A PPP borrower may seek forgiveness on their loan if they use the proceeds on authorized expenses, including payroll costs, interest on mortgages obtained prior to February 15, 2020, rent for leases in effect before February 15, 2020, and payment on utilities where service began on or before February 15, 2020. Payroll costs can include certain ancillary items such as health care expenses, sick leave and vacation time, but do NOT include health care expenses paid by employees or employment taxes. In addition:

• You must incur these costs over one of the following time periods (the “Covered Period”):
• The 24-week period (168 days) beginning with either (a) the date your PPP loan is funded OR (b) the day of your first weekly or biweekly payroll after the date your loan was funded; or
• If your loan was funded before June 5, 2020, you may elect to use the eight week period (56 days) beginning with either (a) the date your PPP loan is funded OR (b) the day of your first weekly or biweekly payroll after the date your loan was funded.
• Regardless of the time period you elect, the Covered Period must end on or before December 31, 2020.
• At least 60% of your forgiveness amount must be used for payroll costs – for example, if you received an $90,000 loan, and submit $52,500 in payroll costs and $37,500 in nonpayroll costs for forgiveness, then your forgiveness will be reduced from $90,000 to $87,500 to ensure that payroll costs are at least 60% of the forgiveness amount.
• Cash compensation amounts are capped per employee at $100,000 on an annualized basis ($15,385 for an 8 week Covered Period or $20,833 for a 24 week Covered Period).
• Cash compensation for owner-employees and self-employed individual borrowers can be no more than (a) 15.385% of that person’s 2019 annual compensation (up to $15,385) for an 8 week Covered Period or (b) 20.833% of that person’s 2019 annual compensation (up to $20,833) for a 24 week Covered Period.

In addition to the restrictions above, the SBA may further reduce your forgiveness amount under the following circumstances:

• If you fail to maintain the same number of full employees during your Covered Period as your business had employed prior to your loan (between either (a) February 15, 2019 and June 30, 2019, (b) January 1, 2020 through February 28, 2020, or (c) for seasonal employers, any twelve week consecutive period between May 1, 2019 and September 15, 2019 – this is known as the “Reference Period”), your forgiveness amount will be reduced by the percentage your full time employees were reduced.
• For example, if you had 10 full time employees during your Reference Period, but only had eight full time employees during your Covered Period, your forgiveness may be reduced to 80% (8/10) of what you would otherwise be eligible to have forgiven.
• However, if you restore your staffing levels to their levels during the Reference Period by December 31, 2020, you may avoid a reduction in forgiveness.
• In general, you must attempt to rehire existing employees in order to satisfy this requirement.
• If you make a good faith written offer to hire an employee and that employee rejects that offer, then the SBA has indicated it will not reduce forgiveness due to the employees refusal to return to work.
• Further, if an employee voluntarily resigns or requests a reduction in hours below full time status during the Covered Period, or if an employee is terminated for cause, then you may be able to avoid a reduction in forgiveness.
• If your existing employees resign or refuse to return to work, then you may be able to hire new employees at the same wage level in the alternative in order to obtain forgiveness,
• Loan forgiveness may also be reduced if you reduce your wages paid to employees by more than 25% during the Covered Period as compared to the period between January 1 and March 31, 2020 – however, if you restore those reductions by December 31, 2020, you may be able to avoid reduction in forgiveness. Please see the official application in the link above for more information.

Once your Covered Period is over, you may submit a request to your PPP lender for your loan to be forgiven in whole or in part. You must submit documentation only to the lender from whom you obtained your PPP loan – it should not be submitted to the SBA directly or any other financial institution. In order to be eligible for forgiveness, you must submit a complete forgiveness application no later than ten months following the end of your Covered Period. If you fail to submit a complete application by that time, you will be required to repay your PPP loan pursuant to the terms of your promissory note.

