Requirements For Ppp Loan Forgiveness
Loan forgiveness requirements are the same for first- and second-draw PPP loans. To receive full loan forgiveness, you need to maintain staffing and compensation levels during the covered period.
Additionally, money from your PPP loan must be spent on eligible expenses during the covered period. In order for your loan to be fully forgiven, at least 60% must be spent on payroll costs.
The covered period for most loans made in 2020 is 24 weeks after your loan is disbursed, but borrowers with loans issued before June 5, 2020, may opt for the original eight-week period. Business owners receiving a first- or second-draw loan in 2021 can opt for a covered period from eight to 24 weeks.
What Are Economic Injury Disaster Loans And Advances And How Do They Affect Loan Forgiveness
Economic Injury Disaster Loans are direct loans, while EIDL advances are grants. The SBA set the maximum EIDL advance at $10,000. EIDL advances will no longer be deducted by the SBA from forgiveness amounts. You may be able to refinance EIDL loans funded between 1/31/2020 and 4/3/2020 with your first PPP loan. You cannot refinance an EIDL loan with a Second Draw PPP Loan. For any questions related to the SBA EIDL program, or to obtain an EIDL loan payoff amount, contact the SBA Disaster Loan Servicing Center at 736-6048 or refer to the SBA.
Who Determines The Amount Of Loan Forgiveness
The U.S. Treasury and Small Business Administration are responsible for the rules of the program, which determine the amount of loan forgiveness you may receive. This can include full, partial or no forgiveness.
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To 24 Weeks Of Expense Coverage
Expenses eligible for forgiveness are those that are incurred over the 8 to 24 week period, starting from the day you receive your PPP loan from your lender. This is not necessarily the date on which you signed your loan agreement.
You do not need to adjust your payroll schedule. All payroll that your employees incur over the 8 to 24 week period is eligible for forgiveness, even if the actual payout date falls outside the covered period.
Sba Loan Forgiveness For Ppp Eidl Loans
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The Small Business Administrations Paycheck Protection Program doled out $790.9 billion in small-business loans to struggling businesses between April 2020 and May 31, 2021, when the program closed. Nearly $661.5 billion of that loaned amount has been forgiven, as of January 2, 2022.
Keep reading to learn more about PPP loan forgiveness through the SBA, including when and how to apply, and what expenses are covered.
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When Is Ppp Lender Consent Necessary
A borrower must obtain PPP lender consent for any change of ownership transaction. PPP lender consent must be given before the transaction is closed. To obtain the PPP lenders consent, the borrower must notify the lender of the transaction in writing and provide a copy of the stock purchase agreement, asset purchase agreement or merger agreement that will effectuate the proposed change of ownership transaction.
Youd Rather Get The Employee Retention Tax Credit
In addition to other programs, the CARES Act created the Employee Payroll Retention Tax Credit. Employers whose operations were fully or partially suspended due to government orders, or who experienced a major decline in receipts, may be eligible for a employee retention tax credit against Social Security wages for up to 50% of $10,000 in qualified wages paid after March 12, 2020 and before January 1, 2021.
Eligible employers can get immediate access to the Employee Retention Credit by reducing employment tax deposits they are otherwise required to make or even get an advance payment from the IRS if the employers employment tax deposits are not sufficient to cover the credit.
But employers cant get both a forgivable PPP and this tax credit. Some employers who applied werent aware of the Employee Retention Credit, or didnt discuss the two options with their accounting professional before they applied for PPP.
An employer that applied for a PPP loan, received payment, and repays the loan by the safe harbor deadline will be treated as though the employer had not received a covered loan under the PPP for purposes of the Employee Retention Credit. Therefore, the employer will be eligible for the credit if the employer is otherwise an eligible employer for purposes of the credit.
If you have any questions about the ERC and whether it is a better fit for your business, now is the time to consult your accounting professional.
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Loan Forgiveness Reduction From Eidl
The December 2020 stimulus bill revised how Economic Injury Disaster Loan grants impact PPP loan forgiveness. Originally, PPP loan forgiveness would be reduced by the amount a business received in EIDL grants. That has been changed so that loan forgiveness will not be reduced regardless of whether a business received an EIDL grant.
What Is The Deferral Period
Your deferral period ends:
No payment of PPP loan principal, interest, and fees is due during the deferral period.
If you received your promissory note before June 5, 2020, it may indicate that your first payment is due 6 months from the date of the note. The PPP Flexibility Act extended the deferral period, so you can disregard the original 6 month period referenced in the promissory note.
You will receive a loan statement before any payment is due, so you can plan accordingly.
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When Can I Apply For Ppp Loan Forgiveness
The simplified SBA Form 3508S is now available, in addition to the revised SBA Form 3508EZ and SBA Form 3508 applications. Eligible clients will receive an email with a link to access our loan forgiveness application when it becomes available to them.
