When Should I Apply for PPP forgiveness?

Did you know that a business owner can apply for a PPP loan if required? As per the available information, the rules have been changed by the SBA surrounding these loans and hence its forgiveness has been relaxed to a great extent. The only point that a business owner needs to understand is PPP loan forgiveness when to apply and how to do it.

Furthermore, he should have an idea about when he can apply for the same. In this article, we are going to understand when the business owner or an employer/entrepreneur can ask for loan forgiveness and how to do it. We would be covering the following points in this article -

What is the Paycheck Protection Program (PPP)?

The federal government in the United States of America established the Paycheck Protection Program, better known as PPP as a component of the Coronavirus Aid, Relief and Economic Security (CARES Act) to help small business owners assist in times of the Covid-19 pandemic. According to the available information, 5.2 million loans were granted with a total of 525 billion dollars to support the business owners. This program is intended to provide optimum support for the business payroll of the employees. Interestingly, the SBA had reported that this scheme positively impacted around 51 million jobs in America.

While it helped the small businesses and jobs to stay afloat in the pandemic times, the cause of concern for a PPP borrower was to ensure if this loan was forgivable. Let us understand how PPP loan forgiveness when applied in more detail.

How and when to apply for PPP loan forgiveness?

According to the available information on the SBA website, a borrower can apply for the forgiveness of PPP once all the loan proceeds for which the borrower has requested forgiveness have been used. It means the small business owner that is the borrower can apply for the forgiveness of this loan at any time up to the maturity date. However, if he fails to apply for the same within 10 months after the last day of the covered period then he should know that his PPP payments would not be deferred. It means he has to make the loan payments to his lender.

What is the PPP loan forgiveness deadline?

As per the available information on the internet, there is no specific deadline for the application for PPP loan forgiveness. It means the lenders can continue accepting applications for loan forgiveness for the time until the borrowers have PPP loans. As per experts, small business owners must first apply for PPP loan forgiveness even before making the first payment. The reason to do this is - these loans have a covered period of 8 to 24 weeks after they have been deposited in the borrower’s account. Once it ends, the loan payments become deferred for 10 months. It means the small business owner need not worry about making the first PPP loan payment after it is deposited in his business account for nearly a year - 8 to 24 weeks + 10 months. It is expected that the business owner must start making monthly payments to the lender as per the loan terms of 1 per cent interest for a predefined term. Hence, the business owner must ask for forgiveness before the deferral period ends.

When to apply for PPP loan forgiveness?

Small businesses can wonder when to apply for forgiveness. According to the available information, the PPP Flexibility Act has made PPP loan forgiveness when applying things a bit easier. A business owner should understand that the correct time to apply for forgiveness depends on the business details. It can include questions such as

1. Whether the organization has chosen the 8-week forgiveness covered period or the 24-week covered period?

2. How many full-time employees are currently working with the business owner in comparison with the same period last year?

3. By how much has the employer reduced individual employee wages?

4. What was the paystub of the employees before asking for forgiveness?

If the small business owner has spent all his funding on forgivable expenses and possesses the correct documentation that can be given to the lender, then he can apply for forgiveness of the PPP loan before the covered period expires. However, the business owner must remember that if he applies for the same too early then he might miss out on the opportunity for full loan forgiveness. Also, if he has made a few deductions related to the employee workforce, their wages and salaries, then he may qualify for only partial loan forgiveness.

As per available information, the forgiven amount is considered tax-free. However, IRS has given a rule that the expenses paid with forgiven PPP loan proceeds will not be counted as deductibles for the business owners. It means if your company has got a 350,000$ PPP loan which is used to cover the payroll part, then 350,000$ of payroll expense for the concerned year will not be deductible. Furthermore, the IRS had given a rule that PPP-funded expenses for a business owner will not be considered deductible even if the loan was forgiven in 2021.

The following figure will give a detailed understanding of PPP loan forgiveness and when to apply

How to apply for PPP loan forgiveness?

Once the business owner has understood PPP loan forgiveness when to apply, he should have a good idea about how to apply for the same. The business owner or entrepreneur must have a sound understanding of the steps involved when he is seeking forgiveness of a loan. To apply for loan forgiveness, there is a fixed methodology. It is as follows -

1. Determine if the lender is participating in direct forgiveness through the government portal SBA and complete the correct form:

The business owner must review the list of lenders that participate in direct forgiveness of PPP loan amount. It will help him determine if he can apply through SBA.