The Instructions for each of the application forms above contained detailed information regarding what documents you will need to submit for forgiveness, and we strongly recommend you review those instructions carefully. Leader Bank is currently in the process of creating a portal for our PPP customers where they can submit their forgiveness request and documentation, which will include at minimum the following documents:

• The SBA’s PPP Forgiveness Application (either Form 3508 or 3508EZ), which may be accessed through the link at the top of this page with a separate link for the instructions for each form. Which form you can or should use depends on the following:
• You may use Form 3508EZ and follow those instructions if you meet one of the following criteria:
• You are a self-employed individual, independent contract or sole proprietor with no employees and you did not include payroll costs for employees in your PPP application; OR
• You did not reduce the salary or hourly wages of any employee by more than 25% during your Covered Period as compared to the Reference Period (see FAQ 2 above) AND EITHER:
• You did not reduce the number of your employees or the average paid hours of your employees between January 1, 2020 and the end of the Covered Period, OR
• You were unable to operate during the Covered Period at the same level of business as before February 15, 2020 due to federal, state or local COVID-19 restrictions.
• If you cannot satisfy the above criteria, you must use Form 3508 and follow those instructions.


• Documentation of your payroll costs, which must include:
• Bank account statements or third party payroll service provider reports documenting the amount of cash compensation paid to employees;
• Payroll tax forms(or equivalent third-party payroll service provider reports), state quarterly and individual employee wage reporting, and unemployment insurance tax filings (either as filed or to be filed) or the Covered Period; and
• Payment receipts, cancelled checks or account statements documenting employer contributions to health insurance or retirement plans if included in payroll costs.


• Documentation of your non-payroll costs, including:
• For mortgage interest payments, your lender’s amortization schedule and receipts or cancelled checks verifying payments; or lender account statements from February 2020 and the Covered Period verifying interest amounts and eligible payments
• For rent payments, current lease agreement and receipts or canceled checks showing eligible payments
• For utility payments, copy of invoices from February 2020 and those paid in the Covered Period and receipts, cancelled checks or accounting statements verifying payments.


• For borrowers submitting Form 3508, documentation to show your previous number of full time employees to show that you have maintained your payroll, which can include payroll tax filings or state quarterly business or individual employee wage reporting.

Leader Bank will review the application of all of its PPP borrowers who request forgiveness, and will contact those customers who failed to submit required documentation or if the Bank disagrees with their application calculations in order to correct any potential issues. Leader Bank will make its recommendation on forgiveness to the SBA for borrowers within 60 days of receiving a complete forgiveness application with all necessary supporting documentation. The SBA then will review and decide whether to grant forgiveness in full, forgiveness in part or deny forgiveness altogether. Such decision will be made within 90 days of the Bank submitting its recommendation on forgiveness.

If the SBA grants forgiveness for your complete outstanding principal balance, then you will owe nothing further on your loan. If the SBA grants partial forgiveness on your loan’s outstanding balance, Leader Bank will re-amortize the remaining principal balance following the application of forgiveness over the remaining term of your loan, and you shall be responsible for all such payments, if not repaid sooner. If the SBA denies forgiveness or if you do not apply to obtain forgiveness within ten months of the end of your Covered Period, then you shall be required to repay the loan pursuant to the terms of their promissory note, if not repaid sooner.

An EIDL Loan May Not Be Refinanced with a PPP Loan When:

• The PPP Borrower received the EIDL loan before January 31, 2020 or after April 3, 2020.

An EIDL Loan is Not Required to Be Refinanced with a PPP Loan When:

• The PPP Borrower received funds from an EIDL loan from January 31, 2020 through April 3, 2020; and
• The PPP Borrower used the EIDL loan for purposes other than payroll costs.

A PPP Loan Must Be Used to Refinance the Full Amount of the EIDL Loan When:

• The PPP Borrower received funds from the EIDL loan from January 31, 2020 through April 3, 2020; and
• The PPP Borrower used the EIDL loan funds to pay payroll costs.

The amount of the EIDL loan to be refinanced does not include the amount of any EIDL “advance” (also referred to as an EIDL “grant”) received by the PPP Borrower, because the EIDL advance does not need to be repaid.