As a reminder, based on the latest updates from the SBA, you now have more time to gather your documents and prepare your application. The timeframe for applying for loan forgiveness in the promissory note no longer applies.
For additional assistance with PPP loan forgiveness documentation, view our documentation guide.
You Didnt Really Need The Funds
When applying for PPP, the CARES Act requires borrowers to certify that current economic uncertainty makes this loan request necessary to support the ongoing operations of the Applicant. Initially that didnt seem to be a huge deterrent as most businesses are facing economic uncertainty, but after a backlash due to a number of publicly traded businesses who obtained PPP loans, the SBA has indicated it will audit businesses that received more than $2 million in funding in addition to other loans as appropriate.
What are they looking for? According to Treasury guidance:
Borrowers must make this certification in good faith, taking into account their current business activity and their ability to access other sources of liquidity sufficient to support their ongoing operations in a manner that is not significantly detrimental to the business. For example, it is unlikely that a public company with substantial market value and access to capital markets will be able to make the required certification in good faith, and such a company should be prepared to demonstrate to SBA, upon request, the basis for its certification
In the Interim Final Rule published in the Federal Register on June 1, 2020, Treasury and the SBA stated loans of any size may be reviewed by the SBA. Specifically it says:
And it goes on to say:
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Ppp Forgiveness For Self
You are entitled to use the PPP loan to replace lost compensation due to the impacts of COVID-19. You are eligible to claim 2.5 monthsâ worth of your 2019 or 2020 net income to replace pay. Loans received after March 3, 2021 can use their 2019 or 2020 gross income if they used their gross income to apply. If you didnât have any other payroll expenses factoring into your PPP loan amount, this means your entire PPP loan could be forgiven for the 24-week period.
If you are using an 8-week forgiveness period, you can claim 8 weeksâ worth of your 2019 or 2020 net income or gross income as owner compensation replacement . The remaining PPP funds will need to be spent on other eligible expenses in order to be forgiven. Using a covered period of at least 11 weeks will let you take the full 2.5 months of net income or gross income.
In order to submit mortgage interest, rent, or utilities expenses for forgiveness, you must have claimed a deduction for those expenses on your 2019 Form 1040 Schedule C.
For example, in 2019 you worked in an office space and did not have a home office. Because you didnât work from home, you could not have claimed a 2019 deduction for your home mortgage interest. Therefore, even if you are currently working at home now, you are not eligible to submit home mortgage interest payments for forgiveness.
Further reading:Self-Employed Guide to the PPP Forgiveness Application
My Business Has An Active Loan Through Square Capital Can I Still Apply For Ppp Through Square Capital
Yes. If you have an active or prior loan through Square Capital, you can apply for a PPP loan through Square Capital if you meet PPP eligibility requirements. However, previous approval for a loan through Square Capital does not guarantee approval for a PPP loan through Square Capital.
If you have an active loan through Square Capital and are approved for a PPP loan through Square Capital, your PPP loan will not be used to automatically repay your active loan through Square Capital. Repayment for both loans will be separate. Your active loan through Square Capital will be automatically repaid via a percentage of sales made through Square. In addition, you may also make additional, voluntary prepayments in your Square Dashboard. Your PPP loan will be repaid via monthly automatic debits from your linked bank account after the deferral period, if your PPP loan is not forgiven.
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Loan Forgiveness Not Coming Easily For Some Ppp Borrowers
Andrew Songs restaurant and karaoke bar is a ghost of what it used to be. The shuttered business in Manhattan still has an outdoor dining structure up and a menu posted by the door. A phone sits on the dusty host stand inside.
After eight years in business, Song shut down Le Midi last summer, during the pandemic. Now, hes left with debt.
The business got nearly $250,000 through the federal Paycheck Protection Program. His lender, Citibank, told him he has to pay back more than $25,000.
Song cant figure out why. Was it something in his application? Did he not follow the programs guidelines? Is he even liable for the money since his business closed?
I couldnt get a clear answer, and no one picks up phone calls, no emails are returned, Song said. It feels like you are dealing with a faceless organization.
More than $790 billion has been given out through the Paycheck Protection Program, the pandemic aid that helped small businesses with payroll costs and more. The promise was that if business owners used the funds correctly, the loans would be fully forgiven.
But so far, 6% of borrowers who have applied for forgiveness have been told they must pay back some portion of their loans, according to the Small Business Administration adding up to more than $27 billion. Meanwhile, half of borrowers have yet to finish the forgiveness process.
And because of that, it was more like a framework was offered than a full, robust program, Anthony said.
You Can Still Apply For Forgiveness Even After You Start Making Loan Payments
Although this is not the ideal situation to be in, borrowers have the ability to apply for forgiveness up until the date that the loan is paid in full. If the loan is ultimately forgiven, the borrower will be reimbursed any interest and principal payments made to date and the balance will be forgiven. This presents a bit of a cash flow issue, but the end result is the same full forgiveness.
