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Since the start of the COVID-19 pandemic, the U.S. Small Business Administration (SBA) has backed nearly 11.5 million loans under the Paycheck Protection Program (PPP), translating to almost $793 billion in PPP loans. These loans were designed to help small business owners keep their doors open and continue writing paychecks through the economic whirlwind that was COVID-19.
According to the SBA, about 56% of the total value of PPP loans had been forgiven as of July. If you received a PPP loan and haven't already applied for loan forgiveness, now is the time to get on it. If you used all of your PPP money for eligible expenses and documented everything correctly, you're in a good position to complete your application for forgiveness. Be mindful of eligibility guidelines: If you miss your deadline, you could be on the hook for repaying your loan.
How Can I Get My PPP Loan Forgiven?
Small business owners were eligible for two rounds—or "draws"—of PPP loans. If you received more than one draw, you must submit a separate application for each loan you received. You qualify for full loan forgiveness if, during the eight- to 24-week covered period following each loan disbursement, you:
- Maintained employee and compensation levels
- Spent your loan proceeds on payroll costs and other eligible expenses
- Used at least 60% of the proceeds to cover payroll costs
You must also spend all of your PPP money before you submit a request for forgiveness.
Where Do You Apply for PPP Loan Forgiveness?
First find out whether your lender participates in direct forgiveness through the SBA. Check the list of participating lenders and, if your lender is on it, use the SBA direct forgiveness portal to submit your information. SBA form 3508S is the template for your direct forgiveness application.
If your lender doesn't participate in direct forgiveness, contact them directly. They can provide you with the appropriate forms and offer guidance on how to submit them, along with any supporting documents you need.
Is There a Deadline to Apply for PPP Loan Forgiveness?
To avoid making payments on your PPP loan, submit your loan forgiveness application within 10 months of the last day of your loan's covered period. This period typically lasts eight to 24 weeks after your loan is funded. If you submit an application within this period, your loan payments will be deferred while your application is reviewed.
Are you too late? You can still apply for PPP loan forgiveness at any time up to the maturity date of the loan. Loans issued prior to June 5, 2020, mature in two years; loans issued after that date mature in five years. However, when your coverage period plus 10 months have passed, you'll need to begin repaying your loan while your application processes.
What Documents Are Needed for PPP Forgiveness?
Documentation requirements for PPP loan forgiveness can be weighty. Requirements vary depending on which forms you use and how you calculate your loan-related expenses. The three PPP loan forgiveness application forms are:
SBA Form 3508: This is the standard PPP loan forgiveness application.
SBA Form 3508EZ: This simplified version of the standard form requires less documentation. To choose SBA Form 3508EZ, you must have a loan of $150,000 or more and meet one of two sets of criteria:
- No reductions: You did not reduce your number of employees, the average paid hours of your employees, or the salary or wages of your employees by more than 25% (excluding employees who earn more than $100,000 per year) between January 1, 2020, and the end of your covered period.
- Impacted operations: You were unable to operate normally during the covered period to comply with federal guidelines from the Department of Health and Human Services, Centers for Disease Control or Occupational Safety and Health Administration.
SBA Form 3508S: The simplest version of SBA Form 3508 is for borrowers with loans of $150,000 or less.
Each of these forms requires a fair amount of calculation. Unless you're using SBA Form 3508S, which doesn't require documentation, you'll also need to back up your calculations with documents, including:
Payroll (which must account for at least 60% of your forgiveness request):
- Bank statements or payroll service provider reports showing the amount of cash compensation you paid to employees
- Tax forms or payroll service reports showing payroll tax filings to the IRS and state quarterly business and individual employee wage reporting and unemployment insurance tax filings
- Receipts, canceled checks or account statements showing your employer contributions to retirement plans and employee health insurance
Non-payroll (no more than 40% of your request):
Receipts, orders and purchase orders, canceled checks or account statements (as appropriate) for the following:
- Business mortgage interest payments
- Business rent or lease payments
- Business utility payments
- Covered operations expenditures
- Covered property damage costs
- Covered supplier costs
- Covered worker protection expenditures
Where You Can Get Help With PPP Forgiveness
If you're the sort of person who loves slogging through tax code or digging into new regulations—or if you're self-employed or have an especially simple situation—you may not need help completing your PPP loan forgiveness package. But if the application process sounds daunting to you, a good accountant can help you do complex calculations and assemble the right documents.
Even if you end up working with an accountant on PPP forgiveness, having access to a few additional resources may be handy. The U.S. Chamber of Commerce offers a list of websites, videos, guides and more to help business owners understand how PPP forgiveness works. Among these, an hour-long YouTube video from CPA Hector Garcia that walks you through the application process is especially useful for cutting through confusion.
Here are a few additional resources to help you through the process:
- Check out the SBA's PPP Forgiveness page as well as their list of frequently asked questions on PPP loan forgiveness.
- Watch a Direct Forgiveness Portal training video, which includes answers to common questions.
- Download the U.S. Treasury Department's list of updates to the PPP loan program.
- Access a guide to PPP loan forgiveness from the U.S. Chamber of Commerce.
Get Forgiveness or Get Ready to Pay
Don't overlook the importance of submitting your application. Any loan balance that is not forgiven will be treated as a regular loan. You'll pay 1% interest and need to repay your debt within five years—two years if the loan was made before June 5, 2020.
Like doing your taxes, preparing your PPP loan forgiveness application won't get easier with time. If you can, tackle it now, while your records and your understanding of events is relatively fresh. You'll move forward with a lighter load, knowing that forgiveness is yours.