Borrowers who received Paycheck Protection Program (PPP) loans under the Coronavirus Aid, Relief, and Economic Security (CARES) Act are wanting to know if they will qualify for PPP loan forgiveness. Many business owners and even larger companies are feeling anxious about the requirements for loan forgiveness and whether or not they will qualify. At this time, the program details are still a bit unclear.
What to know about influencing factors in the forgiveness application process:
Where are we in the process?
The truth is, many lenders are not yet ready to handle forgiveness applications. That’s because they are still working on developing technology, such as portals and other automated options, to help make the process more efficient. The U.S. Small Business Administration (SBA) and the U.S. Treasury Department have not yet issued final guidance on loan forgiveness so none of the technology tools developed so far can be finalized and put to into use. There is no definite date at this time on when that guidance will be available. Bank of American is one bank that has stated its PPP loan holders it may be able to offer its online forgiveness application in early August. That is only an estimate at this point and we have not heard anything similar from any other major banks.
What about timeline on the PPP money?
With 24 weeks to use their PPP money, organizations have a larger window of time to take the steps that will help them meet the requirements for full loan forgiveness. If a borrower received their loans before June 5, 2020, they can choose either eight weeks or 24 weeks for their covered period. This helps add some flexibility in the time funds can be used which in turn, helps to maximize loan forgiveness.
How do payroll costs factor in?
Payroll costs are definitely a very large component of PPP forgiveness. So much so, that many payroll providers are assembling custom reports which are dedicated specifically to compliance with PPP guidance. BUT much like lenders, they can’t finalize anything until the SBA and Treasury establish final guidance making it possible for providers to prepare the accurate reports borrowers will need.
What about loan payments in the meantime?
Borrowers are not required to make any loan payments until 10 months after their covered loan period ends and also no payments are required before they apply for forgiveness. This helps alleviate some of the sense of “panic” some businesses and companies are feeling over the loan forgiveness applications.
How do I apply and what are the requirements?
Applying for forgiveness may be easier than you think. Borrowers can use a simplified process through SBA Form 3508EZ if they meet at least one of the following requirements:
- Self-employed individuals, independent contractors or sole proprietors who had no employees when they applied for their PPP loan and who didn’t include any employee salaries in calculating their average payroll amount in their application.
- Did not reduce salaries or hourly wages for certain employees by more than 25% during the loan period and — except for specified exceptions — didn’t reduce the number of employees or the average paid hours for employees between Jan. 1, 2020, and the end of their covered loan period.
- Did not reduce salaries or hourly wages for certain employees by more than 25% during the loan period and were unable to operate at the same business activity level during the loan period because of federal safety requirements or guidance related to the pandemic.
How do I get prepared?
While waiting for final program guidance, borrowers can take steps to prepare for the forgiveness application process by documenting how the loan proceeds are used. Gather documentation needed to support non-payroll costs for expenses such as mortgage interest, rent or lease payments and utilities, including account statements and other proof of payments. Lenders may not request supporting documentation for all disbursements as part of the forgiveness application; however, increased scrutiny is in place for loans of $2,000,000 or more.
In closing, PPP loans have gone to 4.8 million organizations through June 30, 2020. New legislation has extended the opportunity for organizations to apply for loans until Aug. 8. Though questions remain about some forgiveness process details, we are keeping an eye on developments. We know it’s difficult to be patient when your company is still being affected by COVID-19 but it’s your best strategy until the SBA and your lender finalize a forgiveness application process.