The amount of compensation of owners who work at their business that is eligible for forgiveness depends on the business type and whether the borrower is using an eight-week or 24-week Covered Period. In addition to the specific caps described below, the amount of loan forgiveness requested for owner-employees and self- employed individuals’ payroll compensation is capped at $20,833 per individual in total across all businesses in which he or she has an ownership stake. For borrowers that received a PPP loan before June 5, 2020 and elect to use an eight-week Covered Period, this cap is $15,385. If their total compensation across businesses that receive a PPP loan exceeds the cap, owners can choose how to allocate the capped amount across different businesses. The examples below are for a borrower using a 24-week Covered Period.

C Corporations: The employee cash compensation of a C-corporation owner-employee, defined as an owner who is also an employee (including where the owner is the only employee), is eligible for loan forgiveness up to the amount of 2.5/12 of his or her 2019 employee cash compensation, with cash compensation defined as it is for all other employees. Borrowers are also eligible for loan forgiveness for payments for employer state and local taxes paid by the borrowers and assessed on their compensation, for the amount paid by the borrower for employer contributions for their employee health insurance, and for employer retirement contributions to their employee retirement plans capped at the amount of 2.5/12 of the 2019 employer retirement contribution. Payments other than for cash compensation should be included on lines 6-8 of PPP Schedule A of the loan forgiveness application (SBA Form 3508 or lender equivalent), for borrowers using that form, and do not count toward the $20,833 cap per individual.

S Corporations: The employee cash compensation of an S-corporation owner-employee, defined as an owner who is also an employee, is eligible for loan forgiveness up to the amount of 2.5/12 of their 2019 employee cash compensation, with cash compensation defined as it is for all other employees. Borrowers are also eligible for loan forgiveness for payments for employer state and local taxes paid by the borrowers and assessed on their compensation, and for employer retirement contributions to their employee retirement plans capped at the amount of 2.5/12 of their 2019 employer retirement contribution. Employer contributions for health insurance are not eligible for additional forgiveness for S-corporation employees with at least a 2% stake in the business, including for employees who are family members of an at least 2% owner under the family attribution rules of 26 U.S.C. 318, because those contributions are included in cash compensation. The eligible non-cash compensation payments should be included on lines 7 and 8 of PPP Schedule A of the Loan Forgiveness Application (SBA Form 3508), for borrowers using that form, and do not count toward the $20,833 cap per individual.

Self-employed Schedule C (or Schedule F) filers: The compensation of self-employed Schedule C (or Schedule F) individuals, including sole proprietors, self-employed individuals, and independent contractors, that is eligible for loan forgiveness is limited to 2.5/12 of 2019 net profit as reported on IRS Form 1040 Schedule C line 31 (or 2.5/12 of 2019 net farm profit, as reported on IRS Form 1040 Schedule F line 34) (or for new businesses, the estimated 2020 Schedule C (or Schedule F) referenced in question 10 of “Paycheck Protection Program: How to Calculate Maximum Loan Amounts – By Business Type”3). Separate payments for health insurance, retirement, or state or local taxes are not eligible for additional loan forgiveness; health insurance and retirement expenses are paid out of their net self-employment income. If the borrower did not submit its 2019 IRS Form 1040 Schedule C (or F) to the Lender when the borrower initially applied for the loan, it must be included with the borrower’s forgiveness application.

Certain pay reductions during the Covered Period or the Alternative Payroll Covered Period may reduce the amount of loan forgiveness a borrower will receive. If the salary or hourly wage of a covered employee6 is reduced by more than 25% during the Covered Period or the Alternative Payroll Covered Period, the portion in excess of 25% reduces the eligible forgiveness amount unless the borrower satisfies the Salary/Hourly Wage Reduction Safe Harbor (as described in the Loan Forgiveness Application (SBA Form 3508 or lender equivalent)). The examples below assume that each employee is a “covered employee.”

