.S. Small Business Administration (SBA) 7(a) lender by dollar volume through February 2020.

2

The information presented here should not be considered legal or accounting advice, and should not substitute for legal, accounting, or other professional advice in which the facts and circumstances may warrant. We encourage you to consult legal counsel as it pertains to your own unique situation(s) and/or with any specific legal questions you may have.

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