4 Ways PPP Loan Forgiveness Can Be Reduced

By Drea Schmidt

1. Reducing Employee Headcount – If the average number of a borrower’s full-time equivalent (FTE) employees during the eight-week period following origination is reduced compared to a pre-crisis comparison period, then the forgivable amount of your loan will be proportionately reduced. However, if a previously laid-off employee declines a rehire offer from the borrower, provided that certain documentation procedures are followed, that employee will not count against the borrower for forgiveness reduction purposes.

• • • FTE Pre-Crisis Comparison Periods (at borrower’s option):
      • February 15, 2019 – June 30, 2019 OR
      • January 1, 2020 – February 29, 2020

• • • Exemption for Rehiring – Forgiveness amount will not be reduced if you re-hire to pre-crisis levels by June 30, 2020. Specifically, if you reduced FTEs from February 15 – April 27, 2020, forgiveness can be restored if FTE restored to pre-crisis levels by June 30, 2020.

1. 2. Reducing Salaries – If a borrower cuts employee salaries (who make $100,000 per year or less) by more than 25%, the dollar amount of the reduction in excess of 25% reduces the amount of your loan that is forgivable.

• • • Exemption for Restored Salaries – Forgiveness amount will not be reduced if you restore salaries to pre-crisis levels by June 30, 2020.

1. 3. Using Less Than 75% of PPP Loan Proceeds for Payroll Costs – If 75% of loan proceeds are NOT used for payroll costs, then the dollar amount of the difference is not eligible for forgiveness.

1. 4. Not Using 100% of the Proceeds Within 8-Week Period – Any amount not used within the eight-week period following origination is not forgivable and must be repaid.

This update is provided for the general information of our clients and friends. It should not be regarded as legal advice. If you have questions about PPP loans, please contact Drea Schmidt (503-802-5703, drea.schmidt@tonkon.com), Jeff Cronn (503-802-2048, jeff.cronn@tonkon.com), Ferdie Ruplin (503-802-2029, ferdie.ruplin@tonkon) Betsy Judd (503-802-5769, betsy.judd@tonkon.com), or your primary Tonkon attorney.