Editor’s note: Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.
Perhaps the biggest draw of the Paycheck Protection Program (PPP) is the ability to have a PPP loan forgiven, either in whole or in part. The PPP Flexibility Act (PPPFA), signed into law on June 5, makes it possible for even more loan recipients to receive full forgiveness.
The PPPFA reduces the percentage of funds business owners are required to spend on eligible payroll costs from 75% to 60% to maximize loan forgiveness. Additionally, the PPPFA extends the loan forgiveness covered period from 8 weeks to 24 weeks, giving some business owners until the end of 2020 to use PPP funds.
When can I start applying for loan forgiveness?
You can begin applying for loan forgiveness with your lender at the end of your loan forgiveness covered period. You may submit the loan forgiveness application before the end of the covered period as long as you have used all of the loan proceeds for which you are requesting forgiveness.
Keep in mind that any reductions in employee wages or headcount throughout the full loan forgiveness covered period may impact your forgiveness amount. That’s regardless of when you submit your loan forgiveness application.
You have 10 months from the end of your loan forgiveness covered period, or from December 31, 2020 (whichever comes first), to apply for forgiveness. Once you submit your application for forgiveness, your lender has 60 days to accept or deny your application.
What do I need to submit my loan forgiveness application?
Find the loan forgiveness application on the SBA’s website. Your PPP loan forgiveness application must include documents that verify your payroll, full time employees, and non-payroll expenses. These may include
- Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees
- Payroll tax forms to demonstrate payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941)
- Tax forms to demonstrate state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state
- Payment receipts, canceled checks, or account statements documenting the amount of any company contributions to employee health insurance and retirement plans that you included in your forgiveness amount
- Documentation verifying the average number of full time employees on payroll per week employed during the covered period
- Copy of lender amortization schedule and receipts or canceled checks verifying eligible business mortgage interest payments from the loan forgiveness covered period
- Copy of current lease agreement and receipts or canceled checks verifying eligible business rent or lease payments from the loan forgiveness covered period
- Copy of business utility payment invoices from February 2020 and paid during the loan forgiveness covered period, as well as receipts, canceled checks, or account statements verifying those eligible payments
You should be prepared to provide documentation of any advance received under the CARES Act EIDL Emergency Grant program. While not specifically required by the PPP loan forgiveness application, your lender may request it.
There are different documentation requirements relevant to each individual application. Work with your lender for a full list of documents you must retain to apply for forgiveness.
Am I eligible for the EZ application?
Some borrowers may qualify to use Form 3508EZ to apply for loan forgiveness. The EZ application requires fewer calculations and less documentation than the full forgiveness application. To be eligible to use the EZ form, borrows must meet certain criteria, including
- Are self-employed and have no employees, OR
- Did not reduce salaries or wages or their employees by more than 25%, and did not reduce the number or hours of their employees, OR
- Experienced reductions in business activity as a result of the health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%
Work with your lender to determine which loan forgiveness application is right for your situation.
When do I need to start making payments?
If your PPP loan isn’t forgiven in full, you will have to repay the unforgiven amount at a 1% interest rate. Loans made on or after June 5, 2020, must be repaid within 5 years of loan disbursement. Loans made before June 5, 2020, must be repaid within 2 years of loan disbursement.
Regardless of when you received your PPP loan, you do not need to make any payments until you file for forgiveness and the SBA either pays your forgiveness amount to your lender or notifies your lender that you are not eligible for forgiveness. This is known as your deferment period. Your PPP loan will accrue interest during the deferment period.
If you do not apply for forgiveness within 10 months from the end of your covered period or December 31, 2020 (whichever comes first), your deferment period will end. At that time, you will need to start making payments on your PPP loan.
What are your next steps?
As you prepare to apply for loan forgiveness, consider your next steps. It’s a good idea to organize your payroll, track down any documents you might need to apply, and work with your lender on your application. In the meantime, follow the loan forgiveness requirements and rehire any employees you may have laid off to improve your chances of having your PPP loan forgiven. When in doubt, refer to the latest guidance from the SBA and the Treasury.
The resources described above are made available to businesses within the United States of America.
Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly, and the information contained herein may be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules.
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