Have you taken a PPP loan from SBA and want it to be forgiven in the given time? You should look for the deadlines and get your application prepared.
The Paycheck Protection Program is a $953 billion business loan program for small businesses that are facing hard times due to coronavirus-related restrictions imposed on businesses. SBA has initiated the program and provided a list of those who are eligible for getting the loan including independent contractors, sole proprietors, veterans organizations, nonprofit organizations, self-employed people.
Those getting the loan are supposed to spend the amount on the payroll costs, employee benefits costs, and other business expenses such as utilities, rent, lease payments, supply costs, work protection expenditure, etc in the covered period. If you have spent the loan amount on this expenditure, you can apply for loan forgiveness. So, if you have taken the loan and want to know what is the deadline for PPP loan forgiveness, read this article to know about the details of what the PPP loan forgiveness is and what is the process of submitting the application for that.
What is a PPP Loan?
The Paycheck Protection Program (PPP) is a $953 billion business loan program launched by the government of the United States to protect small businesses, self-employed workers, non-profit organizations, sole proprietors, and tribal businesses to continue paying their workers and prevent complete closure of the businesses amid coronavirus. It originated from the Coronavirus Aid, Relief, and Economic Security (CARES) Act 2020.
Here are some major highlights of the Act that summarizes the agenda of the program:
- Open for all small businesses
- Loans that are gotten after June 2, 2020, have a length of five years
- There is no requirement of collateral and personal guarantees
- The amount of the loan approximately equals 2.5 times the applicant’s average monthly payroll costs.
- The maturity rate of the loan is 2 years while the interest is 1%
- The loan covers expenses of 24 weeks starting from the loan disbursement date
- The loan can be forgiven and essentially turn into a non-taxable grant if the business keeps its employee counts and employee wages stable
- There is no fee for applying for the loan
As for the condition to get the loan forgiven, at least 60% of the loan must be spent on payroll and employee benefits costs, while the remaining 40% can be used on:
- Rent and lease payment
- Mortgage interest payments
- Operations expenditures such as software and accounting needs
- Supplier costs such as cost of goods sold
- Property damage costs due to public disturbance are not covered by any insurance
- Worker protection expenditures to be COVID compliant
This Small Business Administration banked loan, however, ended on May 31, 2021, with the last disbursement of $798 to 8.5 million small businesses in the form of forgivable loans. Now the borrowers who have complied with the requirement of the loan can apply for PPP loan forgiveness.
How to apply for PPP loan forgiveness?
The Small Business Administration and Department of Treasury have released the official Paycheck Protection Program forgiveness application form known as SBA form 3508 last year. This is the form that is to be submitted by the borrowers to their lenders when there is a time to have their loan partially or fully forgiven.
Although this 11-page long-form feels daunting to you, it is necessary to have essential information about the requirements and knowledge of determinants that are forgivable, as well as how the general guidelines of the loan program can be applicable to your specific business.
PPP loan forgiveness application deadline
If you were among those 12 million employees who greatly benefited from the COVID relief program, primarily the PPP loan, and fulfilled all the required criteria for getting the loan partially or fully forgiven, you need to keep a full account of some important dates of application deadlines.
If you plan to apply for the loan forgiveness application, it is important to start the process beforehand and should not wait for the deadline to approach. This way you would have time to respond to some unanticipated repayment requirements in case you determine that some or all of your loan is not forgivable.
The deadline for the loan forgiveness application is based on when you initially applied for the loan and when it was dispatched. This determines the maturity date of the loan which is also called the covered period in which you are supposed to spend the loan amount. This period can be between 8-24 weeks from the day when you received the loan.
