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Applying for PPP Loan Forgiveness

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Paycheck Protection Program (PPP) loans were made available from the U.S. Government to help small businesses, non profits, self-employed workers, and other entities adversely affected by the Coronavirus pandemic. Over 11 million PPP loans totaling close to $800,000,000,000 have been issued to help businesses with payroll costs, rent, utilities, and other necessary business expenses. One of the main attractions to these low interest private loans is that they can be fully forgiven. Did your business receive a PPP loan? If so, here’s what you need to know about loan forgiveness—how to apply and where you can obtain additional help with your PPP loan.

PPP Loan Forgiveness

PPP loans can be partially or fully forgiven if the funds are spent properly within a specific period of time and the borrower applies for loan forgiveness. PPP loan forgiveness will depend on what the loan proceeds were spent on, the extent the business maintained or rehired its employees, and the extent that it maintained the wages and hours of its employees. To qualify for full loan forgiveness, the borrower must use at least 60 of the proceeds on payroll costs.

Borrowers can apply for forgiveness at any time up to the maturity date of the loan. Borrowers that do not apply for forgiveness within 10 months of the maturity date will not have their loan payments deferred and will have to start paying back the loan.

Applying for Loan Forgiveness

Borrowers looking to obtain loan forgiveness can contact their PPP lender or loan servicer to apply. The lender will provide the correct form that needs to be completed—either SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent. The lender can guide you on how to complete the form and also help you submit the application.

Sole proprietors, independent contractors, and self-employed individuals who had no employees at the time of the PPP loan application and did not include any employee salaries in the computation of average monthly payroll in the Borrower Application Form automatically qualify to use the Loan Forgiveness Application Form 3508EZ or lender equivalent.

Gathering Documents

Borrowers need to provide documentation for all payroll and non-payroll costs that the funds are spent on. Payroll costs include salary, wages, commissions; vacation, parental family medical or sick leave; group health care and life benefits; state and local taxes. Non-payroll expenses such as eligible business mortgage interest costs, business rent or lease costs, and business utility costs incurred prior to the covered period and paid during the covered period are also eligible for loan forgiveness. The Covered Period is the 8- to 24-week period immediately following disbursement of the PPP loan. The Alternative Payroll Covered Period, if elected, begins on the first day of the first pay period following the disbursement of the PPP funds and ends 56 days after that date.

Payroll documentation may include:

  • Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
  • Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the covered period or the alternative payroll covered period:
    • Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
    • State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
  • Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.

Documentation for non-payroll expenses that were incurred or paid during the covered period and showing that obligations or services existed prior to February 15, 2020, may include:

  • Business mortgage interest payments:  Copy of lender amortization schedule and receipts verifying payments, or lender account statements.
  • Business rent or lease payments:  Copy of current lease agreement and receipts or cancelled checks verifying eligible payments.
  • Business utility payments:  Copies of invoices and receipts, cancelled checks or account statements.

After Submitting Information to Your Lender

Once you’ve completed your paperwork and submitted documentation to your PPP lender, keep in touch with them to make sure all required information has been received. Communicate with the lender or loan servicer and respond to any requests in a timely manner. Make sure your contact information is current so you don’t miss any important notifications. Use the Small Business Administration (SBA) Capital Access Financial System (CAFS) to monitor your loan status.

Your lender will notify you if the SBA undertakes a review of your loan. It’s the lenders responsibility to  inform you of the SBA loan review decision, of the forgiveness amount paid by SBA, and the date on which your first payment will be due, if applicable. You have the right to appeal certain SBA loan review decisions. Contact your lender for guidance.

If the loan is fully forgiven, the borrower is not responsible for any payments. If only a portion of the loan is forgiven, or if the forgiveness application is denied, any remaining balance due on the loan must be repaid by the borrower on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. The borrower is responsible for paying the accrued interest on any amount of the loan that is not forgiven.

Borrowers who receive loan forgiveness do not have to deduct the amount of COVID-19 Economic Injury Disaster Loan (EIDL) advance from the forgiveness amount.

Getting Help with Your Loan

Any questions or concerns about your individual loan should be directed to your lender. The SBA offers free counseling and training events to help you with the PPP. Counselors are available at the many district offices around the country. The SBA also hosts several informational events and webinars to cover questions about the PPP program and other topics to assist small business owners, non-profits, and independent contractors. Reach out to them today to see what updates and information may benefit your business.

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About Business Consumer Alliance Business Consumer Alliance (BCA) is a non-profit company that started in 1928. The broad purpose of BCA is to promote business self-regulation. BCA's mission is achieved by assisting consumers in resolving complaints with businesses and using that complaint information, along with other relevant information such as customer reviews, to forecast business reliability. With community support, BCA can identify trustworthy and ethical businesses and warn the public to avoid unscrupulous businesses whose purpose is to defraud the marketplace. BCA also helps businesses promote themselves by providing services and tools to protect their business and reach out to their customers. BCA obtains its funding from member businesses who support the mission and purpose of the organization and who agree to abide by high standards of ethical business practices.