The Conditions Of The Paycheck Protection Program
Letâs first review the terms of using your PPP loan.
The funds from your PPP loan can be used for the following purposes:
Payrollâsalary, wage, vacation, parental, family, medical, or sick leave, health benefits
Mortgage interestâas long as the mortgage was signed before February 15, 2020
All expenses that fall under the above listed categories are eligible for forgiveness. The following conditions will also apply:
Businesses With Ppp Loans $150000 Or Less
You will complete PPP Loan Forgiveness Application Form 3508S
Form 3508S is intended to keep the forgiveness process simple. It contains fewer calculations and requires you to make certifications regarding how you used PPP funds as required by law. You will not be required to submit supporting documents, however, the SBA does require that you retain all loan forgiveness supporting documents such as employment records/payroll and non-payroll documentation for a period of up to 4 years.
Form 3508S eligibility: You received a PPP loan of $150,000 or less
You can find more details and instruction about Form 3508S on the SBA website.
How Does New Legislation Change The Ppp Loan Forgiveness Process
Legislation signed into law December 27, 2020, known as the Economic Aid Act, contained the following changes:
- You now have the option to select a covered period which ends on a date that is at least 8 weeks following the date of loan disbursement, and not more than 24 weeks after the date of loan disbursement
- Includes provisions that expand the list of allowable and forgivable expenses, which apply to existing PPP loans for which a borrower has not yet received forgiveness
The Paycheck Protection Program Flexibility Act, signed into law on June 5, 2020 contained the following requirements:
- Your deferral period, during which payments on your loan will be deferred, will commence on the date on which your PPP loan was funded and end on the date on which the amount of forgiveness as determined under section 1106 of the CARES Act is remitted to the Bank or the date which is ten months after the last day of your covered period , if you have not applied for forgiveness by such date
- You must use at least 60% of funds for eligible payroll costs to qualify for full loan forgiveness, down from 75%
- You can use up to 40% of funds for eligible nonpayroll costs, up from 25%
For additional details, please visit the SBA website.
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Are Rent Payments Made To Related Parties Eligible For Forgiveness
In an Interim Final Rule on Treatment of Owners and Forgiveness of Certain Nonpayroll Costs originally posted on August 24, 2020, the SBA has stated rent payments to related parties are eligible for forgiveness so long as 1) the amount of loan forgiveness requested for rent or lease payments to a related party is no more than the amount of mortgage interest owed on the property during the Covered Period that is attributable to the space being rented by the business and 2) the lease and mortgage were entered into prior to February 15, 2020. Borrowers must provide mortgage interest documentation to substantiate these payments. And where the payor requests forgiveness for amounts paid to a related party, the related party cannot also request forgiveness for that same amount. Additionally, hile rent or lease payments to a related party may be eligible for forgiveness, mortgage interest payments to a related party are not eligible for forgiveness.
How To Submit Your Second Draw Ppp Loan Application
Page 4 of the application contains detailed instructions for completing the form. You can also refer to the SBAs guidelines;here. Once we receive your completed and signed application along with supporting documents, you can expect the following:
You can submit your completed and signed application along with applicable supporting documentation using our secure portal. Applications will be processed in the order they are received
Ready to submit your application?
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When Is Supporting Documentation Required With Form 3508s
If completing a Form 3508S you may not need to submit any supporting documentation. Following are situations where additional documentation or disclosures are required.
- If you have a First Draw loan approved on or before August 8, 2020 you must determine the applicability of SBA Form 3508D, Borrowerâs Disclosure of Certain Controlling Interests, and complete it if applicable.
- If you did not submit the revenue test details and documentation during the Second Draw loan application process, you must submit the relevant supporting documents.
What Happens If Im Not Approved For Forgiveness
Your lender may allow you to provide additional documentation so they can reevaluate your request.
Otherwise, your outstanding balance will continue to accrue interest at 1%, for the remainder of the 2 to 5-year period.
There is no prepayment penalty. You can pay off the outstanding balance at any time with no additional fees.
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Businesses With More Complex Situations Or Those Businesses That Made Significant Reductions In Employees And Wages
You are eligible to apply using the PPP Forgiveness Application 3508
Form 3508 helps businesses that have PPP loans $150,000 or more and made more significant employee reductions and wages, or for businesses that may have more complex situations. The application is more complex than that of its peer applications and it requires multiple calculations and documents to be submitted and sent to the SBA.
Application Form 3508 eligibility information:
If you are not eligible to complete form 3508S or 3508EZ, you are required to apply using the standard application.
