Prepare For The Application Process
We have created a Loan Forgiveness Preparation Checklist to help you prepare. When you are ready to apply, follow the steps in the online PPP loan forgiveness application.
- If you are required to submit documentation to support your forgiveness application, make sure you have all of your recommended supporting documents ready to upload online. Even if you are not required to submit any documents, you must retain all documents for the required periods and provide them upon request.
- Save your online application frequently, so you dont lose the information you have entered.
- Review your loan forgiveness application, verify documents have been uploaded , and confirm the amount youre requesting before you submit your application.
Note: You must apply for PPP loan forgiveness through your PPP lender. If you received a PPP loan through Wells Fargo, your loan numbers will be automatically pre-filled for you in the loan forgiveness application. You will not need to have them ahead of time to be able to apply for forgiveness.
Can I Claim The Employee Retention Tax Credit As Well
Under the CARES Act, which was the first major stimulus package that passed in 2020, businesses that received PPP loans werent eligible for other tax credits. The second bill changes the rules for the Employee Retention Tax Credit, allowing PPP borrowers to take advantage of this valuable credit against quarterly payroll taxes.
One caveat: you cannot use the ERTC against the same wages covered by PPP. We strongly recommend that PPP recipients meet with their strategic advisors prior to applying for PPP forgiveness, in order to maximize the benefits of both programs. PPP holders can claim the ERTC retroactively, provided they do so with their 2020 payroll tax filings.
Due to pending legislative changes, we recommend taking advantage of the ERTC as soon as possible if you plan to do so. Either way, the program is currently scheduled to expire at the end of 2021.
Important Update For 2021
Congress has approved an extension of the PPP loan program. SBA will accept applications through May 31, 2021, including second draw PPP loans for businesses that received PPP funding in 2020. IN ADDITION, PPP loans will now cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures.
- What expenses can my business use the PPP loan on?
- What are the new approved PPP expenses for 2021?
- What about payments to independent contractors?
- What expenses can be forgiven under a PPP loan?
As businesses are receiving their loans from the Paycheck Protection Program , its important to know what those funds can be used for. Most legitimate business expenses may be approved, but not every expense that youll have for your business is forgivable.
Well walk you through what you can use your PPP loan for and what expenses can be forgiven.
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On June 5, 2020, President Trump signed into law new updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, reducing the minimum loan funding that must be spent on payroll to 60%, and easing the requirements for maintaining staffing and compensation levels. Please read the details here.
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Make A Plan For Loan Repayment
Technically, PPP loans are just thatâloans. They are only converted to grants and forgiven if you use them exactly as described above.
The terms of a PPP loan are very generous. The interest rate on your loan is 1%, youâll have a six-month deferment on making loan payments, and you can repay your loan over two years. There are also no prepayment penalties.
If business picks up for you quickly over the next few months, you may choose to pay off your loan principal and any accrued right away. Or, you may choose to take the entire two-year repayment term. This will depend on where your business is located, your industry, how the fight against the pandemic has progressed, and your specific situation.
When making a plan for repaying your PPP loan, we advise you to speak with a certified public accountant or another financial or legal professional to help you come up with a manageable repayment plan, as well as ensure your usage of your loan remains compliant.
The Treasury Department and the SBA, along with the rest of the federal government, may alter repayment terms for PPP recipients in the near future, extending the âcovered periodâ or allowing for additional eligible expenses to be forgiven.
Eligible Expenses Coverage Period
When you apply for your loan, you can choose a term of 8-24 week coverage period.
Your coverage period starts the day you received your first loan paymentnot necessarily the day you signed your loan agreement. Dont worry about adjusting your payroll schedule to fit this window. Any payroll incurred during the coverage period is an eligible expense.
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Application Dates For A Round 3 Ppp Loan
As noted above, applications for Round 3 first draw PPP loans from approved community financial institutions started on Mon., Jan. 11, 2021. Second draw applications began on Wed., Jan. 13, followed by first- and second-draw loans from small lenders with less than $1 billion in assets on Fri., Jan. 15, 2021. All SBA 7 lenders were approved to accept first and second draw applications starting on Tues., Jan. 19, 2021.
Beware of scammers. Just as with the first two rounds, if you are a small business owner you can anticipate hearing from scammers promising to help you obtain a PPP loan. Only go through approved lenders or the SBA.
