A Ministry Guide to PPP Loan Forgiveness

Ministries that receive funding through the Paycheck Protection Program can have their loans fully forgiven, if they prove that they followed the rules. Basically, it involves maintaining a ministry’s payroll and staff during the coronavirus crisis. Applying the rules can be tricky, though, since the program and its guidelines have evolved over time. If your ministry would like to have a PPP loan forgiven, it’s important to understand the rules and get your paperwork in order. Documentation will play a key role in reimbursement. Here are seven points for ministry leaders to know about PPP loan forgiveness.

1. Review the rules carefully 

Applying for PPP loan forgiveness can be complicated. The government has updated its guidance multiple times since the PPP loan program became law in late March as part of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). Congress changed several the rules for loan forgiveness when it passed the Paycheck Protection Program Flexibility Act of 2020, which became law June 5. Read a summary from the Association of International Certified Public Accountants.

It’s important to understand which expenses can be forgiven before spending PPP funds. Otherwise, the U.S. Small Business Administration may insist that you repay the loan, either in part or in full. Your ministry is encouraged to talk to an accountant or tax professional if you have questions about PPP loan forgiveness. 

Visit the SBA and U.S. Department of Treasury websites for the latest official guidance, rules, and resources. 

2. Use loan money only for approved expenses 

At least 60% of PPP funding must be spent on payroll costs for the loan to be fully forgiven. Borrowers that don't meet this threshold may qualify for partial loan forgiveness. 

Payroll costs can include:

  • Compensation
  • Wages
  • Housing stipends or allowances
  • Group health insurance benefits
  • Paid sick leave
  • Medical and insurance premiums

The remainder of a PPP loan may be spent on the following qualifying expenses—if the agreements or services were in effect before February 15, 2020:

  • Mortgage interest
  • Rent payments
  • Utilities

3. Spend PPP funds within covered period

To receive 100% forgiveness, the entire PPP loan amount must be spent on qualifying expenses that are incurred or paid during the covered time period.  

The covered period starts on a borrower's funding date and ends 24 weeks later or on Dec. 31, 2020, whichever comes first. 

Borrowers who obtained PPP loans before June 5, 2020, can choose to keep their original, 8-week covered period.

If PPP funds arrive in multiple transactions, the clock on the covered period starts ticking on the first date any PPP money reaches a borrower’s bank account. 

For example, if you’re a new borrower, and PPP funds arrived in your ministry bank account on June 15, your ministry would have until November 30 to spend all of the money on qualifying expenses.

All PPP funds must be spent by the end of the calendar year in order to qualify for full loan forgiveness. 

4. Maintain or resume staffing levels

Full loan forgiveness hinges on maintaining or quickly rehiring ministry staff. You’ll qualify for forgiveness if you bring back any employees furloughed or laid off between February 15 and April 26, 2020. Borrowers must restore their workforce levels by the date they apply for loan forgiveness or by December 31, 2020, whichever comes first.

If any furloughed or laid-off employees decline your written offer to rehire them (for the same salary, hours, etc.), it doesn’t not affect loan forgiveness. (See FAQ 40.) In addition, borrowers won't be penalized if your ministry couldn’t find qualified employees or restore your business operations to pre-pandemic levels because of operating restrictions related to Covid-19.

5. Keep total salary at 75% or higher 

This pay requirement will be assessed individually for every employee in your organization who earned $100,000 or less in 2019. If the wages of any employee was reduced by more than 25% between February 15 and April 26, 2020, borrowers can receive full forgiveness by restoring wages to 75 percent or more of pre-pandemic levels before submitting a loan forgiveness application. The deadline to restore wages is December 31, 2020.

Several organizations offer detailed guides on calculating staffing and salary levels. Here are two options to consider: 

6. Get your paperwork in order

Loan forgiveness hinges on being able to document that you followed the rules. The burden for verifying that you spent the money correctly falls onto your shoulders. Loan forgiveness could be delayed – or denied – without proper documentation.

The instructions that accompany the PPP Loan Forgiveness Application include a list of materials that must be submitted with the loan application or maintained by your ministry. It’s important to note that the instructions say borrowers are required to maintain this documentation for at least six years after the loan is either forgiven or paid in full. Hypothetically, your ministry could be required to maintain PPP loan documentation until the year 2036, if it takes five years to repay the loan.

Here are some key documents your ministry will need to support a request for loan forgiveness. Your bank or credit union may request additional records. 

  • Payroll reports from your payroll provider
  • Payroll tax filings (IRS Form 941)
  • State income, payroll, and unemployment insurance filings
  • Documents verifying any retirement and health insurance contributions

Documents verifying your eligible interest, rent, and utility payments. These could include one or more of the following:

  • Canceled checks
  • Payment receipts
  • Account statements

7. Apply for loan forgiveness

Once your ministry’s covered period concludes, you may apply for loan forgiveness through your PPP lender. Ask your lender if borrowers must complete the bank's version of the form. If not, download a PPP loan forgiveness application from the SBA's website. Once your application has been submitted, your lender must provide a response within 60 days, letting you know how much of your loan has been forgiven. Any amount of your loan that isn’t forgiven will need to be repaid. 

The Paycheck Protection Flexibility Act gives borrowers a minimum of five years to repay any PPP loans approved by the SBA on or after June 5, 2020. PPP loans obtained before that date mature in two years, but borrowers may extend their repayment up to five years, if their lender agrees. The interest rate on PPP loans is 1 percent.

Be aware that the PPP loan program and its interpretation continue to evolve. Stay informed about developments regarding PPP loans and their forgiveness by checking the SBA’s website regularly. 

Have questions about resuming normal ministry operations after coronavirus quarantines? We’ve gathered resources in one spot to help you. From communication plans to social distance measures to deep cleaning tips, stop by frequently for the latest information. Visit brotherhoodmutual.com/coronavirus.

Updated August 6, 2020

The information provided in this article is intended to be helpful, but it does not constitute legal advice and is not a substitute for the advice from a licensed attorney in your area. We strongly encourage you to regularly consult with a local attorney as part of your risk management program.