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Paycheck Protection Program

EIGHT THINGS TO KNOW ABOUT YOUR PPP LOAN FORGIVENESS

We are all in this together, and Professional Bank is proud to be able to help businesses in our community, like yours, secure funding to continue operating during the Coronavirus crisis.

One of the key benefits of the Paycheck Protection Program (PPP) is the opportunity to have your loan forgiven. But forgiveness is not automatic - it depends on many factors.

The next eight weeks after you receive your loan will be critical, so we've put together this checklist to help prepare you. You can always view this information on our website at myprobank.com/cares.

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The purpose is to maintain your staff and payroll

The purpose of the Paycheck Protection Program is to help keep people employed.

To assure this, the Small Business Administration has structured this loan to encourage companies to continue the same level of employment and payroll prior to the crisis, and will forgive any portion of the loan that you spend on payroll (and a few other categories) in the first 8 weeks after you’ve received the loan.

75% of PPP loan funds must be used strictly for payroll costs. A reduction in head count or payroll cost will result in a reduction of the amount to be forgiven.

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Several ways that your Loan Forgiveness amount could be reduced:

You decrease the number of full-

time employees

"You cut wages by

more than 25% for any employee who made less than $100,000 in

2019

#You spend on

things that are not allowed (see #3

below)

$You use less than 75% of the money

on payroll costs

%

You have until June 30, 2020 to restore any reductions in full-time staff or compensation made between February 15, 2020 and April 26, 2020.

Start using the funds (and keeping track) right away

Your 8-week period starts at the beginning of the Covered Period or on the Alternative Payroll Covered Period

If you want the entire loan amount forgiven, the full amount must be spent during the "covered period” or the "alternative covered period”.

Covered Period: The eight-week period beginning on the date of origination of the loan.

Alternative Payroll Covered Period: The eight-week period beginning on the first day of the first pay period following the origination of the loan.

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Remember though, you do not have to struggle to make the loan forgivable. However, if you cannot spend the money in the eight weeks of either the “Covered Period” or the “Alternative Payroll Covered Period”, you will be required to pay the remaining loan balance at an interest rate of 1%. The first payment must be made 7 months after your loan date, and must be paid in full 24 months after you receive your funds.

Make sure you use the funds only for approved purposes

Funds need to be spent on qualified costs over the 8 weeks of the “covered period” or the “alternative payroll covered period”. You may need to repay your loan if you use less than 75% of the money for payroll costs, and 25% of it is used for mortgage interest, rent or utility payments during the eight weeks following receipt of the loan proceeds.

Expenses fall into two categories:

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Payroll Costs Incurred during the “Covered Period” or the

“Alternative Payroll Covered Period”

More than 75% must come from this category (or you will need to repay more of

this loan than anticipated)

• Salary, wages, commission, or similar forms of compensation

• Paid vacation, parental, family, medical, or sick leave

• Allowance for dismissal or separation

• Healthcare benefits (including insurance premiums)

• Retirement benefits

• State or local taxes assessed on the compensation of employees

Payroll costs are considered ‘incurred’ on the day that the employee’s pay is earned, not the day that they receive their paycheck. Payroll incurred but not paid during the last pay period will be eligible, as long as the employee receives their pay on or before the next regularly scheduled pay period.

Other Business Costs Incurred ONLY during the

“Covered Period”

Less than 25% must come from this category (or you will need to

repay more of this loan than anticipated)

• Interest on any mortgage obligation (excluding prepayment or payment of principal on a mortgage)

• Rent

• Utilities

• Interest on any other debt obligations that were incurred before February 15, 2020

These cost must be paid or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.

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Do not pay any single employee (including yourself) more than $3,846.15 per 2-week pay period–or, if you do, be aware that any amount over an annualized $100,000/yr ($3,846.15 per 2-week pay period) will not count towards forgiveness.

What if you have employees who have filed for unemployment?

If you have offered to rehire any workers laid off prior to the date of the loan (for the same salary/wages and same number of hours), and they decline to return to work, this should not affect your forgiveness amount. To avoid a decreased forgiveness amount, you must have made a good faith, written offer of rehire, and you must document the employee’s rejection of that offer.

Employees and employers should be aware that employees who reject offers of re-employment may forfeit eligibility for continued unemployment compensation.

Be aware of any additional rules or loans that may conflict

Do not use PPP funds for paying paid leave benefits under the Families First Coronavirus Response Act.

