Who Qualifies for PPP Loan Forgiveness?

If you took out a PPP loan to help your small business through the Covid-19 pandemic, you may be wondering if you qualify for loan forgiveness. The answer depends on how you used the loan and how much documentation you can provide. Read on to learn more.

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Overview of PPP Loan Forgiveness

What is the PPP Loan Forgiveness Program?

The Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020, created the Paycheck Protection Program (PPP) to provide loan forgiveness for retaining employees by temporarily expanding the traditional SBA 7(a) loan program.

The PPP loans will be forgiven if all employee retention criteria are met, and the funds are used for eligible expenses.

What are the Eligibility Requirements for PPP Loan Forgiveness?

To be eligible for PPP loan forgiveness, you must use the loan proceeds for eligible payroll costs, payments on eligible business mortgage interest payments, rent payments, or utility payments. At least 60% of the forgiven amount must have been used for payroll.

You must also have:
-Employed the same number of full-time equivalent employees (FTEs) per week as you did in the period beginning February 15, 2020 and ending April 26, 2020 OR have reduced your FTE employees during the covered period by no more than 40%,
-Not reduced salaries or wages of any employee by more than 25% during the covered period compared to the period beginning February 15, 2020 and ending April 26, 2020, and
-Not laid off any employees or implemented any salary reductions from February 15, 2020 through 30 days after receiving your PPP loan.

How to Qualify for PPP Loan Forgiveness

The PPP loan forgiveness program is designed to help small businesses keep their workers employed during the COVID-19 pandemic. If you have received a PPP loan, you may be eligible for loan forgiveness if you use the loan proceeds for eligible expenses and meet certain requirements. Let’s take a look at what you need to do to qualify for PPP loan forgiveness.

How to Calculate Loan Forgiveness

To qualify for loan forgiveness, you’ll need to submit a request to your lender that includes documentation showing how you used the loan funds. Your lender will then have 90 days to review your request and issue a decision.

To calculate forgiveness, you’ll need to provide your lender with information on payroll costs, eligible non-payroll costs, full-time equivalent employees (FTEs), and reductions in salary or wages. You can use the SBA’s PPP Loan Forgiveness Application Form 3508 or 3508EZ to do this.

The SBA has also released interim final rulesthat provide more guidance on how to calculate loan forgiveness. These rules state that:

-You can exclude payroll costs for any employee who made more than $100,000 in 2019 from your forgiveness calculation.
-You can exclude non-payroll costs for any business owned by a person who is related to the business owner (such as a spouse or child) from your forgiveness calculation.
-If you reduce an employee’s salary or wages by more than 25%, that reduction will be counted against the amount of loan forgiveness you can receive.
-If you laid off employees or reduced their hours, you may still be eligible for full loan forgiveness if you rehire those employees by December 31, 2020 and restore their salaries or wages to their pre-reduction levels.

What Documentation is Needed for PPP Loan Forgiveness?

To apply for forgiveness of your PPP loan, you (the borrower) must submit a Loan Forgiveness Application to your lender (or the lender servicing your loan) that includes documentation verifying the number of full-time equivalent employees on payroll and the pay rates for each, as well as the eligible cash compensation and non-payroll expenses paid or incurred during the covered period.

You will need to include:
-Documentation verifying payroll and non-payroll expenses paid or incurred during the Covered Period or Alternative Payroll Covered Period;
-A calculation of the Full Time Equivalent employees for each covered period; and
-Certification from a business owner, officer, or other authorized representative attesting to the accuracy of the documentation and information provided in support of their application for forgiveness.

How to Apply for PPP Loan Forgiveness

Now that the Paycheck Protection Program has been extended through May 31, 2021, small business owners have more time to apply for loan forgiveness. However, before you apply, it’s important to know if you qualify. The SBA has specific guidelines in place for loan forgiveness, and not all businesses will qualify. In this article, we’ll go over who does and doesn’t qualify for PPP loan forgiveness.

What is the Application Process for PPP Loan Forgiveness?

The PPP loan forgiveness process is as follows:

1. You (the borrower) will submit a Loan Forgiveness Application to your lender.
2. Your lender will review your application and supporting documentation to determine if you are eligible for forgiveness.
3. If you are eligible for forgiveness, your lender will notify the SBA of the amount that should be forgiven.
4. The SBA will then have 90 days to review your loan forgiveness application and make a decision.
5. If the SBA approves your loan forgiveness, they will notify your lender and the Loan Forgiveness Application will be considered complete.
6. If the SBA denies your loan forgiveness, they will notify your lender and provide you with an explanation of the denial. You will then have the opportunity to appeal the decision or amend your application and resubmit it for review.

What is the Timeline for PPP Loan Forgiveness?

Borrowers have a 10-week period beginning the day they received their PPP loan to spend the money on payroll and other qualifying expenses. The SBA will then have up to 90 days to forgive the loan.

The timeline for forgiveness can be extended if the borrower needs more time to spend the money or if the SBA needs more time to process forgiveness applications.

If you think you will need more than 10 weeks to spend your PPP loan, you can apply for an extension from the SBA. You will need to submit a request for an extension before your loan is due.

You can also contact your lender to see if they will allow you to defer your loan payments.

FAQs

If you received a Paycheck Protection Program (PPP) loan from a participating lender, you may be eligible for loan forgiveness if you use the loan proceeds for eligible payroll costs, payments on eligible business mortgage interest payments, rent, or utilities during the covered period. You will need to submit a loan forgiveness application to your lender. If your lender approves your application, they will send the forgiveness amount to the SBA. If you do not apply for loan forgiveness, you will need to begin making full principal and interest payments on your loan no later than 10 months after the end of your covered period.

What if I don’t qualify for full loan forgiveness?

If you don’t qualify for full loan forgiveness, you’ll still be responsible for repaying the remaining balance of your PPP loan. However, you may be eligible for partial loan forgiveness if:
-You used less than 60% of your PPP loan for payroll costs
-You experienced a reduction in full-time equivalent (FTE) employees or a reduction in wages of more than 25% for any employee

If you’re not able to return to the same level of business activity that you had before the pandemic, you may still be eligible for partial loan forgiveness.

What if my PPP loan is forgiven partially?

Even if your PPP loan is only partially forgiven, you will not have to pay taxes on the amount that is forgiven.

What happens if I don’t apply for loan forgiveness?

If you don’t apply for loan forgiveness, you will have to start making payments on your loan six months after your covered period ends. Your payments will be due monthly for the next two to five years, depending on the repayment plan you choose.

If you don’t qualify for full loan forgiveness, you will still be responsible for repaying the portion of your loan that is not forgiven.