First draw PPP loans (initiated before June 5, 2020)
The loans which were disbursed before June 5, 2020, have a maturity period of two years. Because this was the first shot of the loans dispatched by the government, people who have received will be the first to put forward the application. The deadline for the first draw of the PPP loans is after 10 months from the day the loan was disbursed. For example, the below breakdown of the loan process will give you an idea about your loan’s deadline.
|Submitted PPP Application||PPP loan disbursement||Covered period (24 weeks)||Loan forgiveness Application due||Loan maturity|
Second draw PPP loans (initiated after June 5, 2020)
Loans that were disbursed after June 5, 2020, get a maturity date of 5 years. Like the first draw of the loans, these loans also require that the applications for loan forgiveness should be made in 10 months after the last day of the covered period. The following timeline will give you a better idea.
|Submitted PPP Application||PPP loan disbursement||Covered period (24 weeks)||Loan forgiveness Application due||Loan maturity|
Where to find the PPP loan forgiveness application form?
The SBA has released the application form on its website from where you can access it, else your lender may also have a digital copy of the form. You can take it from him too when you start the process of application.
On June 16, 2020, SBA released a shorter version of the form which is much easier. It is known as SBA form 3508EZ and can be applied by:
- Business owners who did not reduce the salaries and wages of their employees lesser than 25% and did not reduce the number of working hours of their employees
- Self-employed workers who don’t have any employees
- Business owners who experienced slower business activity due to coronavirus-related restrictions did not reduce the salaries and wages of their employees by more than 25%.
On October 8, 2020, an even easier and simpler version of the form was released by SBA only for the borrowers who received a PPP loan of $50,000 or less. It requires less paperwork and calculations than the previous forms.
How to fill out SBA form 3508
This 11-page form can feel lengthy and requires a lot of documentation and details, but the below guidelines can make your work easier.
The SBA form 3508 is divided into main four sections.
- The PPP loan Forgiveness Calculation Form
- PPP Schedule A
- The PPP Schedule A Worksheet
- PPP Borrower Demographic Information Form (optional)
The borrowers are supposed to submit the PPP loan forgiveness calculation form and PPP schedule A to their lenders for getting it approved.
Filling out the PPP loan forgiveness calculation form
Below are the steps that can be followed to fill the calculation form;
Step 1: Provide basic business and loan information
Filling this part of the form will require you following information that you should collect in order to fill the form:
- Your business’s legal name, DBA and trade name, personal social security number, or your business EIN
- Your SBA PPP loan number
- The total number of employees you had when you applied for the PPP loan
- Your business address, primary contact, phone number, and email address
- Your lender’s PPP loan number
- EIDL advance amount and application number
- The disbursement date of your PPP loan
Step 2: Confirm your payroll schedule
This section requires you to provide a payroll schedule where you will answer questions such as how frequently do you pay your employee? Was it weekly, biweekly, monthly, twice a month, or other.
Step 3: Determine your covered period
The covered period refers to the eight weeks or 56 days after you receive your PPP loan for spending on payroll and other eligible expenses. As you want to get your loan fully forgiven, you must spend all of the loan amounts during this period.
There is another option called “alternative payroll covered period” that you can utilize to better align your existing payroll schedule with the disbursement of your loan. In simpler terms for example, if you receive your loan on May 15, but your next payday isn’t until May 20, you can elect to begin your covered period from there. You can insert the dates of your covered period or alternative payroll covered period if it benefits you.
Step 4: Confirm whether your loan amount was above $2 million
If you need a loan that amounts to more than $2 million, you need to confirm and provide details for your business activity because the federal government plans to audit the loans that exceed the amount of $2 million to ensure that business that needs this amount as a loan really need it and the reason is coronavirus-related restrictions.
You need to check the box on the application to see if this condition applies to your case.
Step 5: Perform forgiveness amount calculations
The rest of the form will require you to enter calculations that will sum up your forgiveness amount. For that, you will use PPP Schedule A form as well as the Schedule A form worksheet which will help you to make these calculations. The application breaks down each amount line by line:
- Line 1: Payroll cost; this should equal the amount from PPP Schedule A, Line 10
- Line 2: Business mortgage interest payment
- Line 3: Business rent and lease payments
- Line 4: Business utility payments
- Line 5: Total salary you give to your employees/hourly wage reduction; this should equal the amount from PPP Schedule A Line 3
- Line 6: The sum of lines 1-4 without line 5
- Line 7: FTF reduction Quotient; this should equal the amount from PPP Schedule A line 13
- Line 8: Your modified total: multiply line 6 by line 7
- Line 9: Your PPP loan amount
- Line 10: Payroll amount cost 75% requirement: divide line 1 by 0.75
- Line 11: Your forgiveness amount: the smallest of lines 8, 9, and 10
Step 6: Certify your forgiveness request
Page 4 of the application requires you to initial and sign up for the certification that you used the loan amount on the required guidelines of expenses. You also have to certify that your payroll and the documentation are accurate and the SBA has the authority to require more supplementary information if necessary.
