After your Paycheck Protection Plan (PPP) loan hopefully helped you weather at least some of the economic storm that is COVID-19, it is now time to start thinking about PPP loan forgiveness.
You will need to complete the correct PPP loan forgiveness form and potentially provide or maintain information that confirms your qualifications for forgiveness. While the process may seem a little overwhelming at first glance, this guide will help you get the key information you need to apply for PPP loan forgiveness.
PPP Loan Forgiveness Applications Are Open
First and foremost, applications for forgiveness for your PPP loan are now open. The Small Business Administration (SBA) is taking applications, but these must be submitted to your lender first.
The conditions of PPP forgiveness are contingent upon fulfilling a few key requirements. You may use the PPP funds for the specific expenses which are listed below:
- To make payroll. You may use PPP funds for salary, wage, vacation, parental, family, medical or sick leave and associated benefits.
- Mortgage interest payment. As long as the mortgage was signed prior to February 15, 2020, mortgage interest qualifies as an expense.
- To pay rent. As long as the lease was signed and went into effect prior to February 15, your lease payment qualifies.
- Utility payments. Once again, as long as the service began prior to the February 15, 2020 date, your utility payments are eligible.
- Overall operations expenditures. Any human resource (HR) costs, accounting costs, computing or certain other operational expenditures are included.
- Costs due to property damage. Any costs incurred due to public disturbances occurring in 2020 that are not covered by insurance.
- Supply costs prior to receiving a PPP loan. Any supply purchased prior to receiving a PPP loan is eligible.
- PPE (Personally Protective Equipment) and other worker protection expenditures. Any personal protective equipment for workers or property improvements to meet COVID-19 requirements from March 1, 2020 onwards are included.
Expenses that fall under the above categories are considered forgivable.
Additional Conditions of PPP Forgiveness
There are some conditions of PPP forgiveness that also come into play.
Expenses incurred over the 8 to 24-week beginning the day that you received your PPP disbursement from your lender. This date may be later than the date that you physically signed your PPP loan agreement. Even if your payroll date falls outside of the 8 to 24 week period, eligible expenses include employee payroll incurred during this period.
- There is a 60/40 payroll expense rule. The bottom line is that 60% of your PPP loan must be used for payroll costs. Your forgivable amount will track with the percentage of your loan that you apply to payroll costs, up to the full amount of the loan.
- You must maintain the same number of employees on your payroll. The ultimate purpose of the PPP loan was both to help businesses survive and maintain jobs for employees. In some cases, you may need to rehire employees prior to applying for forgiveness.
- Your employees must maintain 75% or better of their salaries. This requirement applies to every employee who made less than $100,000 in annual pay in 2019 or 2020, which depends on the year that you used to calculate your PPP loan amount.
- There is a rehiring grace period for loans disbursed in 2020 where employees must have been rehired by December 31, 2020. The date for 2021 loan disbursements has not yet been determined.
The PPP Forgiveness Application Process
Your application for PPP forgiveness will be processed by your lender, such as First Palmetto Bank. You just need to complete the proper PPP loan forgiveness form and submit it. After you submit your form, your lender is legally obligated to provide a response in no more than 60 days.
Choosing the correct form is an important part of the process. There are three PPP forgiveness forms to choose from based upon details about your loan.
- Fill out Form 3508S if your PPP loan amount is less than $150,000.
- Fill out Form 3508EZ if your PPP loan amount is more than $150,000 and you did not reduce your FTE (full time employee) headcount from January 1, 2020 by more than 25% OR you were unable to operate at the same capacity and reduced employees by more than 25% because of COVID-19-related health guidelines.
- Fill out Form 3508 if your PPP loan amount is more than $150,000 and you did reduce your FTE headcount by more than 25% not due to COVID-19-related health guidelines.
To summarize, Form 3508S is for the simplest PPP loans of under $150,000. Filling out this form requires no calculations or documentation to be provided, but you need to maintain relevant records as the SBA can request documentation at any time. You must simply certify that you 1) used the loan to only cover eligible expenses, 2) did not reduce employee wages to a level below 75% of their pre-COVID wages, and 3) did not reduce your FTE headcount.
The streamlined Form 3508EZ is available for loans in excess of $150,000 to certify the following in good faith:
- A) For any employees earning $100,000 or less, you did not reduce the annual salary or hourly wages by more than 25% in the covered period. You must compare the covered period to the most recent full quarter prior to the covered period.
- You did not reduce the number of employees or the average hours of employees between January 1, 2020 and the end of the loan’s covered period. You may ignore employees that refused an offer to come back to work or were fired for just cause.
- B) You were unable to operate to the same capacity as February 15, 2020 due to compliance with rules related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19. These rules must have been put in place by the Secretary of Health and Human Services (HHS), the Director of the Centers for Disease Control and Prevention (CDC), or the Occupational Safety and Health Administration (OSHA).
When you apply for forgiveness with the Form 3508EZ, plan to provide documentation in the form of payroll and other eligible expense information.
Last but not least, Form 3508 is left for anyone unable to use the other forms. This form requires the most rigorous documentation. As a borrower, you will have to complete the PPP Schedule A which includes tables detailing FTEs and any salary or wage deductions in the covered period.
Ultimately, good record-keeping and bookkeeping will help your PPP loan be forgiven and enable you to maintain or provide the proper documentation for PPP forgiveness. Make sure to maintain all related records.
Once your proper form has been completed and all (if necessary) documentation is provided, you can reach out to your local banker at First Palmetto Bank to submit your PPP forgiveness application.
Your application will be evaluated by First Palmetto Bank and submitted to the SBA for forgiveness as applicable. It may take a little bit of time to hear back, but your First Palmetto banker will let you know the results as soon as they are able and will follow up with official correspondence.
In the meantime, if you have any additional questions about the PPP process, second round of PPP or PPP forgiveness, please refer to the PPP Portal at First Palmetto Bank where any updates will be made public.