If you also applied for the Economic Injury Disaster Loans (EIDL) and related Emergency Economic Injury Grant (EEIG), you need to be extra careful. Any crossover in fund use could result in you losing out on the chance for total loan forgiveness. If you receive an EIDL Advance, the amount of the Advance will be deducted from the forgiveness amount.

Keep detailed documentation

In order to calculate the amount of your loan that will be forgiven, it is critical to keep good documentation about your expenses during the “Covered Period” or the “Alternative Payroll Covered Period”. Here are some items to keep track of.

We suggest that you create a “forgiveness documents folder” on your computer, and place these documents in the folder as soon as you receive them, so the final reconcilement at the end of the 8-week period is easier. If you are using an accountant to manage these expenses, be sure to let them know immediately, so they can begin to set aside the proper documentation.

It is a good idea to open a new Checking Account expressly for expenses paid by this loan - it will make the reconcilement process easier, since you’ll be able to see a list of dedicated expenditures in one place. If you’d like help setting up this checking account, let your Banker know.

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Payroll Documents and Information to Gather More than 75% must come from this category (or you will need to repay more

of this loan than anticipated)

Payroll: Documentation verifying the eligible cash compensation and non-cash benefit payments from the Covered Period or the Alternative Payroll Covered Period consisting of each of the following:

A. Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.

B. Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:

A. Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and

B. State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.

C. Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the Borrower included in the forgiveness amount (PPP Schedule A, lines (6) and (7)).

FTE: Documentation showing (at the election of the Borrower):

A. the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019;

B. the average number of FTE employees on payroll per month employed by the Borrower between January 1, 2020 and February 29, 2020; or

C. in the case of a seasonal employer, the average number of FTE employees on payroll per month employed by the Borrower between February 15, 2019 and June 30, 2019; between January 1, 2020 and February 29, 2020; or any consecutive twelve-week period between May 1, 2019 and September 15, 2019.

The selected time period must be the same time period selected for purposes of completing PPP Schedule A, line 11. Documents may include payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941) and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state. Documents submitted may cover periods longer than the specific time period.

Other Business Expense Documents Less than 25% must come from this category (or you will need to repay more

of this loan than anticipated)

Documentation verifying existence of the obligations / services prior to February 15, 2020 and eligible payments from the Covered Period.

A. Business mortgage interest payments: Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or lender account statements from February 2020 and the months of the Covered Period through one month after the end of the Covered Period verifying interest amounts and eligible payments.

B. Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or lessor account statements from February 2020 and from the Covered Period through one month after the end of the Covered Period verifying eligible payments.

C. Business utility payments: Copy of invoices from February 2020 and those paid during the Covered Period and receipts, cancelled checks, or account statements verifying those eligible payments.

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Understand what comes after 8 weeks

Preparing for the Forgiveness Application as soon as your loan closes will be the best way to ensure as much of your loan’s principal and interest will be forgiven. Here are the things to expect after 8 weeks:

You will work with your banker to calculate and submit your request for Loan Forgiveness, using all of the documents that you have already gathered in #6 above.

You can continue to use the proceeds from the loan after 8 weeks, but none of your expenses accrued after this time will be forgiven.

Professional Bank will notify you of the remaining loan balance (the part that wasn’t forgiven). You can begin making payments on this at any time, but your official First Monthly Payment will be due starting the 7th month after your note date and will be amortized over the remaining 18 months. There is no prepayment penalty.

Professional Bank is currently working on a simple, digital way for you to apply for PPP Loan Forgiveness. You’ll receive more information about this in the weeks to come.

Know where to get answers

We are all in this together! We’ve put together a list of resources that may be helpful to you, and will be reaching out periodically to check in on you.

For more information on the rules around forgiveness, please review the Interim Final Rule, the Interim Final Rule- Additional Eligibility Criteria and Requirements for Certain Pledges of Loans, published by the US Treasury, as well as the FAQs and other documents found on the Treasury’s website.

Portions of this Checklist have been aggregated from sources external to Professional Bank such as Small Business Association Question & Answer Guidance.  Professional Bank does not provide accounting or legal advice.  This Checklist has been prepared for informational purposes.  Please consult your legal or accounting professionals before engaging in any transaction.

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Contact your banker with any

questions or concerns

+View the FAQs that we are

maintaining and updating on our website at

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,Call our Customer

Service department at

(866) 585-2933

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Last updated May 21, 2020 at Noon