How To Apply For PPP Loan Forgiveness

Do you know about PPP loan forgiveness? Basically, this article will explain there is about it and detail how to apply for PPP loan forgiveness. Stay with us!

If you do not understand how PPP loan works, start by reading this article; how To Apply For A PPP Loan | Step-By-Step Procedure.

About PPP Loan Forgiveness

With the passage of the CARES Act, the Paycheck Protection Programme was initiated to provide financial help to business owners and employees with payroll costs.

This was during the economic slowdown caused by the COVID-19 outbreak in the United States.

As a result, CARES Act stimulus package injected over $2 trillion into the US economy.

With loans, grants, and stimulus checks to citizens, the Paycheck Protection Program, which provides qualifying firms with 2.5 months of payroll assistance, was one of the act’s addendums.

The possibility of total loan forgiveness is the most appealing element of the Paycheck Protection Program.

Small Business Administration loans have a low-interest rate (PPP loans have a 1% interest rate when they mature), but the opportunity to have your entire loan forgiven is extremely appealing to business owners who are suffering from the economic consequences of COVID-19.

As a result, PPP loan forgiveness is determined by how the loan funds are utilized. However, the laws are constantly evolving, leaving borrowers to struggle with uncertainty.

In August 2021, the SBA launched an optional direct loan forgiveness portal with a shortened process for borrowers with loans of $150,000 or less, in addition to the standard loan forgiveness process.

These borrowers account for over 90% of all PPP borrowers.

In this article, we shall be looking into PPP loan forgiveness as well as How to Apply for PPP Loan Forgiveness, so let’s delve in.

What is Loan Forgiveness?

Loan forgiveness refers to the cancellation or discharge of an existing loan, which means you are no longer liable for the loan’s installments or interest.

The program provides a financial boost to struggling small businesses by allowing them to apply for PPP Loan Forgiveness, which they may use to keep staff on payroll and cover other costs.

After the loan is disbursed, the covered period is now any number of weeks between 8 and 24 weeks.

The “Alternative Covered Period” is no longer in effect. This applies to any PPP loan for which SBA had not made a loan forgiveness payment as of December 27, 2020.

Forgiven PPP loans are tax-free, and the company can still deduct eligible expenses incurred using PPP funding. (States may levy taxes on PPP funding; the amount varies.). The lender that is servicing the loan might help you qualify for a PPP Forgiveness loan.

Borrowers with loans of $150,000 or less can request for PPP loan forgiveness directly with the SBA through the SBA’s new online SBA PPP Direct Forgiveness platform.

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How Does SBA Loan Forgiveness Work?

The PPP loan forgiveness program was established by the CARES Act, which was passed into law on March 27, 2020, and is an SBA loan program.

The President signed the Paycheck Protection Program Flexibility Act on June 5, 2020, which altered some requirements.

Treasury produced a new PPP Forgiveness Application and instructions on June 16, 2020.

The Economic Aid Act of 2020 (the “stimulus bill”) increased financing for PPP loan forgiveness, established a second pull loan program, and made other improvements.

The SBA issued a new Interim Final Rule with forgiveness on January 16, 2021.

How to Apply for PPP Loan Forgiveness?

Although filling out a PPP loan forgiveness application can be time-consuming, it’s crucial to do it with rapt attention. What you need to do is to download and print the SBA Loan Forgiveness Application and follow the instructions.

Work closely with your SBA-approved lender disbursing your PPP loan, and follow the application instructions with the help of your accountant or bookkeeper.

To be eligible for forgiveness, you must spend your PPP loan funds appropriately over a set time. Then apply for forgiveness with your lender for loans of more than $150,000.

Also, with your lender or through the online SBA PPP Direct Forgiveness portal for loans of less than $150,000.

The rules and applications for applying for forgiveness have evolved. There are currently three forgiveness forms: 

  • Forms 3508
  • 3508EZ
  • Form 3508S
     

The 3508S is the most recent and easy version for loans of up to $150,000.

Nonetheless, you must still compute the amount of your debt that is forgiven and keep track of that information in the event your application is reviewed.

As a result, you may choose to calculate forgiveness using Form 3508EZ or Form 3508 and maintain the information with your records.

It is also important to understand the terms of forgiveness for both First PPP Draw and Second PPP Draw loans before applying.
 

What Are The Terms of PPP Forgiveness Loan?

First Draw PPP Loan forgiveness terms

First Draw PPP forgiveness loans are issued to qualifying applicants who are eligible to obtain loan forgiveness. This works if they complete the following tasks between 8 and 24 weeks after receiving their PPP loan:
 

  • Employee and salary levels were maintained.
     
  • Payroll expenditures and other qualified expenses were covered by the loan funds; and
     
  • At least 60% of the loan is for funding salary costs.
     

Second Draw PPP Loan forgiveness terms

Similarly, Second Draw PPP borrowers are qualified loan forgiveness provided they complete the following tasks between 8 and 24 weeks after receiving their PPP loan disbursement:
 

  • Employee and remuneration levels were maintained in the same way as they were for the First Draw PPP loan.
     
  • Payroll expenditures and other qualified expenses were covered by the loan proceeds.
     
  • At least 60% of the loan was used to pay for payroll costs.
     

What Do I need to do Before Applying for PPP loan Forgiveness?
 

1. Find out if your lender participates in SBA direct forgiveness and fill out the appropriate form:
 

To see if you need to apply through the SBA, look at the list of lenders who participate in direct forgiveness. If your lender participates in direct forgiveness, you can apply through our portal until August 4, 2021.