Example 1: A borrower received its PPP loan before June 5, 2020 and elected to use an eight-week covered period. Its full-time salaried employees pay was reduced during the Covered Period from $52,000 per year to $36,400 per year on April 23, 2020 and not restored by December 31, 2020. The employee continued to work on a full-time basis with a full-time equivalency (FTE) of 1.0. The borrower should refer to the “Salary/Hourly Wage Reduction” section under the “Instructions for PPP Schedule A Worksheet” in the PPP Loan Forgiveness Application Instructions. In Step 1, the borrower enters the figures in 1.a, 1.b, and 1.c, and because annual salary was reduced by more than 25%, the borrower proceeds to Step 2. Under Step 2, because the salary reduction was not remedied by December 31, 2020, the Salary/Hourly Wage Reduction Safe Harbor is not met, and the borrower is required to proceed to Step 3. Under Step 3.a., $39,000 (75% of $52,000) is the minimum salary that must be maintained to avoid a penalty. Salary was reduced to $36,400, and the excess reduction of $2,600 is entered in Step 3.b. Because this employee is salaried, in Step 3.e., the borrower would multiply the excess reduction of $2,600 by 8 (if it had instead selected a 24-week Covered Period, it would multiply by 24) and divide by 52 to arrive at a loan forgiveness reduction amount of $400. The borrower would enter on the PPP Schedule A Worksheet, Table 1, $400 as the salary/hourly wage reduction in the column above box 3 for that employee.

Example 2: A borrower received its PPP loan before June 5, 2020 and elected to use a 24-week Covered Period. An hourly employee’s hourly wage was reduced from $20 per hour to $15 per hour during the Covered Period. The employee worked 10 hours per week between January 1, 2020 and March 31, 2020. The borrower should refer to the “Salary/Hourly Wage Reduction” section under the “Instructions for PPP Schedule A Worksheet” in the PPP Loan Forgiveness Application Instructions. Because the employee’s hourly wage was reduced by exactly 25% (from $20 per hour to $15 per hour), the wage reduction does not reduce the eligible forgiveness amount. The amount on line 1.c would be 0.75 or more, so the borrower would enter $0 in the Salary/Hourly Wage Reduction column for that employee on the PPP Schedule A Worksheet, Table 1.

If the same employee’s hourly wage had been reduced to $14 per hour, the reduction would be more than 25%, and the borrower would proceed to Step 2. If that reduction were not remedied as of December 31, 2020, the borrower would proceed to Step 3. This reduction in hourly wage in excess of 25% is $1 per hour. In Step 3, the borrower would multiply $1 per hour by 10 hours per week to determine the weekly salary reduction. The borrower would then multiply the weekly salary reduction by 24 (because the borrower is using a 24-week Covered Period). The borrower would enter $240 in the Salary/Hourly Wage Reduction column for that employee on the PPP Schedule A Worksheet, Table 1. If the borrower applies for forgiveness before the end of the 24-week Covered Period, it must account for the salary reduction (the excess reduction over 25%, or $240) for the full 24-week Covered Period.

Example 3: An employee earned a wage of $20 per hour between January 1, 2020 and March 31, 2020 and worked 40 hours per week. During the Covered Period, the employee’s wage was not changed, but his or her hours were reduced to 25 hours per week. In this case, the salary/hourly wage reduction for that employee is zero, because the hourly wage was unchanged. As a result, the borrower would enter $0 in the Salary/Hourly Wage Reduction column for that employee on the PPP Schedule A Worksheet, Table 1. The employee’s reduction in hours would be taken into account in the borrower’s calculation of its FTE during the Covered Period, which is calculated separately and may result in a reduction of the borrower’s loan forgiveness amount.

Two separate Congress bills have been introduced to ease the application burden and grant automatic forgiveness to PPP loans up to $150,000. The U.S. Senate and House of Representatives have not voted yet, but you can follow their progress at S.4117 and S.4321. If your loan amount is in that category, you may choose to wait for these bills to get voted on before submitting your request to the Bank. Borrowers have up to 10 months after the end of their elected covered period (8 or 24 weeks) to apply, and will not be required to make any payments until a decision forgiveness is made by the SBA.

A copy of a signed lease would suffice as proof for rents. For utilities and loans interest, provide statements for service dates prior to February 15, 2020.

PPP loan proceeds may only be used for secured debt obligations. Unsecured debt, such as credit cards, is not eligible for forgiveness.