You can find more details and instruction about Form 3508 on the SBA’s website.
Bank of the West Forgiveness Assistant Form
We understand that Form 3508 is more complex and requires multiple calculations. Don’t worry, if you’re a Bank of the West PPP customer, we’ve created the Forgiveness Assistant Form to help you through the standard application. The Forgiveness Assistant Form is required if you are applying for PPP loan forgiveness with us and you are not eligible to complete Forms 3508S or 3508EZ. You will need to download the Forgiveness Assistant Form, complete it, save it and then upload it into our online portal when prompted.
How Long Do I Have To Apply For Loan Forgiveness
The PPP rules currently provide that you may submit a loan forgiveness application at any time after the end of your Covered Period and before the maturity date of your loan, as long as you have an outstanding balance on your loan.;; However, we understand the SBA may be changing the deadline to apply for PPP loan forgiveness.;
Please check with sba.gov for the latest guidance on your forgiveness application window.;
Please note that your PPP loan deferral period will end prior to your maturity date.; If you applied for forgiveness prior to your deferral period, you will need to begin making payment on any unforgiven amount once the SBA has made a decision on your forgiveness application.; If you have not applied for forgiveness prior to your deferral period, you will need to start making payments at the end of your deferral period.
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Can I Use Ppp To Refinance My Eidl Loan
Some borrowers have received both a PPP loan and an Economic Injury Disaster Loan . There are some very specific but limited circumstances where you can refinance an EIDL loan with PPP. Pay careful attention to the dates here!;
- You must use PPP to refinance your EIDL if you received EIDL loan funds from January 31, 2020 through April 3, 2020; and used the EIDL loan funds to pay payroll costs.
- You may use PPP to refinance EIDL loan funds received from January 31, 2020 through April 3, 2020; and you used the EIDL loan for purposes other than payroll costs.
- You cannot use PPP to refinance an EIDL loan if you received EIDL loan funds before January 31, 2020 or after April 3, 2020. This is the majority of borrowers.;
How Does Loan Forgiveness Work Under The Paycheck Protection Program
You can have up to 24 weeks of payroll costs forgiven, plus up to 40% of thatamountif used for other forgivable expenses. If you use less than 60% of loanfunds onpayroll expenses, you will continue to be eligible for partial loanforgiveness,subject to at least 60% of the loan forgiveness amount having been used forpayrollcosts.
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Can I Apply For Forgiveness Now
Some lenders are accepting forgiveness applications right now.
But others have put a pause on accepting forgiveness applications to make updates based on the new forgiveness application forms released on January 19, 2021. These are forms 3508, 3508EZ, and form 3508S.
Check in with your lender to see if they are currently accepting forgiveness applications.
Sole Proprietorships And Single
If the PPP loan application process for sole proprietors is unchanged for 2021, you will need a tax-ready 2019 or 2020 Schedule C from your personal tax return. While it does not have to be filed, it must be complete and accurate.
You must have reported a net profit on your Schedule C in 2019 or 2020.
If you also have employees on payroll, you do not need a net profit, but you must have payroll tax forms 940 and 941/944 for 2019 or 2020.
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First Draw Ppp Loan If You Have No Employees
If you are self-employed and have no employees, the SBA provides the following instructions in the March 3, 2021 for new PPP loan borrowers:
If you have no employees, use the following methodology to calculate your maximum loan amount:
Step 1: From your 2019 or 2020 IRS Form 1040, Schedule C, you may elect to use either your line 31 net profit amount or your line 7 gross income amount. If this amount is over $100,000, reduce it to $100,000. If both your net profit and gross income are zero or less, you are not eligible for a PPP loan.
Step 2: Calculate the average monthly net profit or gross income amount .
Step 3: Multiply the average monthly net profit or gross income amount from Step 2 by 2.5. This amount cannot exceed $20,833.
This is the amount most self employed borrowers with no employees will use to qualify for a first-time PPP loan.
How to Substantiate Your Income
You must provide the 2019 or 2020 Form 1040 Schedule C with your PPP loan application to substantiate the amount for which you applied. You must also include a 2019 or 2020 IRS Form 1099-MISC detailing non-employee compensation received , invoice, bank statement, or book of record that establishes you are self-employed. If using 2020 to calculate loan amount, this is required regardless of whether you have filed a 2020 tax return with the IRS. You must provide a 2020 invoice, bank statement, or book of record to establish you were in operation on or around February 15, 2020.