What Can I Use My Ppp Loan For As A Sole Proprietor
Forty percent or less of the loan can go towards other eligible expenses, including business mortgage interest payments, business rent or lease payments, business utility payments, covered operations expenditures, covered property damage costs, covered supplier costs and covered worker protection expenditures.
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Actively Managing Your Ppp Loan
Overall the best thing you can do is to actively manage, forecast, and track the use of your PPP loan. It ensures that you are using the funds effectively and always have records of how it was used to make applying for forgiveness that much easier. If the idea of manually maintaining your loan alongside keeping your business running sounds like a frustrating exercise, you may want to consider using a tool like LivePlan.
Not only does LivePlan help keep all of your business planning documents in order, but it can also be used to help you manage your loan and calculate how much may be forgiven. Easily develop multiple forecast scenarios around your loan, actively track its use, and produce the necessary financial documents for reimbursement. You can even sync it to your accounting solution, such as QuickBooks or Xero, to easily track the forecast versus actual results there.
Do Small Employers Receive Ppp Priority
On February 22, the Biden administration announced that businesses with more than 20 employees will be unable to apply for PPP loans for a two-week period, beginning on February 24th. Other changes announced on that date include revisions to rules that will help sole proprietors and other businesses with very few employees receive access to relief funds. Read more.
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Whose Eligible For Ppp Forgiveness
With the new bill comes a new rule stipulating that if you received a loan of $50,000 or less, you will be eligible for full forgiveness, even if you reduced your FTE employee count or reduced employee wages or salaries.
In other words, as long as you meet the other forgiveness criteria, you can skip the complicated calculations around FTE employees and payroll expenses and still meet the eligibility criteria for full forgiveness.
Can An Sba Loan Be Forgiven
While the SBA will not forgive 100% of the debt owed, the goal is to settle on a number that makes sense for both the agency’s bottom line and a business’s financial ability to pay. If the SBA approves the offer in compromise, a payment will be issued and the loan will be classified as Compromised/Closed.
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Maximum Ppp Loan Calculation Change
If youre applying for a PPP loan now or anytime since the Interim Final Rule went into effect, then you can use the new method for loan amount calculation. Initially, loan maximums were determined by a sole proprietors total profitsbut that meant new and struggling businesses qualified for little-to-no cash.
The IFR changed the rules to calculate self-employed worker loans based on gross income . Under this new rule, Schedule C filers could earn loans for as much as $20,833.
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Whos Eligible To Apply For New Ppp Loans
The new round of PPP loans will be available to three categories of businesses:
Every business that applies for a PPP loan needs to have been in operation since at least February 15, 2020 to be eligible.
First-time PPP borrowers from the following groups are eligible to apply:
- Small businesses or nonprofit organizations with 500 or fewer employees that qualify for other SBA 7 loans.
- Small businesses, 501 veterans organizations, tribal businesses, and small agricultural cooperatives that meet the SBAs size standards.
- Sole proprietors, independent contractors, and self-employed people.
- Food services or hospitality businesses that have fewer than 300 employees per physical location.
Previous PPP loan recipients who meet the following criteria are eligible to apply:
- Have fewer than 300 employees.
- Have already used or will use the full amount of their first PPP loan.
- Can demonstrate a 25% reduction in gross revenue from any quarter in 2020 compared to the same quarter in 2019.
Previous PPP loan recipients who returned all or part of their loan are also eligible to apply .
Eligible Payroll Costs Include:
Eligible payroll costs include compensation to employees whose principal place of residence is in the United States, in the form of:
- Salary, wages, commissions, or similar compensation
- Cash tips or the equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for separation or dismissal
- Payment for the provision of employee benefits consisting of group health care or group life, disability, vision, or dental insurance, including insurance premiums, and retirement
- Payment of state and local taxes assessed on compensation of employees and
- For an independent contractor or sole proprietor, wages, commissions, income, or net earnings from self-employment, or similar compensation, subject to SBA rules.
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What Counts As Employee Payroll Costs
The bulk of your PPP loan proceeds should go towards payroll costs, which have been identified as:
- Salaries, wages, commissions
- Cash tips or the equivalent
- Vacation, parental, family, medical, or sick leave payments
- Refinancing an SBA Economic Injury Disaster Loan made between January 31, 2020, and April 3, 2020
If you follow the PPP loan forgiveness guidelines carefully, you can be eligible for loan forgiveness up to 100%. Use 60% of the funds toward qualifying payroll costs and 40% on other qualifying costs within 24 weeks for it to be completely forgiven.
