All of the loan proceeds used toward certain payroll costs should be forgiven. Payments used towards utilities, rent, interest on mortgage payments, and interest on debt obligations existing before February 15, 2020, should be forgiven at least in part. SBA has indicated that not more than 25% of the forgiven amount may be for non-payroll costs.
Any expenditures made for overhead, costs, etc. outside of the uses mentioned above will not be forgiven.
Additionally, the forgiven amount will be reduced where the number of employees employed during the loan period is less than the number of employees that were employed February 15, 2019 – June 30, 2019 OR January 1, 2020 – February 29, 2020.
The loan forgiveness amount is also going to be reduced by the amount of any reduction in total salary or wages of any employee during the Covered Period, that is more than 25% of the total salary or wages of the employee during the most recent full quarter during which the employee was employed before the loan was received. The exception here is that if the borrower reduced its staff or their wages between February 15, 2020 and April 26, 2020, the amount of loan forgiveness will not be reduced if the borrower eliminates the reduction in employees or salaries and wages by June 30, 2020.
Take this example: A business borrows $120,000, and of that, $20,000 is spent on documented utility and rent costs and $100,000 is paid towards payroll costs during the 8 week period. The business has 10 employees on payroll during the 8 weeks following the date loan proceeds were received, but had 15 employees on payroll between February 15, 2019 – June 30, 2019.
No employee received less than 75% of his or her regularly paid wage during the Covered Period.
In this case:
($100,000 expended on payroll) x (1 – 10/15) = $33,333
$33,333 is the amount of the loan that is not forgiven. That $33,333 will be payable in monthly payments of Principal and Interest over a 2 year period, at 1.0% interest, with payments starting 6 months after the loan proceeds were received.
$86,667 is the total forgiven amount. The $66,667 of the amount used towards payroll costs will be forgiven, along with the $20,000 used for non-payroll costs, because it does not exceed 25% of the total $86,667 that is forgiven.
