Details on Loan Forgiveness Provision in Federal Stimulus Package

Here's a breakdown of what is included in section 1106 of the federal economic relief bill passed by the U.S. Senate late Wednesday night.

How much is the loan forgiveness eligible for?

• Equal to the amount spent by the borrower during an 8-week period after the origination date of the loan on payroll costs, interest payment on any mortgage incurred prior to February 15, 2020, payment of rent on any lease in force prior to February 15, 2020, and payment on any utility for which service began before February 15, 2020.
• Amounts forgiven may not exceed the principal amount of the loan.
• Eligible payroll costs do not include compensation above $100,000 in wages.
• Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages: Payroll costs plus any payment of interest on any covered mortgage obligation (which shall not include any prepayment of or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation + and any covered utility payment.

Will the amount forgiven be reduced?

• The amount forgiven will be reduced proportionally by any reduction in employees retained compared to the prior year and reduced by the reduction in pay of any employee beyond 25 percent of their prior year compensation.
• This also allows forgiveness for additional wages paid to tipped workers.
What if I have already laid off employees?
• To encourage employers to rehire any employees who have already been laid off due to the COVID-19 crisis, borrowers that re-hire workers previously laid off will not be penalized for having a reduced payroll at the beginning of the period.

How do I verify?

• Borrowers will verify through documentation to lenders their payments during the period.
• Lenders that receive the required documentation will not be subject to an enforcement action or penalties by the Administrator relating to loan forgiveness for eligible uses.
How does the Lender recoup the expected loan forgiveness amount?
• Upon a lender’s report of an expected loan forgiveness amount for a loan or pool of loans, the SBA will purchase such amount of the loan from the lender.

What else should I know?

• Canceled indebtedness resulting from this section will not be included in the borrower’s taxable income.
• Any loan amounts not forgiven at the end of one year is carried forward as an ongoing loan with terms of a max of 10 years, at max 4% interest. The 100% loan guarantee remains intact.