So you applied for a PPP loan. This program provided billions of dollars to our nation’s small businesses and has been credited with saving many of them. The biggest advantage of these loans is the fact that as long as the money was used for qualified purposes, up to 100% of the principal can be forgiven.
Acquiring that coveted forgiveness requires lots of effort and attention to detail. The program is sophisticated and actually evolved throughout the pandemic. But you’re a small business owner, and we’re a scrappy bunch. We know what we want, and we’re not afraid to work both smart and hard in order to obtain it.
Be aware that even if you have submitted all the necessary paperwork for loan forgiveness, your mission is not complete. You MUST save all information relating to your PPP loan and forgiveness application for the next 7 years. The reason for this is that the IRS can audit you for up to 7 years, so you’ll want to keep all relevant documents on hand during that time period.
What Documents and Details Do I Need to Save?
As a rule of thumb, you should retain any documents and details that were used to acquire your PPP loan and subsequently apply for forgiveness. While the exact requirements may vary, you most likely will have the following documents from your loan application:
- Signed application listing anyone with 20% or more ownership (with legal name as it reads on driver’s license)
- Social Security numbers listed in the ownership section
- Color copy of a government-issued ID (front and back) for all owners listed on application
- IRS Form 944 for 2019 or 2019 941s (all 4 quarters)
- 2020 Form 941 if available, or equivalent payroll processor records
- Evidence of any retirement and health insurance contributions
- A payroll statement or similar documentation from the pay period covering February 15, 2020
- Payroll register for all of 2019 and all months for 2020 that are available
- If the payroll summary is in Excel format, it should be accompanied by 12 months of bank statements
- If you’re an independent contractor, 1099-MISC for 2019
- If you’re self-employed, IRS 1040 Schedule C for 2019 and a 1099-MISC for each self-employed owner
Once the time arrives for you to apply for forgiveness, you’ll work directly with the lender instead of the Small Business Administration (SBA). So if you have specific questions about the process, you should reach out to your lender for details. You can likely use the streamlined forgiveness application if your business received a PPP loan of $150,000 or less. This 1-page application includes details such as:
- SBA PPP loan number
- Lender PPP loan number
- PPP loan amount
- PPP loan disbursement date
- Employees at time of loan application
- Employees at time of forgiveness application
- The covered period
- Amount of loan spent on payroll costs
- Requested loan forgiveness amount
If your loan amount exceeded $150,000, you would use the more robust application. After submitting the relevant application to your lender, the lender then submits the application to the SBA on your behalf. And you will then need to save all the various documents for 7 years.
What If My Application Is Rejected?
There’s always the possibility that you won’t be approved for loan forgiveness. If this happens, work with your lender to see if additional documentation is required in order to qualify. At this point in time, you should probably enlist the support of a professional bookkeeper to make sure everything is categorized and documented correctly.
If the forgiveness rejection is permanent, you will need to repay the loan, and the outstanding balance will accrue interest at 1% throughout the term. You can either make regular payments until the term expires or repay it early. The good news is that there aren’t any penalties or fees for early repayment.
What’s the Best Way to Organize and Save My Documents?
It’s always advisable to leverage the expertise and resources of a professional bookkeeper. You can use Sunrise’s free online bookkeeping tool to track expenses and help keep all your ducks in a row. This makes the reporting easier when you need to apply for something like PPP loan forgiveness. And those records will be safely stored in case you need them in the future for an audit or other use.
For more advanced support, Sunrise bookkeepers can manage your books for you and answer any questions related to PPP forgiveness. They’ll take care of closing your books each month, assist with your taxes, and make sure your records are in prime shape. They’re dedicated to helping you every step of the way, whether that’s with handling a loan right now or dealing with an audit at some point down the road.
Disclaimer: The information provided in this post does not, and is not intended to, constitute business, legal, tax, or accounting advice. All information, content, and materials available in this post are for general informational purposes only. Readers of this post should contact their attorney, business advisor, or tax advisor to obtain advice with respect to any particular matter.