Guidance on First Midwest PPP Loan Forgiveness

You will need to provide proof of proper use of funds, within each of the three documentation categories:

1. Payroll expenses:
   • IRS payroll tax filings (typically form 941)
   • State income and payroll filings
   • State unemployment insurance filings
2. Non-payroll expenses:
   • Receipts for mortgage interest
   • Receipts for rent payments
   • Receipts for utility payments
3. You will be required to:
   • Certify that the information and documentation provided is true and accurate
   • That the PPP funds were used within the program’s guidelines

Full details on required documentation are available on page 10 of the SBA PPP Loan Forgiveness Application.

PPP Loan Forgiveness is not automatic and must be applied for along with all required supporting documentation. If supporting documentation is not provided, the loan will not be eligible for forgiveness. Borrowers may have some or all the loan forgiven.  If not fully forgiven, borrowers will be responsible for repaying any loan amounts not forgiven by the SBA.

The covered period to use the proceeds of your PPP loan for eligible expenses has been expanded to up to 24 weeks. Eligible expenses for forgiveness fall into two categories:

Each Borrower must maintain the documentation they used in verifying their eligibility under the Program. This can include: Payroll Documentation, Non-Payroll Documentation as well as Other Records relating to the Borrower’s certifications including the Borrower’s gross receipt reduction for a Second Draw PPP Loan.

While these documents may not be required to submit the PPP Loan Forgiveness Application, the Borrower must retain all employment records/payroll documentation in its files for four (4) years and all other documents and records for three (3) years after the date of the loan forgiveness application is submitted to the Lender.

If the SBA determines you did not use all your funds as authorized by the PPP, you may not be granted forgiveness or only given partial forgiveness.

No Forgiveness

• Your loan is due as per terms outlined below.

Partial Forgiveness

• A portion of your loan will be forgiven, with the remainder due as per terms outlined below.

Loans carry a 1% interest rate. Loans originated prior to the enactment of PPP Flexibility Act of 2020 on June 5 are due for full repayment at minimum in 2 years, while loans originated after this act are due at minimum in 5 years. If you have a 2-year loan, you may convert to a 5-year loan if you and your lender mutually agree to this update. There is no prepayment penalty on PPP loans.

The following must be met for you to qualify for full forgiveness:

• At least 60% of funds must be spent on payroll expenses
• No more than 40% of funds can be spent on eligible non-payroll expenses
• Funds were used within the 24-week covered period
• You maintain full-employment and salaries at your business***
• Provide supporting documentation for payroll and non-payroll expenses

***Several safe harbor provisions exist for this requirement. Please talk with your financial consultant or lawyer for more details.

The SBA is now requesting an additional form from PPP borrowers who, including their affiliates, received PPP loans with an original principal amount of $2 million or greater, in order to maximize program integrity. When the SBA reviews your application after applying for Forgiveness, you will receive a Loan Necessity Questionnaire from First Midwest Bank. Once you receive this form, you have 10 business days to complete it and provide all required supporting documentation. We recommend preparing your answers and saving documentation now, so that you can successfully complete this form within the 10-day window. There are two forms, one for non-profit borrowers and one for for-profit borrowers. (Updated 12/8/2020)

• View the entire For-Profit Necessity Questionnaire (Form 3509)
• View the entire Non-Profit Necessity Questionnaire (Form 3510)

A loan forgiveness application must be submitted within 10 months of the completion of the Covered Period. An applicant may select a Covered Period up to 24 weeks after the funded date in order to maximize their potential forgiveness.

• All non-payroll costs must be incurred or paid during the Covered Period.
• Payroll and non-payroll expenses are eligible for forgiveness if:
  • Incurred prior to the Covered Period but paid during the selected Covered Period (up to 24 weeks from funded date); or
  • Incurred during the Covered Period and paid on or before the next payroll or billing cycle

If you are an owner of a C Corp, an S Corp, or a partnership, please note that there are additional rules and exceptions. You can find more information on the SBA’s August 11th update on page #4. Click here to access this page from the SBA website.

If a seasonal employer elected to use a 12-week period between May 1, 2019 and September 15, 2019 to calculate the loan amount, the same 12-week period must be used for the forgiveness calculation.

Total cash compensation, which includes compensation, tips, commissions, bonuses and hazard pay, is limited to $100,000 per employee on an annualized basis. However, the gross payroll amount continues to be what is used for the forgiveness calculation, rather than cash compensation.

The Paycheck Protection Flexibility Act of 2020 was signed into law on June 5, dramatically improving several critical forgiveness terms of the PPP. The key improvements:

• Extends the 8-week forgiveness period to 24 weeks, permitting any borrower to use the extended time-frame or the original 8-week period.
• Changes the 75%-25% breakdown of payroll to non-payroll expenses to 60%-40%. A minimum of 60% of the loan proceeds must be used for payroll to be eligible for full forgiveness.
• Extends the loan maturity to 5 years for all loans funded June 5th and beyond. Any pre-existing loans may amend the note to reflect new maturity terms if lender and borrower mutually agree.
• The deferral period of the loan is pegged to date the forgiveness application is submitted to the lender or 10 months after the end of the 24-week covered period.
• Expands safe harbor rules for rehiring employees by allowing for a reduction in employees if borrower is able to document:
  • Inability to rehire employees
  • Inability to hire similarly qualified employees
  • Lack of return to same level of business activity as existed at or before February 15, 2020

On February 5, 2021 the SBA published an additional interim final rule which implemented further updates to the PPP as enacted under the Economic Aid Act of December 27, 2020. The interim final rule on Second Draw PPP Loans, and the consolidated interim final rule on PPP loan forgiveness requirements and loan review procedures.

• Allows individuals who file an IRS Form 1040, Schedule C to calculate their maximum loan amount using gross income.
• Removed the eligibility restrictions that prevented business owners with non-financial fraud felony convictions in the last year from obtaining PPP loans.
• Removed the eligibility restriction that prevented business owners who are delinquent or in default on their Federal student loans from obtaining PPP loans.
• These changes apply to both First and Second Draw Loans.

On March 11, 2021 the American Rescue Plan Act of 2021 was enacted.

• Expanded eligibility to additional businesses and organizations and revised the size standards and added affiliation waivers for certain businesses and organizations.
• Provides for the revision of the consolidated interim final rule on loan forgiveness to clarify certain forgiveness payroll cost exclusions under the Economic Aid Act and to incorporate forgiveness payroll cost exclusions required by the American Rescue Act.
• Removed the restriction for qualifying for a Shuttered Venue Operator (SVO) Grant if that entity also received a PPP loan subject to certain timing/sequencing considerations.