What do you need to know about Paycheck Protection Program Loan forgiveness applications?
The SBA has announced that they will start accepting Paycheck Protection Program Loan forgiveness applications beginning August 10, 2020. The frequently asked questions on loan forgiveness on PPP Loan forgiveness were just released clarifying some questions. However, there are still many left unanswered, including the stance on the deductibility of expenses related to loan forgiveness. While these questions remain unanswered and Congress is still working out additional items, we recommend waiting to submit your loan forgiveness application to your lender to allow the greatest flexibility. Still, you should start gathering your information.
The Basics of Paycheck Protection Program Loan forgiveness
When the PPP was first announced in March, the program offered loans for a maximum of two and one-half months of an entity’s 2019 payroll expenses. This amount was a very low interest rate loan (1% interest) that would be forgiven if certain criteria were met. The initial criteria were that at least 75% of the amount (later reduced to 60%) expended had to be qualified payroll expenses (generally gross payroll plus employer portions of health premiums and retirement plan contributions), with the remainder other qualified expenses such as rent, utilities, existing lease payments, and existing principal payments on secured loans.
The covered period was initially eight weeks, which later was expanded to an option of 24 weeks, something that allowed more businesses to achieve closer to 100% forgiveness, as now the covered period was longer than the initial 2 ½ months of payroll provided by the loan. There are additional requirements with respect to reduction in workforce and reduction in pay that can also limit the amount of forgiveness.
A company that received their loan prior to June 5, 2020 has the option to elect the eight week covered loan period or the new 24 week covered period at the time they apply for forgiveness of the PPP. Any PPP not forgiven must be paid back within two years, unless the lender agrees to allow for the five year period that was later offered. Loans received as of June 5, 2020 only have the 24 week period and the 5 year repayment options.
Applying for Paycheck Protection Program loan forgiveness
The SBA currently offers two loan forgiveness applications:
- SBA Form 3508EZ is the short form, which sole proprietors, independent contractors, and self-employed individuals with no employees at the time of the loan application and did not include any employee salaries in the computation of the average monthly payroll, should use. This form asks some basic questions relating to the entity and its loan information, payroll and nonpayroll costs used for the loan forgiveness calculation, and asks the entity to make several representations and certifications.
- SBA Form 3508 is the forgiveness application covering much of the same information as the EZ form, but requires more detailed information and calculations relating to payroll. This form must be used by anyone that does not meet the qualifications for the 3508EZ.
Lenders are allowed to accept scanned copies of required documents, as well as e-signatures on documents that comply with the requirements of the Electronic Signatures in Global and National Commerce Act.
Companies have up to ten months after the completion of Covered Period (8 weeks or 24 weeks) to submit forgiveness applications. Lenders have sixty days after the submission of a complete application to review the application and issue a decision regarding the amount of forgiveness to the SBA and forward the information to the SBA. The SBA then has an additional 90 days to review the lender decision, and if applicable, the loan and forgiveness applications and related documents, and remit the forgiveness amount to the lender.
The lender will notify the company of the amount of forgiveness paid. No payments are required on the loan until the SBA remits the forgiveness amount to the lender. If there is any remaining balance on the loan, the borrower is responsible for paying interest on the loan, including any amounts that have accrued between the time of the loan disbursement and the receipt of the amount forgiven by the SBA.
New Tool Aids in the Forgiveness Application Process
We are available to assist you with your questions about the loan forgiveness process. There is an online tool to help you complete your loan application and assemble your documents. Even if the documents are not required to be submitted to your lender, we recommend maintaining complete records in your files for at least six years from the date of the forgiveness of the loan.
The PPP Forgiveness Tool will guide you through completing the loan forgiveness application. You can upload your documents, calculate your forgiveness eligibility, and create a zip file that may be sent to accepting lenders. Even if your lender requires you to complete their process, this tool will help you gather all necessary information in one place.
Here’s what you need to complete the process:
- Email address
- Loan information
- Lender name
- Lender contact information
- PPP loan number
- Lender Loan number
- Amount of the loan
- Disbursement date
- Start date of covered or alternative covered period, if applicable
- Covered period
- Payroll information
- Other expense information
The tool will ask you to complete various information relating to your business and the forgiveness application. It then will calculate your potential forgiveness eligibility, allowing you to start your application to see what level of loan forgiveness you may qualify for, as well enable you to be ready to submit your application to the lender when the time is right.
Should you have questions while working on the application, please contact your Chortek representative. We can assist you with your questions. We can also provide additional information on what owner compensation qualifies, and what other payroll expenses and other general expense may qualify.