The borrowers who have a lender who is participating in direct forgiveness can apply using the portal. Furthermore, they would have to answer the questions related to SBA form 3508S.

If the lender is not participating in the direct forgiveness program, then the borrower needs to apply for it through the lender. The lender can give him various SBA forms such as SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent. It is the duty of the lender to give proper guidance on how to submit the loan application and when PPP loan forgiveness when to apply

2. Compile documentation: The SBA form 3508S does not require the business owners to submit additional documentation to prove the calculations used to determine their respective loan forgiveness amounts. However, according to available information on the SBA portal, it might request some information and even documents to review the calculations as a part of the loan review or audit procedures.

Payroll (provide documentation for all payroll periods that overlapped with the Covered Period):

Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees

Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period:

a. Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and

b. State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state

Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount

Do NOT include the following when calculating eligible payroll costs for loan forgiveness:

c. Qualified wages paid during April 1, 2020, through December 31, 2021, that are taken into account for purposes of claiming:

i.The Employee Retention Credit under section 2301 of the CARES Act, as amended by sections 206 and 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (additional Guidance on the Employee Retention Credit under Section 2301 of the Coronavirus Aid, Relief, and Economic Security Act (PDF) and Guidance on the Employee Retention Credit under the CARES Act for the First and Second Calendar Quarters of 2021 (PDF) are both available from the IRS), and the Employee Retention Credit under section 3134 of the Internal Revenue Code of 1986, as enacted by the American Rescue Plan of 2021. (Note that reporting these qualified wages in the payroll costs entered on your loan forgiveness application will affect the amount of qualified wages that can be used to claim the employee retention credit.)

Non-payroll (for expenses that were incurred or paid during the Covered Period and showing that obligations or services existed prior to February 15, 2020, for the first three listed obligations/services):

· Business mortgage interest payments: Copy of lender amortization schedule and receipts verifying payments, or lender account statements

· Business rent or lease payments: Copy of current lease agreement and receipts or cancelled checks verifying eligible payments

· Business utility payments: Copies of invoices and receipts, cancelled checks or account statements

· Covered operations expenditures: Copy of invoices, orders or purchase orders paid, and receipts, cancelled checks or account statements verifying eligible payments

· Covered property damage costs: Copy of invoices, orders or purchase orders paid, and receipts, cancelled checks or account statements verifying eligible payments, and verification that costs were related to uninsured property damage due to public disturbance vandalism or looting that occurred in 2020

· Covered supplier costs: Copy of contracts, orders or purchase orders in effect at any time before the Covered Period (except for perishable goods), and copy of invoices, orders, or purchase orders paid, and receipts, cancelled checks, or account statements verifying eligible payments

· Covered worker protection expenditures: Copy of invoices, orders or purchase orders paid, and receipts, cancelled checks or account statements verifying eligible payments, and verification that expenditures were used to comply with COVID-19 guidance

This list of documents is not all-inclusive

3. The business owners must go through the following sites before asking for PPP loan forgiveness -

Forgiveness forms and instructions

· FAQ about PPP Loan Forgiveness

· SBA form 3508 PPP Loan Forgiveness Application + Instructions

· SBA form 3508EZ PPP Loan Forgiveness Application + Instructions

· SBA form 3508S PPP Loan Forgiveness Application + Instructions

· Video: PPP direct forgiveness borrower portal training

4. The business owner must remember the following percentage split of the funds received under PPP loans.

75 percent of the PPP funds need to spent only for payroll-related expenses. It includes the employee salaries, wages, commissions, Tips, Healthcare and retirement benefits. This also includes vacation and sick leave, state and local taxes on the employee compensation.

5. Submit the forgiveness form and documentation to SBA or your PPP lender:

Depending on whether your lender is participating in direct forgiveness, complete your loan forgiveness application and submit it via the SBA direct forgiveness portal or via your lender with the required supporting documents. Your lender may follow up to request additional documentation.

