Start Building Your Case for PPP Loan Forgiveness
It’s now time to build you case to ask for loan forgiveness if your business received a loan from the Small Business Administration (SBA) Payroll Protection Program (PPP). That’s because there is now guidance on filling out the new Loan Forgiveness Application.
Around three quarters of small businesses in the United States requested relief from the SBA PPP loan program to help make payroll, loan and rent payments due to the recent pandemic. As long as 75% of the loan proceeds are used for payroll related purposes some or all of the loan can be forgiven. To reduce your loan due, an application to formally request forgiveness is required.
The loan forgiveness application and instruction is a bit overwhelming and includes an application, schedule, and worksheets. Here some suggestions to help think through the process.
Work with your lender. As with the loan process, your forgiveness request must be submitted to the bank that administered and funded your PPP loan. You will need to ensure your request meets the SBA guidelines AND theirs.
Review the application. The new application can be found here:
Identify your period. You will need to determine the eight week covered period for loan forgiveness. This “Covered Period” starts on your PPP loan disbursement date and ends 56 days later. There is an Alternative Payroll Covered Period to help align this period with how you pay your payroll.
Calculate your safe harbor. To maximize your loan forgiveness you must show that you retained your employees and their pay during the Covered Period. While this calculation can be cumbersome, there is relief if an employee refuses to return to work, voluntarily leaves, or is removed for cause. Remember this is not an all or nothing proposition. You can still receive a percent of payroll as relief if some of your employees are no longer with you.
Get your documents in order. Some documentation will need to be submitted with your application but other documents will need to be retained. You must save all supporting documentation for six years after the date the loan is forgiven or is repaid in full. As with support for tax returns, you will need separate documents confirming the obligation and others that show you made the payments.
What is eligible for forgiveness. The basic expenses eligible for forgiveness include payroll, cost of employee benefits, covered mortgage obligations on real and personal property, rent obligations and covered utility payments. Review the Federal Register and the Loan Forgiveness Application for details.
Remember the limits. Recall that payroll is limited to $100,000 annualized salary or less for each employee and only 25% of the amount forgiven can come from non-payroll expenses. Employees must be residents of the United States, and you may not be reimbursed for federal employment taxes including Social Security and Medicare. The amount of forgiveness will also be reduced if your business received funds from the Families First Coronavirus Response Act or EIDL program.
This is only a summary of the forgiveness application. Now is the time to start getting your application and related documentation in order. Your bank can give you guidance on how they are going to handle the processing of your request.