Is PPP loan forgiveness automatic? Or do I have to do something? (important 2021 updates)

IMPORTANT UPDATE FOR 2021: Congress has approved an extension of the PPP loan program until March 31, 2021, including “second draw” PPP loans for businesses that received PPP funding in 2020. For 2021, PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures. Start your PPP loan application now!

 

In this 2-minute read:

  • Important 2021 updates for PPP forgiveness
  • Are PPP loans automatically forgiven?
  • What do I need to do to have my Paycheck Protection Program loan forgiven?

As business owners start receiving their PPP loans or continue to apply for theirs, there are several pressing questions about PPP loan forgiveness. Will your PPP loans automatically be forgiven if you adhere to all of the requirements for loan forgiveness?

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.

PPP FORGIVENESS UPDATE AS OF JUNE 17, 2020

The Treasury released a new IFR and an “easy” version of the PPP loan forgiveness application on June 17, 2020. Please read the full details here.

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

If you don’t fit into any of the above conditions, you will need to complete and submit the full PPP loan forgiveness application.

IMPORTANT UPDATE: 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.

NOTE: On Wednesday, May 13, 2020, the SBA released revisions to their FAQs regarding PPP loan forgiveness. Read the details here

Womply has helped over 200,000 businesses, contractors, sole proprietors, and self-employed individuals get PPP loans. Start your PPP application now!

Is forgiveness of PPP loans automatic?

In short, Paycheck Protection Program loan forgiveness is not automatic. You must submit a request to for loan forgiveness through the lender through which you applied for your PPP loan. 

Remember, in order to have your PPP loan fully forgiven, at least 75% (now 60%) of those funds must be used to maintain payroll costs and employment. Other eligible expenses for loan forgiveness include commercial rent, interest on your business mortgage, and utilities. For 2021, PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.

How do I request PPP loan forgiveness?

As mentioned, in order to have your PPP loan forgiven, you need to submit a formal request through the lender that processed your application and serviced your loan. You’ll need to gather and submit documentation to verify the following items: 

  • Number of full-time employees and their pay rates
  • Payments on eligible business mortgage, rent, and/or utility obligations
  • The amount of the loan being forgiven that was used to cover the above expenses

You must be able to certify that all of the documentation is true and that your loan forgiveness amount meets the requirements. 

You won’t be able to apply for loan forgiveness until the 8-24 week period of the loan coverage has ended. After you apply, your lender will have 60 days to make a decision on your request. 

Is it all or nothing? Can I receive partial PPP loan forgiveness?

You can receive partial loan forgiveness if all of your legitimate business expenses or payroll don’t adhere to the requirements for PPP loan forgiveness.

You simply document which portions of your expenses do qualify for PPP loan forgiveness, and submit your request for loan forgiveness via your PPP lender within the time limit for loan forgiveness request submissions. 

UPDATE: New legislation as of June 5, 2020 reduces the payroll spending requirement to 60% in order to achieve full loan forgiveness. 

The portion of your loan that doesn’t qualify for loan forgiveness will need to be repaid under the terms of the PPP loan program, at 1% interest, with payments deferred for up to 10 months after the end of your covered period (previously 6 months) and the loan due after 2 years (now 5 years). (Note, interest still accrues during the grace period).

Important 2021 update regarding “maintain employment and compensation levels” requirement

There are certain exceptions to the “maintaining employees levels and compensation” rule to achieve PPP loan forgiveness.

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.

First Draw PPP Loans made after December 27, 2020 do not require “restoring payroll” or rehiring employees in order to receive forgiveness

Businesses and qualified organizations that receive 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.

Let Womply help you apply for your PPP loans!

As you know, it’s free to apply for a PPP loan, and we know you have lots of choices. So why should you let Womply connect you with an approved SBA lender? Because we know what we’re doing and people love the help we provide. We’ve helped over 200,000 businesses, contractors, sole proprietors, and self-employed individuals get approved. Don’t wait! The deadline is March 31, 2021.

Start your PPP application now!

Learn more, plus get free reputation monitoring and customer insights when you sign up for Womply Free!

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