How To Ensure PPP Loan Forgiveness

Whew, the internet sure works fast. Last week a list of recipients of the Paycheck Protection Program Loans was released, and concerned citizens wasted no time to take a look and call out businesses and community organizations on their loan amounts. To those businesses that received large amounts, congrats and we hope it afforded you to pay employees and keep business moving. For the honest entrepreneurs making daily sacrifices to keep your business afloat, this is for you. This blog will tell you what you need to know to make sure your PPP loan is forgiven.

More than 1.1 million loans, totaling over $100 billion have been forgiven already. The eligibility requirements for loan forgiveness are essentially the same for First (never received a PPP loan before) and Second (this is your second PPP loan) Draw Paycheck Protection Program Loans. Meaning no matter when you applied/received your loan this article is for you if you're seeking loan forgiveness.

PPP loan forgiveness requirements

Per the SBA:

First Draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:

o                Employee and compensation levels are maintained

o                The loan proceeds are spent on payroll costs and other eligible expenses; and

o                At least 60% of the proceeds are spent on payroll costs

Second Draw PPP Loan forgiveness terms

Second Draw PPP loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:

o                Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan

o                The loan proceeds are spent on payroll costs and other eligible expenses; and

o                At least 60% of the proceeds are spent on payroll costs

Seems simple enough. Most borrowers should be eligible, but what does all of this mean and does it apply to your business? The short answer is , yes. First and foremost talk to your trusted CPA about PPP loan care. Read along to find out how.

Maintaining employment numbers

The Paycheck Protection Plan is aimed at keeping American's employed, so it makes sense that maintaining employment levels is a large part of obtaining loan forgiveness. The number of employees you had before or at the time of the original disbursement of the loan is the amount you should have for the period in which you’re applying for loan forgiveness. Therefore if you had four employees before receiving your loan, but only have 2 during your forgiveness period, you lessen your chances of forgiveness.

 The other key to maintaining employment levels is to ensure that all employees maintain the same number of hours worked as well as wages.

If a business decreases in employment levels, these businesses risk their loan forgiveness. Companies that had to lay off employees for a period, and were not able to get workers to return can still be considered eligible but must meet other specifications.  Businesses must prove that offers were made in writing to those employees offering the same amount of hours and wages, that the employees quit, were fired for just cause, your business couldn’t operate under its normal capacity due to COVID,  or that an employee requested a reduction in hours. These are accepted reasons for a decrease in employment/paid wages.

Other Eligible Expenses

The biggest pitfall to look out for with your loan is how you spend it. We’ve all heard the story of the Florida Man who allegedly bought 44 Hell Cats with his loan and is now under investigation by the FBI. In reality, these instances are very small and many of the businesses that received the loans did need economic relief. That being said if you’re business operates the way it should under tax laws regularly loan forgiveness is easily attainable. Eligible expenses include:

·       Salaries, wages, commission, and tips

·       Employee benefits: Includes costs associated with retirement plans, group health insurance, separation or dismissal, vacation time, sick and medical leave, and parental and family leave

·       State and local taxes on compensation

·       Remember 60% of your loan must go to payroll expenses

·        

Self-employed/ Private Contractors

For those who are self-employed, wages, salaries, and commissions under $100,000 per year qualify as a payroll cost.

Applying for loan forgiveness

The SBA is looking to make loan forgiveness as easy as possible. So much like the application for the loan, applying for loan forgiveness is just as much a simplified process. However, even with a simplified application, you still need to make sure you comply.

Within 60 days of the receipt of your loan forgiveness application, your lender has to make a determination on whether or not your PPP loan will be forgiven. Once a determination is made, the lender will send a return letter with the forgiveness amount and instructions on paying the remaining balance if you have one. Loans received before June 5, 2020, have a two-year term and those received after have a five-year term.

Keep your documents tight

Applying for loan forgiveness will of course require documentation about your business and the load itself. Again we recommend working with an accountant to make sure you document everything properly. 100% forgiveness may seem like a reach, but good documentation will get you close. The following documents will help you prepare:

•            Employee numbers and pay (payroll reports, Form 941 tax filings)

•            Contributions to retirement and health benefits

•            State filings of income, payroll, unemployment

•            Interest, rent, and utility payments that were active in February 2020, and any expenses during the coverage period

•            PPP loan application and loan information

•            Economic Injury Disaster Loan (EIDL) documents if you applied for it

Loan forgiveness deadlines

Loan forgiveness applications are open now. Expenditures and applications for PPP loan forgiveness need to be completed within 10 months of the end of your loan window. If you received your loan before the PPP Flexibility Act in early June you can still use the 8-week window originally designated. We recommend waiting to apply for loan forgiveness until you’ve been able to restore headcount and pay to acceptable levels for loan forgiveness.

To apply for SBA loan forgiveness, visit their website and download the application here. Work closely with both your bookkeeper, accountant, and your lender. Remember you have until ten months from the date in which you received the loan to apply for forgiveness. Also, loan applications are open until May 3, 2021. If your business is still struggling to recover from the strain imposed by COVID-19, apply at the Small Business Association Website.

Thanks for reading. Madison’s Accounting and Tax Services is a financial service provider that specializes in helping beauty brands control and grows their financial power, while also passionately providing financial knowledge and resources to communities in local Midwest communities. If you enjoyed this blog please subscribe and share.

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