To Our Valued Clients and Friends:
Welcome to Part II of our updates on Paycheck Protection Program (PPP) loan forgiveness.
Last week, we discussed changes made to which expenses were designated “eligible covered expenses,” both for businesses generally and for self-employed business proprietors who file Schedule C with their individual income tax returns.
This week, we will discuss the PPP Loan Forgiveness process.
You have until ten months following the expiration of your 8-week or 24-week coverage period beginning with the date of distribution of your PPP loan proceeds to apply for loan forgiveness from your bank, who will forward your application to the SBA for approval. We strongly recommend that you do not wait until the last minute to apply for forgiveness. Currently, your lender may take up to 60 days to review your application, after which they will either request additional information or begin processing the application. Then the SBA has 90 days to review your application, and either approve or deny it, or request further information from you.
The SBA has communicated that all PPP loans of over $2 million will be closely analyzed, if not subject to a full audit.
In addition, self-employed individuals who file Schedule C with their individual income tax returns – newly eligible to base PPP loan amounts on gross income – are not deemed to have an automatic “Safe Harbor” if the gross income on which the loan calculations are based is over $150,000.
For other PPP borrowers with loans of $150,000 or less, no supporting documentation is required to be submitted in order to apply for loan forgiveness. However, the SBA may request supporting documentation, which all PPP borrowers are required to maintain.
Many lenders, if not all, have specific portals for uploading documents for PPP Loan Forgiveness; some have an online application form of their own, which borrowers must complete.
Some of these lenders’ portals, however, may not yet be accepting PPP Loan Forgiveness applications, as they have been extremely busy processing applications for PPP Round 2 Loans; we suggest you maintain regular contact with your banker if this is true in your case, in order to be sure you get your PPP Loan Forgiveness application submitted timely.
We suggest that, if your PPP loan is greater than $150,000, you consult your CPA for assistance in completing the complex calculations required for payroll costs, ensuring that:
Remember that, if all these levels have not been met/maintained, then at least part of your loan might not be forgiven. Your CPA can also help clarify what supporting documentation is required, and prepare your PPP Loan Forgiveness application for you.
When you are confident in your completed application and have amassed all your supporting documentation, submit your prepared PPP Loan Forgiveness application to your lender, either via electronic means or as otherwise directed by your lender. As of April 1, 2021, the SBA had already forgiven $209.1 billion in PPP loans.
Note that the SBA can always require more information from you or audit your loan – be prepared, and if you are unsure about any aspect of the PPP Loan Forgiveness Application form, the calculations, or the process, consult your CPA.
Forgiveness application forms:
Initially, the U.S. Small Business Administration (SBA) issued a one-size-fits-all application for the forgiveness of PPP loans – Form 3508 (the form has since been amended, most recently as of January 19, 2021). This form, still applicable for those ineligible to use either of the simplified forms below, as amended, requires substantial calculations on the part of the applicant, as well as thorough supporting documentation.
Under pressure from Congress and industry to reduce the burden of the forgiveness process for borrowers of smaller amounts and smaller businesses, in June of 2020 the SBA added Form 3508EZ (also amended as of January 19, 2021). This form could be used by certain PPP borrowers who certified that they fulfilled any one of three criteria concerning employees’ retention and hours paid (see our blog post here for more detail).
As amended on January 19, 2021, Form 3508EZ now has two acceptable criteria for eligibility, rather than three, and requires “show your work” calculations on page 1, as well as supporting documentation.
As of January 19, 2021, the PPP loan ceiling to use Form 3508S has been increased to $150,000, rather than $50,000, and no supporting documentation is required for submission to the SBA (lenders may have their own requirements).
There will almost certainly be more updates on the PPP to come – stay tuned!
If you have questions regarding applying for forgiveness of your PPP loan, please click here to email us directly – we are here to help.
Until next Wednesday –