Last year, the federal government set out to help small businesses struggling due to the COVID-19 pandemic. One of the most significant ways they offered assistance was in the PPP – Paycheck Protection Program.
The PPP was initially put into place back in March 2020. Since that time, the program has been changed a few times. This is so more small businesses would be able to participate. Through all of 2020, the Small Business Association approved approximately $525 billion in PPP loans.
One of the most attractive things about this program was that the loans could be forgiven – if certain circumstances were met. This essentially made the PPP loan a business grant.
In this article, I will go over PPP loan forgiveness in detail. I’ll share the requirements you need to meet to have a PPP loan forgiven, how to get an application for forgiveness, as well as other critical pieces of information you may need.
This is especially important since the government modified the program slightly in December of last year.
What is the PPP?
Before going into detail on PPP loan forgiveness, I want to provide a quick overview of the PPP loan program. As I said, it was launched in March of 2020 as part of the $2 trillion CARES Act. The program was designed to help businesses get tax breaks, keep employees on the payroll, and cover several other costs to keep their businesses afloat.
By June, the first modification came to the program, making revisions on how borrowers can spend the funds and some flexibility in the guidelines. It was again modified in December of 2020 to reopen the program for new, first-time borrowers and also allowed for the ability for some businesses to get a second PPP loan.
PPP loans have an interest rate of just 1.00%. Based on when the loan was obtained, the maturity is either two or five years. Business owners are not required to put down collateral, and there are no fees. And, best of all, they can be forgiven.
What is required for PPP loan forgiveness?
For a business to qualify for PPP loan forgiveness, they have to meet several guidelines. These guidelines were updated during the bill update in December.
PPP loan forgiveness is given to businesses who have either kept or rehired their employees while also keeping salary levels consistent from before the pandemic. If a company does not meet these guidelines, however, they still might be able to qualify. For example, if a business’s sales went down or if full-time employee count decreased.
For a PPP loan to be considered for loan forgiveness, 60% (or more) of the loan must have been used to cover payroll costs. The other 40% (or less) must have been spent on any of the following:
- Property damage (including damage from civil unrest; if you weren’t insured).
- Worker protection expenses (including things like sneeze guards and PPE).
- Supplier costs on goods deemed essential for the business.
- Qualifying rent obligations or mortgage interest.
- Operating costs (including things like accounting and other business software).
Also, businesses must be able to prove (if needed) that they’ve made every attempt to keep up similar levels of employment and compensation to what they had before the COVID-19 pandemic (~March 2020).
How do I apply for PPP loan forgiveness?
Applying for PPP loan forgiveness has become fairly simple. It’s the waiting that has some people frustrated. That said, here’s what you need to do to apply.
Contact your original lender
Assuming a business has followed the Small Business Association’s prerequisites, they can send in a PPP loan forgiveness application form. Each company has to send their application form to the financial institution that initially gave them the PPP loan.
Note that for those who have a small business with employees, you can use the standard PPP forgiveness application form to guide what information you’ll need to provide. Sole proprietors, independent contractors, and self-employed people who have no staff members can use the EZ version of the application form to be a guideline.
This part of the process can be frustrating. There have already been many videos of frustrated business owners put out on YouTube to help other businesses avoid the same frustrations.
That being said, it might be advantageous to work with a smaller lender that can give you more dedicated attention. Bluevine, for example, offers PPP loans, and they have an extremely in-depth guide on how to apply for loan forgiveness through them.
Do the documentation
Small businesses who have employees will have to submit information like payroll and nonpayroll costs, adjustments for salary reductions, along with possible PPP loan forgiveness amounts.
Additionally, the application proves the PPP loan funds were used as intended. It will likewise validate that a small business verified payments to employees, and the forms submitted to the Small Business Administration are generally correct.
Here’s a snapshot from the Small Business Administration on what documents you’ll need:
For more information on the required documentation needed, go to the Small Business Administration’s PPP loan site.
The PPP loan forgiveness application also attempts to make the process easy for borrowers. To do this, they’ve included things like:
- Expanded timeline for expenses. You now can include some payroll and nonpayroll expenses paid or incurred throughout the 24 weeks after receiving their PPP loan. This means that businesses would never be limited only to costs inside the initial two-month timeline.
- More straightforward estimation of payroll costs. The ability to estimate their payroll costs employing what’s referred to as an alternative payroll covered period aligns far better with the business’s regular payroll periods.
- Exemptions for offers made and declined. If you’ve made a good-faith, written offer to rehire someone and this offer ended up being denied; you may be eligible for an exemption from PPP loan forgiveness reduction.
Submit the PPP loan forgiveness form to your lender
The initial deadline to send in a PPP loan forgiveness application form is ten months from the conclusion of the Covered Period – which is somewhere between 8 and 24 weeks. Because of this deadline, businesses need to ensure they submit their PPP loan forgiveness application to the lender quickly.
Wait (but keep in touch with your lender)
After the small business submits their PPP loan forgiveness application form, they’ll have to wait some time to find out if it has been approved or not. Additionally, it’s beneficial to know that when you submit a PPP loan forgiveness application form within the ten months of your loan being used, you’re not required to make payments on the loan.
If your PPP loan is completely forgiven, you won’t need to make any further payments on it. And if it’s only partially forgiven (or perhaps not forgiven at all), you’ll need to pay the loan entirely before the maturity date.
What if my PPP loan is under $150,000?
In December, there were alterations made to the coronavirus relief bill that made it easier for businesses with a PPP loan under $150,000 to apply for forgiveness. Those with loans under $150,000 now only have to submit a more straightforward, one-page application form.
And if your business received a PPP loan for under $50,000, you can now submit Form 3508S, which is a single-page application form for PPP loan forgiveness. Form 3508S takes a lot less time and energy to complete, and it has fewer calculations and documentation requirements compared to the standard PPP loan forgiveness application form.
What is the EIDL, and how does it impact my loan forgiveness?
The EIDL is the Economic Injury Disaster Loan. It’s a non-forgivable loan designed to offer financial relief to companies suffering from a temporary decrease in revenue as a result of coronavirus (COVID-19). The latest stimulus bill passed in December changes how EIDL grants affect PPP loan forgiveness.
When PPP first came out, the forgiveness of a loan was lessened by the total dollar amount any business received in EIDL grants. However, PPP loan forgiveness won’t be decreased at all – even when a small business obtained an EIDL grant.
A year ago, PPP was thought to be a lot more complex (and people abused it). Now, though, it’s becoming easier to take advantage of and get forgiveness on, as long as you’re following the rules. Hopefully, you’ll use this as a guide to help make getting forgiveness a lot easier.