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When you put everything into your business, it’s nice to get something back.

Get the details on Paycheck Protection Program loan forgiveness.

As a top-10 Small Business Administration lender,1 we used our expertise to help thousands of businesses quickly gain funds through the Paycheck Protection Program, a federally provided, forgivable loan that covered costs related to payroll, group health care benefits, utilities, rent, mortgage interest payments and interest on other business debt. The federal government ended the program on August 8th and KeyBank will begin to accept applications for forgiveness of approved Paycheck Protection Program loans in late September. Here, you'll find details on loan forgiveness including the criteria, how you can apply and frequently asked questions.

Loan Forgiveness Information2

Because of revisions to loan forgiveness made with the Paycheck Protection Program Flexibility Act ("PPPFA"), the SBA released a new loan forgiveness application and instructions, along with a new EZ version of the application for certain borrowers.

Which application do I use to apply for forgiveness?

To use the new EZ PPP loan forgiveness application, borrowers must:

  • Be a self-employed individual, independent contractor, or sole proprietor and that had no employees at the time of their PPP loan application and did not include any employee salaries in the computation of average monthly payroll; OR
  • Not have reduced the salaries or wages of their employees by more than 25% during the covered period compared to the period between January 1, 2020 and March 31, 2020, and not have reduced the number or hours of their employees between January 1, 2020 and the end of the covered period; OR
  • Have experienced reductions in business activity as a result of health directives related to COVID-19 and did not reduce the salaries or wages of their employees by more than 25%.

Any borrowers that do not fit in the above categories will complete the standard forgiveness application. Our digital forgiveness portal will accommodate both the EZ application and the standard application, 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?
  • Under the PPPFA, the covered period for the forgiveness amount is the 24-week (168-day) period starting on the date the loan was disbursed. Borrowers that received a PPP loan prior to June 5, 2020 (the date the PPPFA was signed) may elect for the covered period to be the eight-week period (56-day) after the loan was disbursed (whichever time period is chosen, referred to as the "Covered Period" herein).
  • For administrative convenience, borrowers with a biweekly (or more frequent) payroll schedule may elect to calculate eligible payroll costs using the period that begins on the first day of their first pay period following the date their PPP loan was disbursed (referred to as the "Alternative Payroll Covered Period").

A borrower may submit a loan forgiveness application before the end of the Covered Period if the borrower has used all of 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.

My loan was $150k or under. Should I wait to apply for forgiveness?

There has been discussion about Congress considering legislation that would provide for a simplified forgiveness process for loans under $150,000. To date, that legislation has not been passed and we do not know if or when any such legislation may be passed. If you choose to wait to submit your forgiveness application in order to see how any such legislation may develop, the payments on your PPP loan will still be deferred until after you apply for forgiveness when the SBA remits the forgiveness payment to KeyBank (or if forgiveness is not applied for, the deferral period will end 10 months after the last day of the covered period).

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.

Forgivable Expenses

Amount and Details

Documentation to be Submitted

Payroll costs

Payroll costs paid and incurred during the Covered Period or Alternative Payroll 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 (or Alternative Payroll 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 (or Alternative Payroll 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 or Alternative Payroll Covered Period as compared to the period of 1/1/2020 through 3/31/2020, unless prior salaries/wages are restored by the earlier of 12/31/2020 and the date the application is submitted.

Forgiveness amount will also be reduced if the borrower’s average weekly number of FTE employees during the Covered Period or Alternative Payroll 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 5/1/2019 and 9/15/2019). 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 the earlier of 12/31/2020 and the date the application is submitted to its FTE employee levels 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 or Alternative Payroll Covered Period which was rejected by the employee will also not be counted against the borrower. If a borrower is able to, in good faith, document an inability to hire similarly qualified employees for unfilled positions on or before 12/31/2020, 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, 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 or the Alternative Payroll 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 or the Alternative Payroll 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 period between January 1, 2020 and March 31, 2020, and did not reduce the number or hours of their employees between January 1, 2020 and the end of the Covered Period 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.

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
  • 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 between 2/15/2020 and 6/30/2020, 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 as long as 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 eight weeks’ worth (8/52) of 2019 net profit (up to $15,385) per individual for an eight-week Covered Period or 2.5 months’ worth (2.5/12) of 2019 net profit (up to $20,833). In particular, C-corporation owner-employees are capped by the amount of their 2019 employee cash compensation and employer retirement and health care contributions made on their behalf. S-corporation owner-employees are capped by the amount of their 2019 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 amount of their owner compensation replacement, calculated based on 2019 net profit. General partners are capped by the amount of their 2019 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 considered to 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 or Alternative Payroll 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 May 1, 2019 and September 15, 2019. If the average number of FTE employees during the Covered Period or Alternative Payroll 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.

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 or Alternative Payroll 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.

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 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 between January 1, 2020 and March 31, 2020 (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 or Alternative Payroll Covered Period to the average annual salary or hourly wage between January 1, 2020 and March 31, 2020. This reduction calculation is performed on a per employee basis, not in the aggregate. If a borrower applies for forgiveness before the end of the Covered Period and has reduced any employees’ salary or wages in excess of 25%, the borrower must account for the excess salary reduction for the full 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 or Alternative Payroll Covered Period: ______________.
  2. Enter average annual salary or hourly wage between January 1, 2020 and March 31, 2020: ______________.
  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 that received a PPP loan before June 5, 2020 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 chosen 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.

If I restore reductions in employee salaries/wages and FTE count by December 31, 2020, 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 eliminates those reductions by the earlier of December 31, 2020 and the date the application is submitted, 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 eliminates those reductions by the earlier of December 31, 2020 and the date the application is submitted, 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 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, 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.

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, 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 or the Alternative Payroll Covered Period relative to the period between January 1, 2020 and March 31, 2020. This documentation must include payroll records that separately list each employee and show the amounts paid to each employee during the period between January 1, 2020 and March 31, 2020, and the amounts paid to each employee during the Covered Period or Alternative Payroll 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). 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.
    • For all borrowers:
      • 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.
      • 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 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.
      • 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, documentation necessary to support the borrower’s loan forgiveness application, and documentation demonstrating the borrower’s material compliance with PPP requirements.
  • Borrowers must retain all documentation for six years after the date the loan is forgiven or repaid in full and permit authorized representatives of the SBA to access such files upon request.
Where can I find additional guidance from the SBA?

All information shared is based on guidance released by the SBA. We will continue to update the information above for any new guidance that is released but there may be a delay between when new guidance is released and when this page is updated.

Who Can I Contact with Additional Questions?

For help specific to your account, please contact your relationship manager.

For those who have general questions about the application, call Customer Service: 1-888-539-2200

Monday-Friday: 8am-9pm
Saturday & Sunday: 8:30am–5pm

Clients using a TDD/TTY device: 1-800-539-8336

Please note that you may experience longer than normal wait times due to high call volumes. We apologize for the inconvenience.

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.