Do I have to pay back my PPP loan? Here’s how to get your loan forgiven (UPDATES FOR 2021)

Important PPP forgiveness update as of August 2021

On July 28, 2021, the SBA announced big news (for most PPP borrowers). The SBA has established an online PPP forgiveness platform called the SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.

Some background on previous 2021 PPP updates: On December 22, 2020, Congress passed a bill renewing funding under the CARES Act, including an additional $284 billion earmarked for America’s struggling small businesses. The rules and application process for PPP loans and forgiveness have been modified, with more businesses eligible for PPP loans, more expenses forgivable, and a simplified application process. It is also easier to achieve loan forgiveness, and the “maintain employment and compensation levels” rule have been waived in some cases. Please see below for important PPP forgiveness updates for 2021.

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PLEASE NOTE: We have made an effort to maintain accuracy but there have been several iterations of important changes to the PPP loan forgiveness rules. Please refer to the SBA PPP loan forgiveness page for (hopefully) the latest rules.

  • Can all Paycheck Protection Program loans be forgiven?
  • What can cause PPP loans to not be forgiven?
  • Do I still need to “rehire” employees and maintain compensation levels to meet PPP forgiveness requirements in 2021?
  • What if my PPP loan isn’t fully forgiven?

PPP 2021 adds additional eligible expenses for forgiveness

There have been several updates to the original PPP terms over the past months, and the latest round of PPP funding adds more eligible forgivable expenses, so more small businesses may take advantage of this relief package.

The new bill makes the following expenses allowable and forgivable Paycheck Protection Program funds:

  • Covered operations expenditures: Payment for any software, cloud computing, and other human resources and accounting needs
  • Covered property damage costs: Costs related to property damage due to public disturbances that occurred during 2020 that are not covered by insurance
  • Covered supplier costs: Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to the recipient’s operations at the time at which the expenditure was made. Supplier costs of perishable goods can be made before or during the life of the loan
  • Covered worker protection expenditures: Personal protective equipment and adaptive investments to help a loan recipient comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration

The new language also allows loans made under PPP before, on, or after the enactment of this new act to be eligible to utilize the expanded forgivable expenses except for borrowers who have already had their loans forgiven.

The new PPP program for 2021 will have a flexible covered period and a simplified application process

The new 2021 PPP language allows borrowers to elect a covered period ending at the point of the borrower’s choosing between 8 and 24 weeks after loan origination.

In addition, for loans under $150,000, there will be a simplified, one-page application form created by the SBA and approved by congress. Again, this is still forthcoming, but is likely to be signed into law. This will be a welcome relief to many small businesses that struggled through a complicated PPP loan approval process for the first and second rounds of PPP funding during 2020.

The new bill extends the covered period for first-draw PPP loans to March 31, 2021 

This applies to PPP loans made before, on, or after the date of the enactment of the new bill, including the forgiveness of these loans. Please see below for important updates for PPP forgiveness for 2021. 

Since then, President Biden has signed into law the PPP Extension Act of 2021, which extends the effective PPP application window through May 31, 2021.

Recently, the federal government renewed the funding to extend the initial $2 trillion CARES Act, which will was intended to provide financial assistance for individuals, families, and businesses during this trying time. 

The Treasury released a new IFR and new PPP application and forgiveness forms.

How do I know whether I need to use the full PPP loan forgiveness application form (3508 or 3508S), or the “3508EZ” form?

Everyone who wants their PPP loan forgiven (meaning you don’t have to pay it back) in full or in part, must complete and submit an application for loan forgiveness.

Here’s how borrowers decide which forgiveness application to use.

If your loan was for more than $150,000, you may use the full forgiveness application (Form 3508) OR the new Form 3508EZ (if you meet the criteria; see below).

If your loan was for $150,000 or less, use Form 3508S. (AND check if your lender has opted-in to the new SBA PPP Direct Forgiveness Portal)

You may use Form 3508EZ if:

  • You are self-employed and have no employees; OR
  • You did not reduce the salaries or wages of employees by more than 25%, and did not reduce the number or hours of employees; OR
  • You experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of employees by more than 25%.

See all the new PPP application and forgiveness forms here.

On June 5, 2020, President Trump signed into law new updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, reducing the minimum loan funding that must be spent on payroll to 60%, and easing the requirements for maintaining staffing and compensation levels. Please read the details here.

Under the CARES Act, the Paycheck Protection Program (PPP) initially authorized up to $349 billion in forgivable loans to small business owners. Each business could apply for a PPP loan of 2.5 times their average monthly payroll expense, so long as that does not exceed $10 million per business. 

Can my Paycheck Protection Loan be forgiven? If so, how?

The question that most business owners are asking right now with this new COVID-19 financial assistance: how can these loans be forgiven?

It’s understandable that you wouldn’t want to go into debt during this time, especially with the uncertainty of the future as the pandemic progresses. Fortunately, since the intent of this bill is to save American jobs and businesses, there’s a huge motivation built into the provisions of the loan program for businesses: If you maintain levels of employment and compensation (SEE BELOW FOR IMPORTANT EXCEPTIONS FOR 2021) and spend the funds on approved expenses, your PPP loan will be forgiven, meaning you don’t have to pay it back…ever!
Specifically, First Draw PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:

  • Employee and compensation levels are maintained (see below for exceptions)
  • The loan proceeds are spent on payroll costs and other eligible expenses; and
  • At least 60 percent of the proceeds are spent on payroll costs

There are two important conditions for PPP loans to be fully forgiven:

  1. Proceeds of the loan must be used to cover payroll costs, mortgage interest, rent, and utilities over the next 8-24 weeks after the loan funding has been received (note: the covered period has been extended to up to 24 weeks for loans made after June 5, 2020. Borrowers with loans issued prior to that date will have the option to extend their covered period to 24 weeks or maintain it at the previous 8-weeks.) 
  2. Employee headcount and compensation levels must be maintained (see below for exceptions)

This means that the majority of your loan must be used to keep your staff employed if you want your loan to be fully forgiven. Initially, this loan forgiveness plan was designed to help keep unemployment rates down, and help individuals keep their jobs and support their families. 

