Demystifying the PPP Loan Forgiveness Process

The federal government’s Paycheck Protection Program, rolled out as the pandemic hit in March of this year, has supported 51 million jobs, according to National Public Radio’s research of the Small Business Administration’s public data.

The program, commonly called PPP, provided $660 billion in loans to businesses across the country as the COVID-19 altered their ability to earn revenue in their business.

The average loan for the entire PPP program was about $100,000 per applicant.

As this traumatic year draws to a close, it’s time to start planning for PPP forgiveness or repayment, with the former being the best choice for most.

Three key factors to loan repayment or forgiveness plans are timeline, key concepts and documentation.

Keep in mind, our advice is general and may not apply to your specific case.

Timeline of the Process

In general, no loan repayments will begin until 2021.

PPP loan repayments are deferred until the earlier of these two options:

  • Ten months after the end of your chosen covered period
  • The date your forgiveness application is processed.

Businesses that took advantage of the earliest loans, disbursed in April, have the initial eight-week covered period in force plus ten additional months, pushing due dates into 2021.

For those who took loans later in the pandemic, the last deferral start date is December 31.

An interest rate of one percent will continue to accrue as long as the loan remains unforgiven.

Some experts recommend waiting until 2021 to begin any type of repayment or forgiveness process, as they expect favorable tax treatment to be implemented.

Important Concepts During the Process

PPP loans can only be forgiven for qualified expenses. Any part of loans used for other expenses must be repaid

The SBA divides qualified expenses into two buckets: payroll and non-payroll.

Payroll expenses include direct salaries and wages, as well as health insurance, retirement contributions and state payroll taxes. This portion must make up at least 60 percent of borrowed funds. Forgiveness could be a simpler process if funds were used exclusively for payroll.

Non-payroll allowable expenses include rent, mortgage insurance and utilities. Each of these expenses must have been incurred before the pandemic started, meaning businesses cannot ask for forgiveness for new mortgages or rent payments began after COVID-19’s effects became global in March.

The covered period described in PPP paperwork start on the date loans were disbursed. Borrowers could choose eight weeks or 24 weeks as their covered period.

An alternate covered period pushes back start dates to begin on the borrower’s first pay period, allowing recipients to avoid cumbersome calculations or pro-rata pay periods.

Your forgiveness amount may be reduced if:

  • Payroll included employees making over $100,000 in annual salary
  • You reduced the full-time headcount of your business
  • Other SBA loans were received

Documentation for the Process

Three applications are available to initiate the forgiveness process.

The 3508S is commonly considered the easiest form to complete. Your total loan must be less than $50,000 or $2 million with all affiliates included.  This form also requires the least amount of documentation.

The 3508EZ is widely considered a misnomer and not the easiest in the process. This form applies to businesses that couldn’t operate regularly during COVID, those who are self-employed or have no employees, independent contractors, and companies that didn’t reduce salaries, wages or headcount.

Finally, 3508 is the long-form required for businesses that don’t qualify for the other two. This form requires extensive documentation to compare “normal” 2019 expenses or early 2020 expenses to 2020 pandemic expenses.

Critical Steps in the Process

Business leaders should observe the following steps as they begin the loan forgiveness process:

  • Contact your PPP lender
  • Complete the correct form with appropriate documentation
  • Submit to your PPP lender, preferably in 2021
  • Keep communication open with your lender
  • Retail all documentation for six years

For more information about the process go directly to the source, the SBA.

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