Since the Paycheck Protection Program (PPP) was launched, forgiveness has been a hot topic. The funds received by small businesses can be fully forgiven if used in a way approved by the Small Business Administration (SBA).*
If you’ve secured a first or applied for a second SBA Paycheck Protection Program loan in 2021, it’s important to calculate your payroll costs and determine how you will use the funds to keep your business stable.
However, that’s not the end of your required documentation if seeking loan forgiveness. There are important steps to take to help you accurately complete the SBA’s Loan Forgiveness Application form. Here’s a breakdown of the forgiveness process so you can get a clear picture of your loan forgiveness obligations and make a list of specific questions.
What does PPP “forgiveness” mean?
The amount of loan forgiveness can be up to the full principal amount of the PPP loan and any accrued interest. Forgiveness means no repayment is required. At least 60% of the PPP loan proceeds must be used for payroll costs. Payroll costs that are qualified wages taken into account in determining the Employee Retention Tax Credit are not eligible for loan forgiveness.
What are PPP loan terms if not forgiven
If not forgiven, pay attention to these repayment terms:
- PPP loans have an interest rate of 1%.
- Loans issued prior to June 5, 2020, have a maturity of two years. Loans issued after June 5, 2020, have a maturity of five years.
- Loan payments will be deferred for borrowers who apply for loan forgiveness until SBA remits the borrower's loan forgiveness amount to the lender. If a borrower does not apply for loan forgiveness, payments are deferred 10 months after the end of the covered period for the borrower’s loan forgiveness (between 8 and 24 weeks).
- No collateral or personal guarantees are required.
- Neither the government nor lenders will charge small businesses any fees.
Who is eligible for PPP loan forgiveness?
If you received an SBA PPP loan during the two rounds of funding, you may be eligible if certain criteria is met. In order to be forgiven, at least 60% of the loan amount needs to be used for payroll purposes. If less than 60% of your loan is used for payroll, you can still be eligible for forgiveness, with the amount you used correlating directly to forgiveness.
How has the forgiveness guidelines changed?
The PPP2 Act and 2021 Appropriations Act included several changes to the forgiveness documents and process, which affected existing forms and processes. The most important of these changes were the tax deductibility of expenses, an easier forgiveness process, the expansion of eligible costs, and the borrower’s ability to select the covered period for the eligible use of funds.
Loan Forgiveness Covered Period
The “Loan Forgiveness Covered Period” begins on the date the lender disburses the PPP loan and ends on any date selected by the borrower that occurs during the period beginning on the date that is 8 weeks after the date of disbursement and ending on the date that is 24 weeks after the date of disbursement. This is the period after funding when it is expected that the business will use its PPP funds.
Covered period options are:
- 8-week minimum: The shortest covered period available is 8-weeks. Your covered period may not be less than an 8-week period.
- 24-week maximum: The longest covered period available is 24-weeks. Your covered period cannot extend beyond 24-weeks.
- Anywhere in between: You have the option to choose a covered period for any time frame between 8 and 24 weeks (e.g., 12 weeks, 20 weeks, etc.)
How to apply for PPP loan forgiveness
You must go to your lender or bank that funded your PPP loan to apply for forgiveness. They’ll have you complete the SBA’s Loan Forgiveness Application form, Form 3508, or their equivalent form. You might be able to use Form 3508EZ or Form 3508S if you meet the eligibility guidelines. The U.S. Treasury Department has additional information here: Paycheck Protection Program Loan Forgiveness Fact Sheet.
After completing the form and attaching any necessary documents, submit it to your lender.
PPP loan forgiveness through SmartBiz
If you were funded for your PPP loan through the SmartBiz Loans bank network, SmartBiz or your lender will send you an email notification when the Forgiveness application is available so you can submit the required information; it is not yet ready. As mentioned earlier, depending on the forgiveness period you select, your forgiveness application may not be due until approximately 5 months after your loan is funded.
Need to apply for a 1st or 2nd PPP loan?
The SmartBiz team is here to help. We’re currently helping thousands of PPP loan applicants through our streamlined application process.**
The new round of the Paycheck Protection Program, administered by the SBA, makes continued financial support available to help eligible gig workers, self-employed, and small businesses access the funds they need to continue working safely during the COVID-19 pandemic.
For information about filling out the SmartBiz Loans PPP application, watch our short step-by-step video here:
To learn more about the program, visit the SmartBiz Loans website here: SBA PAYCHECK PROTECTION PROGRAM LOANS
Ready to apply? Start an application here today: APPLY FOR PPP FUNDING
*What you need to know: The availability of PPP loan forgiveness remains subject to SBA guidance. The availability of PPP loans remains subject to SBA guidance and other factors, including the amount of funding available to banks and the quantity of eligible applicants considered on a first-come, first-served basis. The information provided above is for educational purposes only. Please consult the SBA’s website for actual rules and the most current guidance.