60% (previously 75%; see “important update” above) of the PPP funding must be used to cover payroll costs. (This rule still applies for all PPP loans for 2021.)

Also note that the interest that accrues (at an amazingly low 1% rate, but still…) is NOT forgivable.

Do you have to pay back your PPP loan? See our FAQs for more.

What can cause all or part of my PPP loan to not be forgiven?

The only way you will have to pay back all or part of a PPP loan is if you don’t use it for the specific items outlined above. You CAN use your funding for any legitimate business expense, but if you use your loan for anything other than PPP-approved payroll costs, mortgage, rent, and utilities, expect to pay back at least that portion of your loan. 

Initially, no more than 25% of the forgiven amount could be used to cover non-payroll costs if you wanted your PPP loan completely forgiven. That has been changed to 40% as of June 5, 2020. (60% of PPP funds must be spent on payroll costs to maintain full loan forgiveness.)

And a 1% interest rate is amazing, but even with an almost-free interest rate, a 2-year loan maturity date (now 5 years) can be tough to meet, especially if you’re still reeling from the impacts of the COVID-19 crisis.

So it would be far better if you used your PPP loan for its intended use, on approved expenses, and got it completely forgiven.

Read more: 

You will owe money on your loan if you don’t maintain your staff and payroll (SEE BELOW FOR IMPORTANT EXCEPTIONS FOR 2021). The following are ways that you will have your loan forgiveness reduced:

  • If you decrease the number of full-time employees you have (this no longer applies in many cases; see below)
  • If you decrease salaries or wages by more than 25% for any employees that made less than $100,000 in 2019

What if I couldn’t keep my employees, they quit, or refused to be rehired? Can I still qualify for loan forgiveness? (important 2021 update)

There are certain exceptions to the “maintaining employees levels and compensation” rule.

 If you received a PPP loan of $50,000 or less

If you received a PPP loan that was $50,000 or less, you are exempt from having to maintain your employee and compensation levels in order to receive loan forgiveness. Your loan must still be spent on approved costs and you will still need to document that you spent at least 60% of your funds on payroll expenses

An employee quit, retired, or was fired (with just cause), or refused your offer to be rehired

If your loan amount is greater than the $50,000 loan threshold but you couldn’t maintain employee levels due to someone quitting or being fired with just cause, then you can still qualify for full loan forgiveness. You can also get full loan forgiveness if you have written proof that you offered to rehire employees, but they refused your offer (if your offer was at their former pay). But, it’s very important that you document each of these instances so that you can verify this when you apply for loan forgiveness. 

You’ll need documentation to explain why your employee was fired or other supporting documents to verify an employee’s termination or their refusal to be rehired.

I got my First Draw PPP Loan after December 27, 2020, do I still need to restore payroll or headcount to previous levels in order to receive forgiveness?

No. PPP Loans received after December 27th, 2020 are not required to “rehire” any employees in order to receive forgiveness. You will, however, need to maintain current payroll levels during the forgiveness period. (Exceptions to this would include employees who resign or are terminated with cause).

If you’ve kept those requirements for the 8 (or 24) weeks after you received your PPP loan, at that point you may apply for loan forgiveness through the lender that serviced your loan. 

In order to request any amount of forgiveness on your loan, you will need to verify that your loan was used for the required expenses, which means you’ll need documented proof. 

How do I request forgiveness of my Paycheck Protection Program loan?

To apply for loan forgiveness, you should first check if your lender has opted-in to the new SBA PPP Direct Forgiveness Portal. If your PPP loan was for $150,000 or less, AND if your lender has opted-in to the use of the platform, you will be able to submit your PPP loan forgiveness application online directly to the SBA, using the electronic equivalent of SBA Form 3508S. For full details, read our post about the new SBA PPP Direct Forgiveness Portal and other recent rule changes.

If the above doesn’t apply to you, contact your PPP lender and complete the correct application form with the lender that is servicing your PPP loan. The request will include documents that verify the number of full-time equivalent employees and pay rates (unless your loan meets the exceptions outlined above), as well as the payments on eligible mortgage, lease, and utility expenses. 

You must certify that the documents are true and that you used the forgiveness amount to maintain employee headcount/compensation levels (see exceptions above) and to make eligible mortgage interest, rent, and utility payments for the 8-24 weeks after you receive your loan. The lender must make a decision on the forgiveness within 60 days of your request. 

What if my loan isn’t able to be completely forgiven?

In the case that you don’t meet all requirements for complete loan forgiveness, you’ll have specific terms to pay back the required portion of the loan, and these terms are the same for every business. 

PPP loan terms:

  • 1% interest rate
  • Maturity of 5 years (meaning the full amount of non-forgiven principal and any interest is due in 5 years [previously 2 years])
  • 6-month deferment (you don’t have to start paying back the loan for 6 months—however, interest still accrues during this period) Note: as of June 5, 2020, payments are deferred until you receive approval from the SBA on your application for loan forgiveness, or 10 months after the end of your covered period.)
  • 100% guarantee by the SBA
  • No collateral is required
  • No borrower or lender fees need to be paid to the SBA
  • No personal guarantees

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