Paycheck Protection Program Loan Forgiveness: Timing is Everything

The COVID-19 shutdowns and stay-at-home orders are especially impacting small businesses. Without the normal influx of customers, businesses are struggling to pay rent, keep their employees and stay afloat. The historic stimulus package not only provides business loans to help alleviate these issues, but the loans also don’t need to be paid back if the money is used for things like paying employee salaries and benefits, rents/mortgage interest and utilities. But there are some stipulations on timing for the forgiveness of the loan.

How is forgiveness calculated?

The forgiveness calculation, as contemplated in the statute, looks at the eight weeks (not two months) following the funding and measures the qualified expenditures using those funds. But the definition of eight weeks can be tricky. We’re providing the example below to help you avoid an unintended trap in the rules.

Let’s say that the loan is funded on Friday, May 1.

  • The 8-week period would run from Monday, May 4 to Friday, June 26.
  • For companies that pay their people on the 15th day and the last day of the month, this period would only cover 3 pay periods (5/15, 5/31, 6/15).  This would likely cause the business to have to repay some of the loan instead of being able to maximize forgiveness.

We recommend working proactively with your lender so that the funding timing works into the right cycle of your business to maximize funding with your payroll cycles. If you received approval, work with your lender to time your loan document signing and funding to maximize your opportunity for forgiveness. The difference of a few days could make a big difference!

Another opportunity – changing the definition of payroll, again!

The SBA has once again, changed the definition of payroll in both the determination of how much you can borrow and how much could be forgiven. In a Q&A that the SBA provides to bankers, the SBA has provided a sample to address how to account for federal tax withholdings.

Under the Act, payroll costs are calculated on a gross basis without regard to (i.e., not including subtractions or additions based on) federal taxes imposed or withheld, such as the employee’s and employer’s share of Federal Insurance Contributions Act (FICA) and income taxes required to be withheld from employees. As a result, payroll costs are not reduced by taxes imposed on an employee and required to be withheld by the employer, but payroll costs do not include the employer’s share of payroll tax. For example, an employee who earned $4,000 per month in gross wages, from which $500 in federal taxes was withheld, would count as $4,000 in payroll costs. The employee would receive $3,500, and $500 would be paid to the federal government. However, the employer-side federal payroll taxes imposed on the $4,000 in wages are excluded from payroll costs under the statute.*

*SBA interprets this statutory 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.

This interpretation issued by the SBA can increase both your loan and the forgiveness if you submitted or are planning to submit based on a reduction of payroll for the withholding which is what the statute and the SBA’s interim final regulation said to do. We recommend discussing this with your banker if your application is still in pending status to see if you can increase your loan for the impacts on this increasing your average payroll in the measurement period.

Your BMF Advisor stands ready to assist with helping your business navigate this or other loan programs.


Visit our COVID-19 Resource Center for the latest updates and resources for you and your business.


About the Authors

Dale A. Ruther
Dale A. Ruther
Partner Emeritus,
James E. Merklin
James E. Merklin
Partner, Assurance and Advisory


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