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 “Forgiveness 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 Forgiveness 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.
• Payroll costs are capped per employee at $100,000 on an annualized basis ($15,385 for an 8 week Forgiveness Period or $46,154 for a 24 week Forgiveness Period).
• Payroll costs 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 Forgiveness Period or (b) 20.833% of that person’s 2019 annual compensation (up to $20,833) for a 24 week Forgiveness 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 Forgiveness 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 Forgiveness 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 Forgiveness 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 Forgiveness 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 Forgiveness 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 Forgiveness 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 Forgiveness 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 Forgiveness Period, OR
• You were unable to operate during the Forgiveness 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, state quarterly and individual employee wage reporting, and unemployment insurance tax filings (either as filed or to be filed) or the Forgiveness 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 Forgiveness 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 Forgiveness 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 Forgiveness 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.