Filling out the PPP Schedule A and Schedule A worksheet
Although you are only required to submit the PPP Schedule A and PPP loan forgiveness calculation form to your lender, you can use the Schedule A worksheet, provided in the form, to make calculations. You also have the option to use an equivalent report from your payroll system and payroll processor.
Step 1: Complete Schedule A worksheet
Most of the Schedule A forms will refer you to use Schedule A worksheets for the calculation of payroll reports that give similar information. You can take help from the information given below to fill your Schedule A worksheet manually.
- Table 1: A list of employers who were hired by the borrower during the time of covered period or alternatively covered period and their residence is in the United States and received compensation of $100,000 from the borrower on annual basis for all periods of 2019 or not employed by the borrower in 2019.
- Table 2: A list of employers with the same credentials as mentioned in table 1 with the exception that they received the compensation of more than $100,000 for the pay period of 2019
- FTF Reducation Safe Harbor: You have to go through this five steps process to confirm that you are still eligible for the full PPP loan forgiveness. In case you have reduced your FTF employee levels in the period beginning from February 15, 2020, till April 26, 2020, and then restore the employee levels by no later than June 30, 2020.
Step 2: Complete Schedule A
You have to fill out the Schedule A form by using responses from the Schedule A worksheet where there is information about non-cash compensation payroll costs during your covered period, also, As the information on compensation paid to owner-employees, self-employed, or general partners.
If you have not reduced the number of employees or reduced the working hours of your employee from January 1, 2020, to the end of your covered period, you can skip lines 11 and 12 and simply enter 1.0 on line 13.
Submission of other documents for form 3508
When you are done filling the form and ready to submit it, you may need the following documents with the details along with the PPP loan forgiveness calculation form, PPP Schedule A:
In order to verify payroll expenses, SBA requires the borrowers to submit corroborating documents such as bank accounts or third-party payroll service reports, payment receipts, tax forms that overlap with the covered period, canceled checks or accounts statements that show the number of employer contributions to employee health insurance and retirement plans.
To verify the other forgivable but non-payroll costs, the borrower is required to submit supporting documents including business rent or lease payment, proof of payments of business mortgage interest payments, and business utility payments.
Full-time equivalent employees
SBA also wants to verify the number of full-time equivalent (FTE) employees. So the borrowers are required to submit documents that show the average number of FTE employees on payroll per month who were hired by the borrower:
- Between February 15, 2019-June 30, 2019
- The average number of employees between January 1, 2020-February 29, 2020
- Seasonal employer between February 15, 2019- June 30, 2019,
- Any consecutive 12-week period between May 1, 2019-September 15, 2019
Documents may also include payroll tax filings; typically form 941, and state quarterly business and individual employee wage reporting and unemployment insurance tax filings reported. They can also be reported to the relevant state.
Documents to maintain during the application process
After applying for loan forgiveness, there is an instruction from the SBA that you should keep the following documents with yourself for at least six years after your application is accepted and your loan is forgiven or repaid.
- The PPP Schedule A worksheet along with the documentation that confirms the list of each employee in Tables 1 and 2, documentation that shows the job offers and refusals by the employees, you firing some employee for any cause, and written requests by any employee for reductions in any work schedule and documentation supporting the “FTE Reduction Safe Harbor”.
- All records or borrower’s PPP loan, including the documents submitted at the time of application, documents necessary to support the borrower’s loan forgiveness application, documents supporting the borrower’s certification which are necessary for the loan request, and its eligibility for a PPP loan.