6. Continue to monitor your application for forgiveness:

If SBA undertakes a review of your loan, SBA or your lender will notify you of the review and the SBA loan review decision. You have the right to appeal certain SBA loan review decisions. Your lender is responsible for notifying you of the forgiveness amount paid by SBA and the date on which your first payment will be due, if applicable.

7. Borrowers who need assistance with direct forgiveness can contact SBA at our dedicated forgiveness call center: 877-552-2692. The call center is open Monday – Friday, 8 a.m. - 8 p.m. ET. The call center can only assist direct forgiveness applicants. All other borrowers should contact their PPP lender. Direct forgiveness borrowers can also consult our direct forgiveness knowledgebase for frequently asked questions.

PPP loan forgiveness: 8 weeks vs 24 weeks

According to available information, the PPP loan forgiveness can have 2 options - eight weeks and 24 weeks. The Paycheck Protection Flexibility Act has made some significant changes to the PPP loans offered to the borrowers. One of the most significant changes is the addition of eight week forgiveness period given to small business owners. It means they have a choice and will no longer be locked into the eight weeks period. It means they can opt to take advantage of 24 week period to spend the funds.

As per the PPP Flexibility Act, the borrowers who have loan numbers after 5 June 2020 automatically had a forgiveness period of 24 weeks which is till 31 December 2020.

8 Week forgiveness period advantages -

1. If the business owner qualifies for full loan forgiveness after the 8 weeks, he can finish the forgiveness process in the same year.

2. It becomes easier to maintain the payroll and number of employees in the office you have in this short time

3. PPP calculation rules and guidelines keep changing and always remain in flux. It means the business owner can have this period to his benefit when the rules are well known instead of taking a chance on the rules and qualifications at a later date.

24 Week forgiveness period advantages -

1. Under this period and new rules, a business owner will have to spend 60 per cent of the PPP loan on payroll costs as opposed to 75 per cent to qualify for the full hundred per cent forgiveness.

2. It increases the chances of a business being eligible for full forgiveness of a PPP loan irrespective of the covered period the business owner has chosen at the time of application. However, if the borrower uses a 24-week covered period, then it may help him to meet the sixty per cent threshold which is not possible in 8 weeks

3. The extended time gives the businesses longer to plan and make well-informed decisions on how to file for PPP loan forgiveness.

Where to submit the loan forgiveness application?

Once every business owner or borrower has understood PPP loan forgiveness when to apply, he needs to know where he can make this application. As per the available information, each lender usually takes the forgiveness applications for the loans through their online portals. It means the borrower must check these portals to check if the lender accepts online forgiveness applications. The borrower can get its notification by email.

The following image is a perfect guide to understanding which PPP forgiveness application form is the best for the borrower -

Conclusion

A borrower or business owner must have a complete understanding of PPP loan forgiveness when applying to ensure that he has some peace of mind in case the business topples. It clears the applicant of any uncertainty in his mind and takes the pressure off his head.

When there are multiple factors to be considered, the borrower must remember that it is best to apply for PPP loan forgiveness if the wages of the employees and FTE count go extremely high. In the end, the time when to apply for PPP loan forgiveness is dependent on the business owner and it should be done according to the situation.

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Key Takeaways

1. The federal government in America established the Paycheck Protection Program as a component of CARES Act to assist the business owners in the times of Covid-19 pandemic. It assists the businesses stay afloat in the market when the consumer buying capacity turned out to be less than the normal days.

2. As per the SBA guidelines, a businessman or entrepreneur could apply for PPP loans to the lender on the government website or the lender’s portal.

3. He should check if the loan lender provides PPP loan forgiveness. If yes, then the business owner can opt for application of the loan within 10 months of the covered period.

4. The business owner or borrower must check if there is a availability of direct forgiveness program on SBA website. He should also see which form he will require to fill for the same. In addition to this, he must check which documentation would be required while filing for PPP loan forgiveness throught different government forms.

5. The business owner must check for the advantages offered in 8 weeks and 24 weeks PPP loan forgiveness period before filing an application to the lender, qand then decide which plan to opt for.Once the application has been filed, he must continue checking its status on the portal.

6. At the end, when to apply for PPP loan application forgiveness depends on the business owner. He should use the correct payroll software to ensure the salaries of employees are cleared on time for the successful running of the business.