If you applied for the Small Business Administration’s (SBA) Paycheck Protection Program (PPP) loan and your application was approved, you may be eligible for PPP loan forgiveness.
Similar to learning about the eligibility requirements and application process for the PPP loan, understanding the application process can mean sifting through a lot of information.
In this article, we'll review how to know if you're likely eligible for PPP loan forgiveness, which rules you need to follow, and how to submit your application.
The 8 steps of the application process are:
If your PPP loan application was approved in the first draw or second draw, then you may be eligible for loan forgiveness. It’s best to review your specific situation against the criteria on the SBA website.
One of the biggest components to eligibility is whether or not you've used the money loaned to you or if you have a plan to do so.
If you have spent or have an incurred spend for your loan amount within the 8- to 24-week covered period following receiving the loan, you may be eligible.
What you spend your money on is very specific, and we'll review those rules in the next step. If you're curious as to what period of time your loan was approved for, you can check with your lender.
The time period is most likely dated beginning on the day you made your first payment (this is usually the day you got approved but depends on the lender and company) and is specific to you, based on your agreement with your lender. So it’s best to double check!
If your PPP loan was approved and you believe you're eligible for PPP loan forgiveness, it's important to consider how you spent your business's loan. The SBA has very specific requirements for how you spent the loaned money, which will help determine overall eligibility.
The SBA requires you to have spent your loan funds on:
According to the SBA at least 60% of the proceeds must be spent on payroll costs. We'll review what payroll and non-payroll costs typically are defined as by the SBA.
The costs considered under payroll for loan forgiveness eligibility usually include:
Since payroll costs make up the required 60% of spend for PPP loan forgiveness eligibility, the remaining 40% is for non-payroll costs. What costs can small business owners usually spend their remaining loan money on and still be eligible?
Leases signed to rent property or equipment before February 15, 2020.
You also can include payments you made on mortgage interest before February 15, 2020.
Agreements for utilities before February 15, 2020: these may include water, transportation, internet service, gas, electricity, and telephone services.
Money that you spent on services that helped enable you to do your work, such as accounting, human resources, software expenses, and cloud computing.
Payments for agreements with suppliers that are covered before getting your PPP loan that were necessary to continue your operations.
Payments to help with property damage during 2020 that your insurance may not have covered if related and due to ‘public disturbance vandalism or looting.’
Money spent to protect employees to buy protective equipment to comply with COVID-19 guidance .
Many businesses were forced to make the hard decision to cut staff in 2020. If you have employees, it's expected that you used the PPP loan funds to maintain the same number of staff that you had before the COVID-19 pandemic onset.
To get approved for PPP loan forgiveness, you will need to show that you've maintained the same number of employees as before, during the time you utilized your loan.
If you had to lay off employees — it won't necessarily mean that your business will be found ineligible. What you can do is show proof that you've made efforts to rehire them.
Be sure to document your attempts to rehire your employees. Include information that shows you offered the same wages and benefits as you did when employing workers before the pandemic.
Check with your lender to make sure that you're in compliance with staffing requirements for your PPP loan. If you're interested in learning more about bringing back former staff members, you can read about rehiring employees here.
When evaluating your PPP loan forgiveness application, your employees' salaries will be taken into consideration. The government requires that business owners maintain 75% of their employees' salaries to be eligible for loan forgiveness.
Some business owners may attempt to hire more employees to satisfy the requirement of maintaining 75% salary, but keep in mind that this is calculated on an employee-by-employee basis. That means that each employee's salary must be 75% of what it was before the COVID-19 pandemic.
If you have questions about how your lender will evaluate your staffing and salaries, you may ask them for guidance.
At this point, you may realize that there are many regulations surrounding PPP loan forgiveness as there were surrounding the original PPP loan application.
To make sure that you have the best chance of receiving loan forgiveness from the government, it's important to collect and organize all your documentation.
Depending on the size of your loan, you may be required to have various levels of documentation.
If your business received a loan of less than $150,000, then you're required to document your loan's total amount, the employees who were retained, and how much funding was spent on payroll costs. This can all be documented on a one-page certificate.
If your business received a loan of more than $150,000, you'll be required to submit more extensive documentation. Each lender will have different requirements, but most will likely ask that you submit:
If you have rental lease agreements or mortgage interest payments, it also may be helpful to collect and keep copies of statements, receipts, and payment schedules.
We know it can be time-consuming to collect and organize all this information, but remember — it could be the tipping point for your PPP loan forgiveness application's approval.
Each business that received a PPP loan in the first or second draw received a different amount of money, with different lending terms. In order to apply, you'll need to complete forms specific to the loan you received.
Keep in mind that the 3508EZ and 3508S are shortened versions of the forgiveness application for businesses that meet specific requirements. Be sure to ask your lender for guidance on how to submit your information if you have these forms, as it may differ from the others.
Important: Documentation is a good habit to adopt in general, but in this case, it's an SBA requirement. Not only can documentation potentially make or break your loan forgiveness approval, as we mentioned above, but you may be required to present it sometime in the future.
You're required to keep records for six years after your loan is either forgiven or repaid in full.
Once all of your paperwork is in order, submit your loan forgiveness application to your lender. Different lenders may have their own requirements for how they accept the PPP loan forgiveness application. Lenders typically must respond to your application within 60 days.
If you received an Economic Injury Defense Loan (EIDL), then the SBA will typically deduct its amount from the amount of forgiveness, if granted.
Once you've submitted your loan forgiveness application, your work isn't over. Be sure to work with your lender to understand their specific approval process, what to expect in terms of wait-time, and how to check the status of your application.
Business owners are no strangers to the term "the new normal," and with PPP forgiveness loans on the horizon, it means that business owners can begin planning for a future with a newfound excitement.
Hopefully, this article has helped you better understand the steps in the PPP loan forgiveness application process..
If you're interested in continuing to protect and grow your business, check out helpful articles and guides on Simply U, our blog for business owners.
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I’ve told stories since I learned to talk and written since I could hold a pen. As a small business owner myself - I'm a freelance writer and yoga teacher - I love contributing to the entrepreneurship community in different ways (including writing for Simply Business!). When I’m not drafting articles for SB, I can be found on my yoga mat, perusing an indie bookstore, and writing (with my cat nearby of course).
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