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Don’t: Spend Your Ppp Money On Ineligible Expenses
Your PPP loan essentially becomes a grant, provided you use the proceeds as outlined by the Small Business Administration. That means using the bulk of your funds on payroll costs, such as salaries, hourly wages, paid sick leave and group insurance benefits.
The other 40% of your loan can now be used on a broader range of expenses, including operating expenses, health and safety modifications and certain supplier costs.
Failure to meet the SBAs loan forgiveness requirements means that you could have to repay a portion of your loan.
Ppp Forgiveness For Partnerships
As a general partner in a partnership, your eligible compensation is based on your partnership 2019 or 2020 net earnings.
The maximum partner compensation is capped at the 2019 or 2020 Schedule K-1 net earnings from self-employment. This amount must be reduced by claimed section 179 expense deduction, unreimbursed partnership expenses, and depletion from oil and gas properties. Once youâve taken these reductions into consideration, multiply the value by 0.9235. This is to remove what would be the employer portion of self-employment taxes.
Further reading:PPP Loans for Partnerships: What You Need to Know
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Do: Gather Your Documents In Advance
A little legwork can go a long way when applying for a PPP loan. Read up on the program to understand who qualifies and how to apply. Then, pull together all of the necessary paperwork.
At a minimum, youll need payroll documents and tax statements. Bank statements, receipts, purchase orders and canceled checks may also be required. Keep everything together so you can easily access it at your lender’s request.
“Most people learn the hard way that an ounce of preparation is worth hours on the back end,” says Edward Barry, CEO of Capital Bank N.A. in Maryland. “Understand what you need and get it well organized.”
How Does A Change In Ownership Affect My Ppp Loan Or Loan Forgiveness
If you are considering a change of ownership for your business, which could include a merger, asset sale, stock sale or transfer due to the death of a business owner, please notify Wells Fargo as far in advance of the change of ownership transaction as possible. You will need to request prior approval from Wells Fargo before you initiate the change of ownership and provide a copy of the proposed change of ownership agreement and other relevant documents. If you do not obtain prior approval of any change of ownership, it will be considered a default event and may affect your ability to apply for PPP loan forgiveness.
To contact us about a change in ownership if you are a Wells Fargo Business Online® user or a Wealth & Investment Management customer, please call 1-844-304-8911. If you are a Commercial Electronic Office® user, please contact your relationship manager for assistance. We will work with you to complete the process as quickly as possible, but we cannot make any assurances regarding the exact timing for completion of your request, due to the many variables involved.
Providing the requested documentation and responding to questions quickly ensures the best outcome. We anticipate that it will likely take a minimum of 30 days to fully complete the request. The timeframe will depend on our evaluation, your responsiveness during each step of the process, and applicable SBA requirements.
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Apply For Loan Forgiveness
To apply for PPP loan forgiveness, use the SBAs Loan Forgiveness Application form, Form 3508, or your lenders equivalent form. You might be able to use Form 3508EZ or Form 3508S if you meet the eligibility guidelines.
After completing the form and attaching any necessary documents, submit it to your lender.
Heres a brief overview of who can use the different forgiveness application forms:
- Form 3508: Any borrower
- Form 3508EZ: Borrowers who did not reduce employee salaries by more than 25% and either did not reduce staff / were unable to rehire or find similarly qualified employees OR were unable to operate due to following health guidelines
- Form 3508S: Borrowers who received a PPP loan of $150,000 or less
In addition to the loan forgiveness application form, you may also need to attach supporting documents.
Your lender may have additional requirements when it comes to documentation, but you may need documents showing the:
- Payroll costs during the loan period
- Average number of full-time equivalent employees on payroll
- Non-payroll cost payments
The records you bring showing this information include:
- Payroll reports showing cash paid to employees
- Payroll tax filings
The Sba Reminded Borrowers To Review Carefully The Required Certification On The Borrower Application Form That Urrent Economic Uncertainty Makes This Loan Request Necessary To Support The Ongoing Operations Of The Applicant Sba Guidance And Regulations Provide That Any Borrower Who Applied For A Ppp Loan Prior To April 24 2020 And Repaid The Loan In Full By May 7 2020 Will Be Deemed By Sba To Have Made The Required Certification In Good Faith Is It Possible For A Borrower To Obtain An Extension Of The May 7 2020 Repayment Date
SBA extended the repayment date for this safe harbor to May 14, 2020 and subsequently extended it again to May 18, 2020. See FAQ #47. Borrowers did not need to apply for the extensions. The extensions were implemented through revisions to the SBAs interim final rule providing the safe harbor. See FAQ #46 for additional guidance on how SBA will review the certification.
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