If you are an American small business owner, 1 of the most important words on your mind right now is probably “forgiveness.” No, that doesn’t mean you’re going to apologize to your neighbor for never returning the Weedwacker he lent you a few summers ago. Too much time has passed and that conversation would be super awkward.
The forgiveness that’ll make the biggest impact in your life right now comes in the form of a Paycheck Protection Program (PPP) loan. Congress has approved a new round of these amazing loans as part of the recent $900 billion coronavirus relief package. If you qualify and then meet all the program’s criteria, you can qualify for forgiveness up to 100% of the loan’s principal.
How Your PPP Loan Must Be Spent
Who among us would prefer anything less than 100% forgiveness? But receiving even the smallest amount of forgiveness on your PPP loan is dependent on following several important government requirements.
First off, you must be judicious in how you spend the money. Because paychecks are the program’s prime consideration, at least 60% of your PPP loan funds must go toward payroll costs. Previously, the PPP loan could only be potentially forgiven if 75% of the loan was spent on eligible payroll expenses, so this lower ratio offers more flexibility for small business owners.
The other qualified category for costs and expenses is referred to as “other business expenses.” Let’s take a closer look at what falls within these 2 categories:
Payroll Costs for PPP Loans
- Compensation in the form of salaries, wages, commissions, or similar compensation up to $100,000
- Payment of cash tips or equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment of retirement benefits
- Group vision, dental, disability, or life insurance
- Payment of state or local taxes assessed on the compensation of employees
Other Business Expenses for PPP Loans
- Healthcare costs related to the continuation of group healthcare benefits during periods of sick, medical, or family leave, as well as insurance premiums
- Mortgage interest payments (but not prepayment or payment of the mortgage principal)
- Interest on any other debt obligations incurred before February 15, 2020
- Refinancing an SBA EIDL received between January 31, 2020, and April 3, 2020
- Covered expenditures such as business software or cloud computing services that facilitate:
- business operations
- product or service delivery
- the processing, payment, or tracking of payroll expenses, human resources, sales, and billing functions
- accounting or tracking of supplies, inventory, records, or expenses
- Covered property damage costs
- Covered supplier costs
- Covered worker protection expenditures
Be advised that the “covered period” for these approved expenses is the date range that begins when your PPP loan is disbursed and ends on a date you select between 8 weeks after your PPP loan is disbursed and 24 weeks after your PPP loan is disbursed.
How Do I Apply for Loan Forgiveness?
You should not contact the SBA directly for loan forgiveness. You’ll first need to apply for PPP loan forgiveness through your lender, and they will submit the application to the SBA on your behalf.
If your PPP loan amount was $150,000 or less, the SBA has created a streamlined forgiveness application that saves you a lot of time and effort. The 1-page application lists, among other things:
- Your SBA PPP loan number
- Your Lender PPP loan number
- Your PPP loan amount (PLP)
- Your PPP loan disbursement date
- Your number of employees at time of loan application
- Your number of employees at time of forgiveness application
- The covered period
- Amount of loan you spent on payroll costs
- Your requested loan forgiveness amount
If your loan had a value higher than $150,000, you might be feeling a little jealous right now. But don’t worry. While your paperwork will be more substantial, it’s still not too difficult to complete. You can prepare by collecting these details and documents, among others:
- Your business name: business legal name, DBA, trade name (if applicable)
- Your business Tax Identification Number (TIN): Social Security number (SSN) or Employer Identification Number (EIN)
- Your SBA PPP loan number
- Your Lender PPP loan number (PLP)
- Your PPP loan amount
- Number of employees at the time of your PPP application
- Number of current employees
- Your PPP loan disbursement date
- Payroll schedule
- Cost of covered non-payroll expenses
- Copies of canceled checks
- Bank statements with ACH information
- Utility bills
- Mortgage statements
- Lease agreements
- List of all employees on your payroll during the covered period
- Evidence that your employees were kept on payroll or rehired upon receiving the loan
The SBA requires that you or an authorized representative of your business certifies that the documentation you have submitted is all true. You will also need to certify that the money you are seeking to have forgiven was all used in compliance with the program’s guidelines.
Is Full Loan Forgiveness Guaranteed?
Borrowers shouldn’t necessarily expect to have the entire principal of their loan forgiven. There are lots of factors that go into it. What’s important is that you carefully track all your spending and make sure your records are accurate.
After submitting your application to your lender, it can take up to 60 days for them to complete their review. Assuming they approve your application, it will be sent to the SBA. This final review with the SBA can take up to 90 days.
If you receive the full forgiveness amount you’re seeking, you can take pride in the fact that your impressive ability to follow the program’s rules has brought massive financial benefits to your business.
If your loan isn’t entirely forgiven, the remaining amount of money will continue to accrue interest at 1% over the duration of the loan term. You can make regular payments for the complete loan term or repay the amount early. Fortunately, you don’t need to worry about any penalties or fees associated with early repayment.
Many small business owners are leveraging Sunrise’s resources to help them track their business expenses and prepare their forgiveness application. We provide a helpful forgiveness application checklist, insightful articles, and a searchable knowledge base. And if you prefer to speak with 1 of our PPP Loan Forgiveness Advisors, don’t hesitate to reach out.