One of the most attractive features of Paycheck Protection Program (PPP) loans is that they are eligible for forgiveness. This means lenders can release the borrower from the obligation of repaying the balance, which means borrowers can get up to 2.5 times their monthly payroll costs without paying anything in return. However, there are certain obligations that must be met in order to be forgiven, such that borrowers will need to apply for forgiveness after the eight-week loan term is up, as well as meet certain requirements to qualify. If your business is interested in how to apply for PPP loan forgiveness, keep reading to find answers for common questions that have been asked.
How Do I Qualify for PPP Loan Forgiveness?
Once you’ve applied for and received a PPP loan, it must be used on approved expenses in order for it to be eligible for forgiveness. Luckily, the loans are intended to help with payments business owners are struggling with right now, such as:
- Payroll costs
- Business utility payments (electricity, gas, water, internet)
- Health care benefits
- Addition wages to account for the reduction in tips for tipped employees
- Interest for mortgage or certain debt, rent obligations (Mortgages/lease agreements must’ve been signed before February 15, 2020, interest on debt must’ve been incurred prior to February 15, 2020)
Non-payroll costs must be incurred and paid during the covered period. Or, if the costs were incurred during the cover period but are due after the covered period ends, they will still be forgivable if they’re paid on or before the billing date.
If you use the PPP loan for expenses not on this list, that amount cannot be forgiven. 25% of your loan funds can be used for the non-payroll costs mentioned above if you want the full amount forgiven. Finally, in order to qualify for full forgiveness, if you’ve made any staff or wage reductions between February 15, 2020 and the end of the eight-week period following disbursement of your loan, you have until June 30, 2020 to rehire and restore salary levels or your forgiveness amount will be reduced.
What Information do I Need to Include in My Application for Loan Forgiveness?
The following must be documented in your application for loan forgiveness:
- A record of the number of full-time employees and pay rates your business maintains during the eight-week forgiveness period, with the following documentation:
- Payroll reports or bank statements
- Proof of payment, including checks, receipts, and other documentation verifying payments for mortgage, lease and utilities
- A certification that all information you provide is accurate
- It’s recommended you check with your lender to determine if additional information is required.
What would Reduce the Amount of My Loan That’s Forgiven?
If you are able to restore your headcount and wages to your first quarter by June 30, 2020, reductions of your forgiveness amount can be waived. But if your business reduced salary or wages between February 15, 2020 and April 26, 2020 the amount forgiven may be reduced.
Additionally, if you don’t spend at least 75% of your total PPP loan on payroll costs, the amount that can be forgiven will be reduced.
If you’re unable to uphold the loan forgiveness requirements, your payments will still be deferred up to six months.
When Will I Find Out if My Loan was Forgiven?
All lenders have 60 days from the date that you apply for forgiveness to decide whether or not you qualify. If any portion of your loan is not forgiven, those amounts must be repaid within two years. As a bonus, any forgiven loans will be excluded from gross income for tax purposes.