If I Have Already Submitted A Loan Forgiveness Application Do I Need To Reapply Using Sba Form 3508s
If you have an application in process that has not yet been submitted to the SBA, we will continue to process your application unless you inform us that you would like to withdraw your application and reapply using Form 3508S. We have sent an email to those customers impacted with instructions on how to notify us.
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Where Should I Apply For A First Draw Ppp Loan
Whether itâs your local bank, a community development financial institution , or a FinTech, thereâs an option for a PPP loan thatâs right for you.
An online lender will provide you with the greatest ease of application. Theyâre equipped to take your information via a streamlined online portal and review your application very quickly. Local banks are great options if youâre looking for more of a personalized experience.
Can I Submit A Forgiveness Application For A Portion Of My Loan Now And Remainder Later
No, you can only submit one forgiveness application. Our portal allows you to save your progress; however, a full application, including required documentation, must be completed and submitted through our digital portal before it can be reviewed. Youâre encouraged to apply as soon as you have collected the required documentation.
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Amounts Up To $2 Million
If this is your second PPP loan, and your business is not a restaurant or hotel, get up to 2.5x or 250% of your 2019 or 2020 average monthly payroll expenses . If your business is a restaurant or hotel, get up to 3.5x or 350% of your 2019 or 2020 average monthly payroll expenses .
If this is your first PPP loan, the PPP loan amount will be equal to your 2019 or 2020 average monthly payroll x 2.5.
How Can I Make A Payment To My Ppp Loan Through Business Advantage 360 Bank Of Americas Small Business Online Banking
You can make a principal-only payment or full payoff to your PPP loan through;Business Advantage 360 by following these steps:
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If You Have An Eidl That Will Be Financed By The Loan
Whether or not you have employees, you must take an additional step of adding the outstanding amount of any Economic Injury Disaster Loan awarded between January 31, 2020, and April 3, 2020, which must be refinanced into your PPP loan, although if you only received an EIDL advance, you will not need to refinance the advance amount into your PPP loan.;
What If I Have Unpaid Student Loan Debt
In order to expand small business access to the PPP, the SBA, in consultation with Treasury, has decided to eliminate the restriction on PPP qualification to the extent of past due or defaulted Federal student loans.
This change will make PPP loans available to more borrowers with financial need and is consistent with Congresss intent that PPP loans be prioritized for small business concerns owned and controlled by socially and economically disadvantaged individuals as defined in section 8 of the Small Business Act.1
According to the Department of Education, Black and Brown students rely more heavily on student loan debt than their peers and experience delinquency at disproportionately high rates. As a result prohibiting delinquent student loan borrowers from obtaining PPP loans is more likely to exclude business owners of color from access to the loans they need.
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What Other Assistance Is Available For Small Business Clients Who Have Been Negatively Impacted By The Coronavirus
- Other Small Business Administration relief programs: The SBA is providing small business owners with access to special financing options
- Community Development Financial Institutions : You may also turn to CDFIs, which are small and typically not-for-profit providers of loans. Bank of America is the largest investor in CDFIs in the United States with more than $1.6 billion in loans and investments in over 250 CDFIs. We recently announced that we will provide up to $250 million in capital to CDFIs by funding loans through the Paycheck Protection Program and up to $10 million in philanthropic grants to help fund the operations of CDFIs. To get started, find a CDFI near you.
- SBA 7 lenders: The SBA can help match you to local lending partners
How Loan Forgiveness Is Calculated
To calculate how much of your loan can be forgiven, your lender will use the responses from your application to:
Determine the maximum amount of possible loan forgiveness.
This is based on how much you spent on payroll and other eligible expenses like rent and utilities during the 24-week period.
Calculate the amount by which the maximum loan forgiveness will be reduced.
If you reduced your number of employees or their wages during the 24-week period, your loan forgiveness amount will be reduced.2
Understand how much of your loan was used on eligible expenses.
Only 40% of your PPP loan can be used for expenses other than payroll for certain business structures. If you used more than 40% on non-payroll expenses, your forgiveness amount will be reduced by the percentage of the loan you used on ineligible expenses.
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Calculating Your Ppp Loan Forgiveness Amount
Note that the forgiveness amount may not exceed the principal amount of your PPP loan. The amount of the loan that may be forgiven may be reduced proportionally if you have laid off employees or reduced wages.
Due to the SBA anticipating a high number of borrowers requesting PPP loan forgiveness, it is anticipated that no more than 40% of forgiven amount may be for non-payroll costs.
Check out our PPP loan forgiveness page for more details about forgiveness calculations.