Editor’s note: Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.
As of July 13, 2020, more than 4.9 million borrowers have been approved for a Paycheck Protection Program (PPP) loan. PPP loans are intended to help small business owners and other eligible organizations keep employees on the payroll and out of the unemployment office, and cover certain business expenses. They’re not meant to put struggling small business owners in debt. For many borrowers, the chance to have a PPP loan forgiven is a big draw.
PPP loans may be forgiven, in whole or in part, if borrowers meet certain requirements. As an example, borrowers should maintain the average number of full time employees on the payroll during their loan forgiveness covered period compared to the average weekly number of employees during one of the reference periods. The reference periods are either between February 15, 2019 and June 30, 2019 or January 1, 2020 and February 29, 2020. If the borrower reduced headcount, they must restore headcount and rehire any employees they laid off before December 31, 2020, or before the date they submit their loan forgiveness application.
Lenders may also reduce the borrower’s forgiveness amount if the borrower reduces employee average salary or wages for any employee by more than 25% within their loan forgiveness covered period compared to Q1 2020. PPP loan borrowers began to worry their lenders wouldn’t forgive loans when laid-off employees couldn’t or wouldn’t come back.
The SBA has since released additional information, including important information about loan forgiveness reduction exemptions. The SBA also recently updated their PPP Loan Forgiveness Application. Below are some common questions borrowers have about the employee headcount requirement.