Guide to PPP Loan Forgiveness

Guide to PPP Loan Forgiveness

The Paycheck Protection Program established by the US Federal Government is getting popular with the possibility that the entire loan might be forgiven. The Program technically changes the loan to a grant given to the borrower. The rules and application process for PPP has been changed over time but to fundamentally qualify for the program,  PPP loan amount should be spent in a proper way and over a specified period of time. By following the strict criteria, you will be eligible to apply for forgiveness with your lender.

Requirements for PPP loan forgiveness

Let’s take a look at the terms for using PPP loans.

The fund from the PPP can be used for the following conditions and purposes.

  1.     Payroll: Wage, Salary, Medical, Family, Parental, Health benefits, vacation or sick leave
  2.     Mortgage interest: Mortgages that are signed before Feb 15, 2020
  3.     Rent: Lease agreements that are in effect before Feb 15, 2020
  4.     Utilities: Services that started before Feb 15, 2020
  5.     Operations expenditures: Such as any software technology like cloud computing, or other human resources and accounting needs.
  6.     Property damage costs: Damages/costs due to issues and that are not covered by the insurance.  (such as the public disturbances that occurred in 2020) 
  7.     Supplier costs: Purchase orders or any order of goods that are made before receiving the PPP loan
  8.     Worker protection expenditures: Infrastructure(property) improvements to remain with the COVID regulations from March 1, 2020, onwards or any protective equipment for personal

How does SBA PPP loan forgiveness work?

  1.     The responsibility is on the borrower to prove that compliance has been made with the conditions and requirements of PPP loans
  2.     The borrower has to submit the  PPP forgiveness application to the lender disbursing the PPP funds
  3.     The lender will return a loan forgiveness statement within 60 days
  4.     The forgiveness statement will give an indication of loan forgiveness and terms of the payment of any funds that are not eligible for forgiveness
  5.     Two-year terms will be applicable for PPP loans taken before June 5,2020  and loans disbursed after the Flexibility Act will have five-year terms. 

What documents are needed to receive PPP forgiveness?

One of the most critical aspects to receive PPP forgiveness is proper documentation, especially if you are aiming at getting a 100% loan forgiveness. Keeping your accounts precise and accurate along with other documents makes the entire process more organized, which will influence the chances of approval positively.  

  1.     Numbers of employees and pay (payroll reports, Form 941 tax filings)
  2.     Retirement and health benefits contributions
  3.     State filings of income, payroll, unemployment
  4.     Interest, rent, and utility payments that were active in Feb 2020, and other expenses during the coverage period
  5.     PPP loan application and loan information
  6.     Economic Injury Disaster Loan (EIDL) documents if you have applied for it

How do you apply?

Even after being made simple, the application process of PPP is a tedious job. Begin by downloading and printing the instructions of BA Loan Forgiveness and the SBA Loan Forgiveness Application.

You can submit the application and necessary documents electronically. However, keep the physical copies for Auditing later by lender or SBA audit.

Deadline for PPP loan forgiveness

The submission process of Application and expenditures for the PPP loan forgiveness needs to be completed by 10 months from the end of the loan window. If the borrower received the loan before the PPP flexibility Act in early June 2020, then you can still use the 8-week window. After the application process, you will receive a decision from your SBA approved lender within 60 days time.

How do you maximize PPP loan forgiveness?

To maximize the PP loan forgiveness, one needs to use a minimum of 60% of the PPP loan for payroll costs. The more the fund is used for payroll, the more proportion of funds are eligible for forgiveness. When you receive the loan, your prime focus should be on payroll costs including wages, hazard pay, salaries, bonuses, health and other benefits, pay for family, vacation and sick leave and taxes related to payroll 

Your documentation needs to be precise with all the necessary information. Work carefully with your accounting team while preparing the documents and with an SBA-approved lender to recognize any issues with the loan forgiveness and work towards fixing issues. 

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