FAQs about PPP loan forgiveness
- When should I apply for loan forgiveness?
Ideally, once when you have spent all of the loan amounts in your business or after the ‘covered period’. Note that if a borrower is applying for the second draw loan forgiveness, which is more than $150,000, he must submit the application of first draw loan forgiveness before or simultaneously with the second draw loan application.
It is important to note that if you couldn’t make the application within 10 months, you are required to pay on the loan. The SBA mentions this situation as “if the borrower does not apply for the loan forgiveness within 10 months after the last date of the covered period of 24 weeks, or if the SBA determines that the loan is not eligible to be forgiveness, partially or whole, the PPP loan may no longer be deferred and the borrower must begin paying principal and interest. In this case, the lender must notify that the date for the first payment is due.
- Can I pay bonuses or increase salaries?
Yes, the SBA has allowed the borrowers whose compensation does not exceed $100,000 on an annual basis, the employee’s hazard pay and bonuses are eligible and he is allowed to do that. Because they constitute a supplement to wages and salaries and are thus a form of compensation.
- When must payroll be paid or incurred to be eligible for forgiveness?
The day paychecks are disbursed or the borrower originates and AHC credit transaction is the day when payroll costs are considered paid. These payroll costs can be forgiven if the borrower has extended them on or before the next regular payroll date or if the borrower wants them to be forgiven, they must be given during the covered period. For those employers who are not working but are still on the list of borrowers’ payroll, payroll costs are incurred based on the schedule established by the borrower.
- Can I get the Employee Retention Credit and PPP?
The Section 206 (c) of the Taxpayer Certainty and Disaster Tax Relief Act of 2020 mentions that the employer who is eligible for the employee retention card (ERC) can claim the ERC even in the situation where he has received a Small Business Interruption Loan under the paycheck protection program (PPP).
If the employer is eligible, he can claim the ERC on any qualified wages which are not counted as payroll costs that can be forgiven under the application.
- Will a borrower’s amount of loan forgiveness be reduced if the borrower has reduced the working hours of an employee, then offered to restore the reduction in hours, but the employee declined the offer?
No. when calculating the loan forgiveness amount, a borrower may exclude any reduction in full-time equivalent employee headcount whose attribution is with the employee if:
- The borrower made a good faith, written offer to restore the reduced hours of such employee
- The offer was rejected by such an employee
- The offer was for the same wages or salary, and the same number of hours as earned by such employees in the last pay period prior to the reduction in hours.
- The borrower has maintained records documents the offer and its rejection
- What if I work from home, or sublease part of my space? Can I still count that rent for forgiveness?
The amount of loan forgiveness request for non-payroll costs may not include such a facility where the business operation of a tenant or subtenant of the PPP borrower or home-based business and expenses are covered. SBA illustrates some examples, particularly about this situation.
Example 1: If the borrower has rented an office that amounts to $10,000 per month and sub-leased a portion of it to another person for $2,500 per month. The only forgivable amount on the loan will be $7,500
Example 2: If a borrower shares a space with another business, the borrower must prorate rent and utility payments in the same manner as on the borrower’s 2019’s tax filings when he determines the amount that is eligible for forgiveness.
Example 3: If a borrower works out of his/her home, he may include only the share of covered expenses that were deductible on the borrower’s 2019’s tax filing or if it is a new business, the borrower’s expected 2020 tax filing when he determines the amount of non-payroll costs that are eligible for loan forgiveness.
The federal government has initiated a coronavirus relief program to help those businesses which were potentially closed if not supported in the pandemic time. Around 12 million people have taken benefit of this great initiative that disbursed more than $950 billion from the year 2020.
Those who have spent 60% of the loan amount on the payroll costs in the covered period are considered eligible for applying for a loan forgiveness request that allows the borrower to let the amount be partially or fully forgiven. The borrower has simply had to fill the form provided on the SBA website with required documents and get it approved via the lender.
The program has been a great initiative by the government in these hard times that has proven to be a major relief for the citizens of the country.