What Steps Do You Need To Take For Your PPP Loan Forgiveness
The Paycheck Protection Program is a loan incentive designed to help small businesses run payrolls and retain employees during the global coronavirus crisis.
The application deadline for the program has been pushed to August after President Trump signed the extension legislation on the 6th of July.
One major benefit of the program is a 100% loan forgiveness policy for small businesses if these meet the loan forgiveness accounting criteria outlined by the SBA.
How Can PPP Funds Be Used
The funds from the PPP can be distributed in the following ways:
- Payroll: These expenses include employee salaries, wages, tips, and other benefits such as the cost of a vacation, medical expenses, sick leaves, and more
- Mortgage interest: This also qualifies for PPP loan expenses provided the mortgage agreement was signed before February 15, 2020
- Rent: Provided the lease agreement took place before February 15, 2020, this can be counted
- Utilities: Internet, electricity, transportation, and other related utility expenses are applicable. The services should’ve been in effect before the 15th of February
A number of modulations have been made to the program that has resulted in greater flexibility for borrowers.
For example, the previous eight-week tenure for spending the loan has now been stretched to a period of 24 weeks.
Instead of the previously stipulated 75%, borrowers can now spend only 60% of the loan on expenses other than the ones stated above.
How Does The PPP Forgiveness Work?
Businesses that meet the criteria of spending at least 60% of the loan for payroll expenses become eligible for forgiveness, however, certain conditions apply.
With careful loan forgiveness accounting, you may render yourself eligible for a 100% loan waiver.
On the other hand, if you fall short of meeting the criteria, the forgivable amount will be deducted proportionately.
At the end of the loan expensing tenure, businesses can apply for forgiveness through their individual loan servicers.
What Expenses Are Eligible For Forgiveness?
All expenses falling under the payroll and utilities specified earlier become eligible for forgiveness but certain conditions apply.
- 24-week period: Expenses that take place over a period of 24 weeks become eligible for forgiveness. Moreover, on account of the changes incurred within the program, businesses are no longer required to start off-cycle payrolls. If your final payroll falls outside of the eight-week tenure, employee expenses incurred over a period of 24 weeks still qualify for forgiveness
- Staff requirements: Downsizing staff will work in your disfavor when applying for forgiveness. To ensure that you meet this requirement, take the number of employees you had for the initial loan period and divide it by the number of employees on roll between February 15 to June 30, 2019. If the number is equal or greater than 1, you successfully qualify for forgiveness
- Payment requirements: You’ll be required to maintain at least 75% of the original employee salary. If the employees are working under less than 75% of the original salary, the forgiveness percentage will reduce by the difference between the current pay and the amount that was originally mandated
What Do The Recordkeeping Requirements Look Like?
Recordkeeping requirements include all documents related to loan forgiveness accounting that can successfully testify your eligibility. You might be required to submit the following records at the time of application.
- All documents that enunciate the number of employees for the designated period and their pay rates
- Reports generated by your payroll provider
- State-issued income and unemployment insurance filings
- Record of health and miscellaneous insurance incurred
- Record of your mortgage interest, utilities and other services that were in effect prior to the 15th of February 2020
Your lender may be obliged to demand additional documents. You’re advised to keep a laser-focused track of your accounts and maintain a backup digital file.
Read more: How To Account For Your PPP Loans
How To Apply For Loan Forgiveness
To apply for forgiveness, download the Forgiveness Application Form and submit the form to your loan servicer. The official form was issued by SBA on May 18th, known as the SBA Form 3508. The administration also has issued a set of fulfillment instructions for the benefit of the applicants.
When filling the form, you’ll be required to:
- Provide basic details about your company in the main loan forgiveness calculation form
- Ensure that you meet the headcounts and other payment requirements by filling out the schedule A worksheet
- Complete schedule A worksheet which will inform you of your compensation and payroll costs
- Complete the rest of the loan calculation forgiveness form that’ll tell you where you stand with the eligibility costs and the amount of loan that stands for forgiveness
What To Do If Your Application Is Rejected
Rejection of your loan forgiveness application will result in accruing an interest rate of 1% for the remaining period. The program, however, relieves borrowers from the incumbent prepayment penalty. At the time of paying off the PPP debt, borrowers will be allowed to pay the outstanding balance without the application of any additional fee.
If your original application for loan forgiveness is rejected, there’s always a chance your servicer may consult you for the procurement of further documentation that can revert your eligibility status.
PPP loan forgiveness policy can drive great benefits for small businesses and sole proprietors.
By keeping a close track of your account payables and complying with the conditions outlined by the SBA, you may successfully render yourself eligible for a 100% loan forgiveness.