PPP Loan Forgiveness: The Latest Information
Updated: Jan 25, 2021
It has been almost a year since COVID-19 sent most of us to work from home, closed down businesses, and forced many business owners to reinvent themselves. The economic effects of the pandemic in 2020 caused hardship for many business owners. To help, the Small Business Administration (SBA) offered several relief options to help businesses, nonprofits, and faith-based organizations recover from the impacts of the pandemic. One of the most popular programs offered was the Paycheck Protection Program, also known as PPP. PPP is a loan designed to provide a direct incentive for small businesses to keep their workers on payroll. According to the SBA guidelines, PPP Loans can be used to help fund payroll costs, including benefits, and may also be used to pay for mortgage interest, rent, utilities, worker protection costs related to COVID-19, uninsured property damage costs caused by looting or vandalism during 2020, and certain supplier costs and expenses for operations.
What are the loan forgiveness terms?
SBA will forgive loans if all employee retention criteria are met, and the funds are used for eligible expenses. PPP Loans made to eligible borrowers qualify for full loan forgiveness if during the 8- to 24-week covered period following loan disbursement:
Employee and compensation levels are maintained
The loan proceeds are spent on payroll costs and other eligible expenses; and
At least 60 percent of the proceeds are spent on payroll costs (this changed from the original 75% established at beginning of the program).
How do I apply for forgiveness?
SBA guidelines are clearly stated on their website (www.sba.gov), a borrower can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used. Borrowers can apply for forgiveness any time up to the maturity date of the loan. If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender. Follow these steps to apply for forgiveness:
1. Contact your PPP lender and complete the correct form
2. Compile your documentation
a. Payroll
i. Bank account statements or third-party payroll service provider reports that documented the amount of cash compensation paid to employees
ii. Tax forms for the periods that overlap with the covered period
iii. 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
b. Non-payroll
i. Business mortgage interest payments
ii. Business rent or lease payments
iii. Business utility payments
3. Submit the forgiveness form and documentation to your PPP lender
4. Continue to communicate with your lender throughout the process
What is new in 2021 with PPP loan?
SBA, in consultation with the U.S. Treasury Department, reopened the Paycheck Protection Program (PPP) for First Draw PPP Loans the week of January 11, 2021. In addition, PPP now allows certain eligible borrowers that previously received a PPP loan to apply for a Second Draw PPP, you may apply for Second Draw PPP Loans from January 13, 2021, until March 31, 2021.
Furthermore, the new round of PPP loans has increased the list of qualified expenditures on which you can use the 40% of your loan that isn’t committed to payroll. Some of these expenses include:
Software
Property damage related to civil unrest
Necessary supplier costs – as long as contract/purchase was in place prior to receiving the loan
COVID-related protective measures
- PPE
- Barriers
- Disinfecting
The new law provides more flexibility for lenders, lenders are now freed from conducting additional due diligence on a borrower’s loan forgiveness application. Due to lack of guidance for the banks during the first rollout, the banks asked for additional paperwork to secure the loans. The forgiveness application process has been streamlined for a smoother process for both the lender and the borrower.
At CPA by Choice we want to ensure that as a business owner you are up-to-date with all relevant accounting information. Stay connected with our blogs, next month we will cover tax guidance issued by the IRS on PPP loans. Please call us/message us if you need our assistance and allow us to take care of your accounting.
Interesting Fact: the first round of PPP ran from March to August 2020. In that period, the SBA issued over 5.2 million approved loans, with an average loan size of $100,729.
Over $525,012,201,124 approved dollars to businesses.