How to Apply for PPP Loan Forgiveness
Learn when and how to apply for a PPP loan Forgiveness, as well as what expenses are covered.
Small businesses dealing with the coronavirus epidemic can take advantage of the Paycheck Protection Program, which offers 100% forgivable loans. However, applying for that forgiveness can be difficult, especially for small business owners with limited resources.
There is some good news: businesses that borrowed $150,000 or less can now use a simplified loan forgiveness application that requires no additional documentation for first-draw borrowers. For reference, till Aug. 8, 2020, when the first round of PPP loans completed, 87% of PPP loans provided were for less than $150,000.
To help business owners better understand the PPP loan forgiveness procedure, we’ve put up a guide.
PPP Loan Forgiveness Requirements
For first- and second-draw PPP loans, the loan forgiveness standards are the same. Maintaining staffing and compensation levels during the covered period is required to receive full loan forgiveness.
Additionally, during the covered time, money from your PPP loan must be spent on approved expenses (see below). At least 60% of your loan must be spent on payroll costs in order for it to be fully repaid.
Most loans made in 2020 are insured for 24 weeks after they are disbursed, however borrowers who received their loans before June 5, 2020, can keep the initial eight-week duration. In 2021, business owners who receive a first- or second-draw loan can choose a covered term ranging from eight to 24 weeks.
Expenses eligible for loan forgiveness
Initially, only salary and operational costs were considered eligible, but the coronavirus relief bill passed in December 2020 expanded the list to include supplier costs, expenses for health and safety improvements, and some property damage.
PPP loan forgiveness is now available for the following expenses:
- All wages paid, including tips, commissions, and bonuses, as well as employer-paid benefits such as insurance, sick leave, and retirement contributions, are included in payroll costs. Employees who earn more than $100,000 per year are not eligible for compensation forgiveness.
- Mortgage payments and interest, rent, utilities, and business software such as accounting, payroll, and inventory management programs are all examples of operating costs.
- Supplier costs: If the purchase order or contract was in place before the covered period, the cost of products essential to operating your firm is eligible for forgiveness. Purchase orders for perishable commodities placed during the covered period qualify as well.
- Property damage: This is for repairs to property damaged or lost as a result of looting during public disturbances in 2020. Insurance-covered expenses are not eligible.
- Worker protection: Personal protective equipment and other costs connected to health and safety standards, such as health checks, barrier installation, or expanding outside eating, are included in this category.
There are a few details to keep in mind: costs incurred before the covered period but paid during the covered period are forgiven. Costs incurred during the covered period but paid after it ends are also covered, as long as they are paid by the following normal payroll or billing date.
When should you request for loan forgiveness under the PPP?
You can request for PPP loan forgiveness as soon as the funds have been spent or as late as your loan has matured. However, you should do so before making a single payment.
After the covered time (eight to 24 weeks) concludes, payments on PPP loans are postponed for ten months. If you petition for forgiveness after this date, you’ll have to start making payments on your loan.
Borrowers who petition after their loan matures, which is two years for loans issued before June 5, 2020 and five years for loans issued after that date, will not be eligible for forgiveness.
How to Apply for Forgiveness of PPP Loans
When you’re ready to apply for forgiveness, contact your PPP lender. They will be able to connect you to the appropriate loan forgiveness form. That, coupled with documentation demonstrating how you used the loan, must be submitted. It will be easier to apply for forgiveness if you collect this paper trail as you go. The sorts of documentation you may be required to furnish are listed below.
For first-draw loans of less than $150,000, business owners can use a simplified form and don’t need to provide any further documentation. Before a second-draw debt can be forgiven, borrowers must demonstrate the required revenue loss.
Documentation needed for PPP loan forgiveness
You must also provide proof of how you spent the PPP loan along with your loan forgiveness application. Only monies spent on permitted expenses will be forgiven, so keep that in mind. To qualify for complete forgiveness, at least 60% of your loan must be used for payroll expenses.
The documentation you’ll need to submit with your PPP loan forgiveness application are listed below. Note that this list is not complete, and not all documents will be required by all businesses.
- Quarterly financial reports from the state and local governments.
- State unemployment insurance filings.
- Bank statements
- Third-party payroll reports.
- Tax documents: Form 1040 Schedule C or Schedule F, Form 1065 Schedule K-1, Form 941, Form 944, Form W-2, and Form W-3
- Payment receipts, canceled checks, or account statements that demonstrate employer contributions to health and retirement plans.
- Statements of account.
- Account statements.
- Utility bills that show that payments have been made.
- Purchase orders, contracts, and vendor payment receipts.
- Cancelled checks or invoices for covered expenses such as business software, protective equipment, safety upgrades, and repairs for damage caused by protests during the summer.
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