PPP Loan Forgiveness
Congress is considering major changes in the PPP loan program, including streamling forgiveness. Due to the complexity of the current forgiveness process, we are recommending borrowers wait to see if Congress simplifies the process.
One of the most beneficial aspects of the PPP loan program is the opportunity to have 100% of the loan, and any accrued interest, forgiven. The outcome of the PPP forgiveness is that the borrower has received a TAX-FREE GRANT FROM THE SBA.
Any amount of the loan that is not forgiven must be repaid by the borrower plus interest over an approximately 18 months period, if the loan was made before June 5, or approximately a four-year plus period if the loan was made after June 5.
The information provided in these web pages is intended to be a summary guide to the PPP forgiveness program and provide a roadmap for borrowers on the process of filing. This information does not replace the specific instructions from the SBA, links to which are provided below, or the advice of accounting or legal professionals that may be required. This site does not provide legal or accounting advice. You are responsible for the correct content of your forgiveness application. These web pages will provide the links to the online forgiveness applications you are required to use if you obtained your PPP loan through a lender using PPP-Apply. (See information on the forgiveness application forms below.)
General Information on Forgiveness Under the Current PPP Statue and Regulations
Up to 100% of the loan amount can be forgiven if the borrower has, during the “Covered Period,” spent the funds for allowable expenses, including:
- Payroll expenses including direct payments (with limits) to employees and owners and certain employee benefits.
- Business mortgage interest payments for real or personal property on obligations incurred before February 15, 2020.
- Rent or lease payments for real or personal property on obligations incurred before February 15, 2020.
- Business utility payments for services that began before February 15, 2020.
The “Covered Period” generally means up a specific number of weeks beginning on the date funds were disbursed to the borrower. There is flexibility in when this period starts to match when actual payroll periods start, called the “Alternative Payroll Covered Period.” The number of in the Covered Period depends on the you received the disbursement of the loan:
- If the loan was disbursed before June 5, 2020, the number of weeks is, at the option of the borrower, either (i) 8 weeks (56 days) or (ii) 24 weeks (168 days) not to extend beyond December 31, 2020.
- If the loan was disbursed on or after June 5, 2020, the number of weeks is 24 (168 days).
Documentation must be provided on the amounts actually spent during the Covered Period. For #2 through #4 documentation that the obligations existed before February 15, 2020, must also be provided, to the extent that any of those expenses were claimed for forgiveness. For example, if all forgiveness amounts are claimed for payroll expenses, no documentation is required with respect of #2 through #4. (Note that there are limitation on how much "payroll" can be expensed for sole practioners, under current law.
No more than 40% of the forgiveness amount can be for expenses in #2 through #4.
There are specific definitions and limitations that apply to the allowed four categories of expenses listed above, which are explained in the SBA instructions. The most complex set of instructions relate the limitations on forgiveness that apply to a borrower that has reduced payroll or the number of employees by more than 25%, and not made up that reduction by rehiring within defined periods.
This “25% reduction” limitation is the primary difference between whether a borrower can use of the Forgiveness Application on form 3508 or on form 3508EZ.
If a borrower (a) is self-employed (has no employees other than the owner) or (b) has not made any reduction in number of employees or the amount of payroll, the borrower may be able eligible to use the form 3508EZ. The borrower may need to consult appropriate professional accounting or legal advice in making that determination.
Neither we nor your lender can provide legal, accounting, or tax advice on which form to use or how to determine the calculation of any employee or payroll reductions.
When to Apply for Forgiveness
If you are self-employed (no employees other than the owner), you can apply for forgiveness at any time, usually as soon as you have spent 100% of the loan proceeds.
If you have employees, you cannot apply for forgiveness until after the end of the Covered Period, due to the way the calculation works for the 25% limitation on reduction of employees or payroll.
Five Steps to Apply for Forgiveness
In order to have the loan forgiven, a borrower must take five steps, 1 to 5, listed below. These steps must be done carefully in order to receive the forgiveness. If any part of the loan is not forgiven, you will be responsible for repaying that amount, plus interest. PLEASE READ AND FOLLOW THESE INSTRUCTIONS CAREFULLY and the process will go smoothly. The five steps are:
- Determine how the 25% limitation on reduction of employees or payroll applies to you and determine whether you care eligible to file the 3508EZ form or must use the 3508 form. Even if you are eligible to file the form 3508EZ, if you have employees you will find the Schedule A of form 3508 to be useful, even if you do not have to file it.
- File the appropriate Forgiveness Application form to request forgiveness with the lender that made the loan. If you received your loan as a result of applying through PPP-Apply.com (this website), then the Forgiveness Application must be filed through this website. (More information is provided below on filing the Forgiveness Application on form 3508 or form 3508EZ.)
- Certify in the Forgiveness Application that (a) the information in the application, (b) the supporting documentation provided with the application, and (c) the supporting documentation you are required to maintain, but not file with the application, are all true and correct. Providing false information and documentation is a federal crime subject to severe civil and criminal penalties.
- File the required supporting documentation with the Forgiveness Application, as explained in the SBA instructions.
- Maintain for a period of six-years any of the documentation not required to be filed with the Forgiveness Application but required to be maintained by the borrower for inspection by SBA or others. (See the SBA instructions for further information.)
The Forgiveness Application Forms
The actual Forgiveness Application form will be be made available on this website and submitted electronically, in a manner similar to the original PPP application. You will be able to upload the supporting documents through this website. If you feel you must file for forgiveness before the link to the forms is make availabe, you can download the form from the SBA, complete it, and email the form and supporting documentation to us. DO NOT EMAIL IT TO YOUR LENDER.
The online links to the “live” forms are expected to be available after we determine what Congress is going to do with simplifying forgiveness.
We are providing downloadable versions of the instructions for both the 3508 and 3508EZ forms for your reference and planning purposes. (See links below.) Although there are downloadable forms from the SBA that can be filled in, they are not connected to our back-end system. PLEASE DO NOT ATTEMPT TO FILE THESE DOWNLOADABLE FORMS with us but use them for reference only.