What Does 60% Mean?

Published on: 09:09AM Jun 04, 2020

We seem to get this question quite a bit regarding the old 75% requirement and the new 60% requirement that is now included in the bill passed yesterday by the Senate and onto the President to sign.

The original Cares Act had no minimum requirement to be spent on payroll.  The SBA came out with a rule requiring a borrower to spend at least 75% on payroll to get full forgiveness.  For a while we were concerned that you had to spend at least 75% on payroll to get ANY forgiveness.

The application finally eliminated that issue.  Under the original bill as enacted by the SBA you could spend less than 75% on payroll and still get forgiveness but could not get full forgiveness.

Here is an example:

Mary received a PPP loan for $100,000.  During her 8 week period, she spends $55,000 on payroll.  This is less than 75%, therefore the maximum that she can use for non-payroll costs is $18,333.33 ($50,000 divided by 75% is $73,333.33; the difference is what she can spend on non-payroll costs).

Now, the new bill indicates a reduction of the 75% down to 60%.  But the wording of the bill indicates that in order to get ANY forgiveness, you must spend at least 60% on payroll costs.  The actual wording is "To receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan amount for payroll costs". Now SBA may come out and indicate you can still get forgiveness if you spend less, but reading the new law appears to indicate otherwise.

Now the key question we get is what if I don't spend at least 25% or 40% on non-payroll costs - How am I going to get full forgiveness.

The key is that you do not need to spend anything on non-payroll costs.  The minimum is now 60% but you can spend 100% or more on payroll costs and get full forgiveness.

As an example, assume in our previous example Mary spends $125,000 on qualified payroll costs during the new 24 week period.  In her case, she will get full forgiveness (assuming no FTE reduction).  She does not need to spend anything on interest, rents or utilities.

We will need further guidance on the new bill, but overall it appears to be beneficial to most borrowers.