What do I need to do to get my Paycheck Protection Program loan forgiven? (2021 UPDATES)

IMPORTANT UPDATE FOR 2021: Congress has approved an extension of the PPP loan program. Applications may be submitted to SBA until May 31, 2021, including “second draw” PPP loans for businesses that received PPP funding in 2020. ADDITIONALLY, FOR 2021 PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures. It is also much easier to meet the conditions for full loan forgiveness (the “maintain employment levels and compensation” rules have been waived in some cases). SEE BELOW. 

In this 3-minute read:

  • What you need to do to get your PPP loan forgiven
  • Required documentation and process for applying for forgiveness
  • How long does it take?
  • What if my request is denied?
  • SEE BELOW FOR URGENT 2021 PPP FORGIVENESS UPDATES

The big question on every business owner’s mind as they receive their PPP loans is “How can I make sure this loan is forgiven?” And with good reason! Obviously it’s preferable to not ever have to pay your loan back. The entire point of the Paycheck Protection Program is to help save American jobs and small businesses in crisis, and it was designed to reward appropriate spending of funds with complete or partial forgiveness of the loan (along with a very attractive 1% interest rate). 

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We’ve answered some common questions about PPP loan forgiveness in this article and hope that can give you a little more direction in your search for answers. 

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.

On June 3, 2020, the Senate passed 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

What do I need to do to get PPP loan forgiveness?

As you may know, you can have part or even all of your PPP loan’s principal balance forgiven. The first thing you need to do to make this happen is adhere to the requirements of loan forgiveness by only using the funds for eligible PPP expenses. 2021 PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.

Requirements for full or partial PPP loan forgiveness include:

  • Over the 8-week (now up to 24-week) coverage period following the receipt of your funds, you must use your loan to pay for payroll costs, mortgage interest, and utilities
  • At least 75% (now 60%) of your loan must be used towards payroll costs to achieve full loan forgiveness
  • Technically, your loan forgiveness will be reduced if you decrease your full-time employee headcount. Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019
  • IMPORTANT UPDATE FOR 2021: Loans under $50,000 are exempt from the requirement to maintain employee and compensation levels in order to receive forgiveness (see below for other exceptions)

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. 

What documentation do I need to provide to get my PPP loan forgiven?

You can prepare now by making sure you get the proper documentation in place to present to your lender. 

The documentation you may be required to pass along with your forgiveness request includes the following:

  • Documents to verify the number of full-time equivalent (FTE) employees you have on payroll and their wages
    • Payroll reports from your payroll provider
    • Payroll tax filings
    • Income, payroll, and unemployment insurance filings from your state
    • Documents to verify any health insurance or retirement contributions
  • Documents to verify your eligible mortgage interest, rent, and utility obligations over the 8-week coverage period
    • Canceled checks
    • Payment receipts
    • Account statements

Keep in mind that each lender may have slightly different requirements for documentation. So before the covered period for your loan expenses is up, be sure to ask your lender for requirements they have so you can gather everything quickly and submit your forgiveness request as soon as possible.

Can I receive partial PPP loan forgiveness?

You can apply for partial loan forgiveness if the entirety of your legitimate business expenses adhere to the requirements for PPP loan forgiveness.

In this case, you provide documentation for the expenses that do qualify for PPP loan forgiveness, and submit your loan forgiveness request via your PPP lender in the usual way.

If you don’t spend at least 60% of your PPP funding on payroll expenses the amount of loan forgiveness you may apply for will be reduced.

Any amount of your loan that doesn’t qualify for loan forgiveness under the PPP will need to be repaid within the term of the loan (originally 2 years, now 5 years) at 1% interest, with payments deferred until the SBA approves your application for loan forgiveness, or 10 months after the end of your covered period. (Note, interest still accrues during the grace period.) There’s no penalty for early repayment of this loan.

How long will it take to know if my request for PPP loan forgiveness is approved?

You won’t be able to submit a request for loan forgiveness until 8 weeks (or 24 weeks, if you applied for your PPP loan after June 3, 2020) after you receive your PPP loan (the “covered period”). After you submit your request, your lender will have 60 days to review the application and make a decision. 

What if I don’t get approved for PPP loan forgiveness?

If your request for loan forgiveness is denied, you can appeal the decision with your lender. At that point, they may require you to provide additional documentation to support your claims. 

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