What Does It Mean If My Ppp Loan Status Shows A Hold Code
Wondering where your PPP funds are? The SBA placed hold codes on 190,000 Paycheck Protection Program loans. They have been working to clear the codes , developing new certification language and a machine learning tool that would assist in the process. These codes dont necessarily indicate fraud, waste, abuse, or ineligibility a hold code could be the result of a minor error, such as a Social Security or TIN typo. Unfortunately, theyre holding up both loans that have yet to be disbursed and those that are in the forgiveness process. Although there is no longer immediate loan approval, 96% of applications are approved within 48 hours if accurate information is provided.
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What Will My Business Need To Apply
You can apply for your second PPP loan through Square Capital using the verified payroll information and documents provided with your first PPP application. However, you may need to upload an updated 2019 1040 Schedule C if you filed a different version with the IRS .
When applying for your second PPP loan, you should also be prepared to show that your business has experienced at least a 25% decrease in revenue in a quarter in 2020 relative to a quarter in 2019 OR in the year 2020 as compared to 2019. If your loan is less than $150,000 you will not need to provide documentation demonstrating your business revenue decline with your loan application however, you will need to provide documentation showing the revenue decline by the time you apply for forgiveness.
All businesses will also be required to verify their personal and business information with the following documentation, if so requested:
- Your businesss government issued SS-4 or
- Your most recent business tax returns confirming your business name and TIN or
- If you are a sole proprietor, your business name is the same as your first and last name and your TIN will be your Social Security number. Some sole proprietors may also register DBA names. If you have a DBA, youll be asked to provide it in the application. Find out your business entity type by taking a look at your tax returns.
How Do I Calculate A Full
The PPP forgiveness application instructions state the borrower has to calculate for each employee the average number of hours paid per week during the referenced period and divide by 40, and round to the nearest tenth. There is also a simplified method which borrowers may elect to use.
The SBA updated the loan forgiveness application on June 16, and the applications Schedule A worksheet provides the formula and instructions for the full-time equivalent reduction calculation. Application instructions are available on the treasury website here.
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How To Get Ppp Loan Forgiveness
Depending on what you do with your PPP loan during the eight or 24 weeks after receiving it, you may qualify for partial or full forgiveness.
We know you really want to know how to get it fully forgiven. Use the following tips on how to make sure your PPP loan is forgiven to get started:
*Your responsibilities depend on your loan amount. Borrowers who took out loans of $50,000 or less do not need to worry about loan forgiveness reductions due to employee and wage decreases. If you took out a loan of $50,000 or less, your loan forgiveness depends on 1) whether you used it for eligible expenses. You can learn more about this exemption on Page 3 of the SBA Form 3508S application form.
If you took out a loan of more than $50,000, your PPP forgiveness calculation factors in 1) what you spent your PPP loan on, 2) your employee headcount, and 3) whether you reduced an employees wages by more than 25%.
If My Ppp Loan Is Not Forgiven Can I Still Deduct Expenses
The Treasury Department and Internal Revenue Service issued safe-harbor rules on November 18, 2020 in Revenue Procedure 2020-51. Here are key takeaways from the IRS statement:
- If a business reasonably believes that a PPP loan will be forgiven in the future, expenses related to the loan are not deductible, whether the business has filed for forgiveness or not and
- In the case where a PPP loan was expected to be forgiven, and it is not, businesses will be able to deduct those expenses.
In summary, if the PPP loan is expected to be forgiven expenses related the loan are not deductible. If the PPP loan is not forgiven, you will be able to deduct expenses.
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I Cant Find Enough Things To Spend The Ppp On Can I Just Use It As A Low
Unfortunately, no. You need to spend the PPP on the approved categories. If you stray outside the intended guidelines, you could be subject to scrutiny .
When you receive the PPP loan, you agree to only spend the funds on certain things. In order to receive the PPP loan you need to make following certification:
The funds will be used to retain workers and maintain payroll or make payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures as specified under the Paycheck Protection Program Rules I understand that if the funds are knowingly used for unauthorized purposes, the federal government may hold me legally liable, such as for charges of fraud.
If you have excess funds, or believe you received more funds than you were qualified for, it is best to avoid spending it. Then you can speak to your lender about returning the excess funds.