Borrowers who are eligible for direct forgiveness must visit the SBA’s forgiveness portal. The questions you’ll be asked via the gateway are the same ones that appear on the SBA form 3508S.
 

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Borrowers who do not have a participating lender must apply through them. The SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent may be provided by your lender.
 

2. Compile your documentation:

Borrowers don’t need to supply extra paperwork to show the calculations to determine their loan forgiveness amount when filling out SBA Form 3508S.

Although, as part of the loan review or audit process, the SBA may seek information and documentation to review those computations and the informations are as listed below:
 

  • Payroll (record all payroll periods that covered the Covered Period):
  • Employees’ financial compensation is in bank account statements or reports from third-party payroll service providers.
  • For the periods that overlap with the Covered Period, use the following tax forms (or similar third-party payroll service provider reports):
  • Payroll tax filings that have been reported or will be filed to the relevant state
     

When calculating eligible payroll costs for loan forgiveness, do not include the following: payment receipts canceled 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.

Qualified earnings paid between April 1, 2020, and December 31, 2021, that is taken into account while claiming:

Section 2301 of the CARES Act, as amended by sections 206 and 207 of the Taxpayer Certainty and Disaster Tax Relief Act of 2020, provides an employee retention credit.

Non-payroll (for expenses made or paid within the Covered Period and demonstrating the existence of obligations or services before February 15, 2020, for the first three specified obligations/services):

Interest payments on a business mortgage:

A copy of the lender’s amortization schedule and payment receipts, or lender account statements.

Payments for business rent or lease:

A copy of the current leasing agreement, as well as receipts or canceled checks proving that the payments are eligible

Copies of invoices and receipts canceled cheques, or account statements are all acceptable forms of payment for business utilities.

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Payments for business rent or lease:

A copy of the current leasing agreement, as well as receipts or canceled cheques proving eligibility.

Payments for business utilities:

Account statements, canceled checks, and copies of invoices and receipts

Expenses for covered operations:

Verify qualifying payments with copies of invoices, orders, or purchase orders paid, as well as receipts, canceled checks, or account statements.

You may also read: What Is A PPP Loan? Overview, And How It Works

Costs of property damage that are covered:

Copy of paid invoices, orders, or purchase orders, as well as receipts, canceled checks, or account statements showing eligible payments, and confirmation that expenditures were related to uninsured property damage caused by public disturbance vandalism, or looting in 2020.

Covered supplier costs:

Copy of contracts, orders, or purchase orders in effect before the Covered Period (save for perishable products), and copy of invoices, orders, or purchase orders paid, as well as receipts, canceled checks, or account statements showing eligible payments.

Copy of invoices, orders, or purchase orders paid, and receipts, canceled checks, or account statements showing acceptable payments, as well as documentation that expenditures were spent following COVID-19 advice.

3. Submit the forgiveness form and documentation to SBA or your PPP lender:

Complete your loan forgiveness application and submit it to the SBA direct forgiveness portal or your lender with the required supporting documentation, depending on whether your lender participates in direct forgiveness.

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Your lender may contact you again to request more information.
 

4. Continue to monitor your application for forgiveness:

If SBA undertakes a review of your loan, SBA or your lender will notify you of the review and the SBA loan review decision.

You have the right to appeal certain SBA loan review decisions. Your lender is responsible for notifying you of the forgiveness amount paid by SBA and the date on which your first payment will be due, if applicable.

Borrowers who require direct forgiveness help should call the SBA’s dedicated forgiveness phone center at 877-552-2692. Monday through Friday, 8 a.m. to 8 p.m. ET, the call center is open.

Only direct forgiveness applicants can get help from the phone center. The PPP lender should be contacted by all other borrowers.

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Frequently Asked Questions About PPP Forgiveness Loan

When is the deadline for PPP Loan Forgiveness?

Generally, you can apply for PPP Loan Forgiveness after you’ve used your PPP funds (after your “covered period.”).
However, note that a borrower applying for the forgiveness of a Second Draw PPP Loan that is more than $150,000 must submit the loan forgiveness application for its First Draw PPP Loan before or simultaneously with the loan forgiveness application for its Second Draw PPP 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.
After applying for loan forgiveness, you will receive a decision from your SBA-approved lender within 60 days.

Will PPP forgiven balances be taxed? 

No. You can also deduct qualified expenses paid with PPP funding because of the Economic Aid Act. Keep in mind that the funds from forgiven loans may be treated differently by state taxing authorities.

What types of businesses are eligible for PPP loans?

The types of businesses that are eligble for PPP Loans are as follows:
Small businesses with an employee count of 500 or fewer.
Non-profits – 501(c)(3) and 501(c)(19) with 500 or fewer employees
Franchises on a location by location basis
Self-employed individuals, independent contractors, and sole proprietors.
 

How to Apply for PPP Loan Forgiveness?

To apply for PPP loan forgiveness all you need to do is to download and print the SBA Loan Forgiveness Application and follow the application instructions written on it.

Conclusion

Loan forgiveness is the cancellation or discharge of an existing loan.

The program provides financial assistance to struggling small businesses by allowing them to apply for PPP laon forgiveness, which they may use to keep their staff on the payroll as well as cover other expenses.

After the disbursement of the Loan, the covered period is now any number of weeks between 8 and 24 weeks.

Borrowers with loans of $150,000 or less can request for PPP loan forgiveness directly with the SBA through the SBA’s new online SBA PPP Direct Forgiveness platform.

With the provided information we hope you’ve gained insight on how to apply for ppp loan forgiveness.
 

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