How Do I Get My SBA PPP Loan Forgiven?
A look at the criteria and all you need to know.
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If you’re a business owner, you’ve probably done research on or already applied for the Paycheck Protection Program (known as the PPP loan). Perhaps, you’ve even started to use this financial aid to help you in this time of need and immense uncertainty. So, if you’re now asking, “How do I get my PPP loan forgiven?” we are here to share all the details on what you need to know, including forgiveness criteria and the documents you’ll be asked to provide to your lender.
For a quick refresher (if you need one of those), we’ve already shared a small business owner’s guide to financial aid during COVID-19 that goes into more details about the PPP.
Without further ado, let’s jump into the information you came here for.
Quick Review of Terms
First, here are the basics about the PPP loan you need to know so that the forgiveness rules will make sense.
- 100% of the loan may be forgiven (check requirements below)
- PPP funds are meant to be used for:
- Payroll (salary, vacation, wage, medical, sick leave and health benefits)
- Mortgage interest (for mortgages signed before February 15, 2020)
- Utilities (for services that began before February 15, 2020)
- Rent (for lease agreements made before February 15, 2020)
If you used the loan as it was intended (i.e. solely for the aforementioned needs), then you are eligible for loan forgiveness.
Loan Forgiveness Conditions
Here’s your easy-to-read guide to all of the forgiveness conditions.
1. Covered Period
The covered period includes the eight-week period that began on the date the loan was disbursed.
2. 75%/25% Payroll Rule
The SBA designated that at least 75% must be used for payroll costs. However, any payment made to an independent contractor cannot be considered part of the 75%. The amount that is forgiven will scale proportionally with the amount you used for payroll.
3. Payroll Retainment
You must maintain at least 75% of the total salary for your employees from 2019. This rule stands for every individual on payroll that received less than $100,000 in 2019. If at any point during the eight-week covered period, they received less than 75% of their annualized salary from 2019, then the eligible loan forgiveness amount will be reduced by the difference between their current pay and 75% of 2019 pay.
4. Staff Headcount
You have to retain the number of employees on your headcount. Here’s how you can assess if you’ve met the requirement:
- Determine your average full-time employees for:
- The eight-week covered period
- February 15, 2019-June 30, 2019
- January 1, 2020-February 29, 2020
- Take A and divide it by B. Take A and divide in by C. Take the larger number. If the number is larger than 1, you’ve met the requirement. If it’s a number smaller than 1, then your forgiven loan amount will be reduced proportionally to the change.
There is another exception within this rule, though. Say you laid off or furloughed employees during this period, but then you tried to rehire them. If they declined the offer (and you can prove it), then you have an exception to this rule.
You’ll have to be able to show that:
- You made a written offer in good faith to rehire
- You offered the same salary and hours of work
- You have documentation of the employee rejecting the offer
Additional exceptions include if:
- Your employee quit voluntarily
- They were fired for a cause
- They chose to reduce their hours voluntarily
5. Grace Period
Keeping these forgiveness rules in mind, the SBA extended a grace period for rehiring. If you decreased any pay by more than 25%, you can reinstate your staff and/or pay before June 30, 2020 and still be eligible for loan forgiveness. Even if your eight-week period is over before June 30, 2020, you still have until this date to reinstate employees. You’ll just need to apply for forgiveness after June 30, 2020.
What About Loan Forgiveness for Self-Employed Individuals?
For self-employed individuals, the PPP loan is meant to replace lost compensation due to effects of COVID-19. Your loan can be forgiven for eight week’s worth of your 2019 net profit. For mortgage interest, utilities or rent to be forgiven, you must show that they were claimed as a deduction in your Form 1040 Schedule C from 2019.
While it’s possible to have your loan forgiveness, the forgiveness amount is capped. To calculate eight weeks of net profit from 2019, take your net profit reported on your 2019 Form 1040 Schedule C and multiply it by 8/52. (On April 20, the SBA gave a final interim rule that the maximum amount is $15,385).
How to Apply for Loan Forgiveness
If you’ve met the forgiveness criteria (and exceptions to the rules), then you can apply for loan forgiveness. You will submit a SBA Form 3508 Paycheck Protection Program Loan Forgiveness Application, which consists of 4 parts:
- The PPP Loan Forgiveness Calculation Form (required to submit to lender)
- PPP Schedule A (required to submit to lender)
- PPP Schedule A Worksheet
- PPP Borrower Demographic Information Form (optional)
As required by law, your lender will have 60 days to provide you with an approval or denial on your loan forgiveness application.
The Documents You’ll Need
When you’re ready to apply, be sure to have these documents ready to submit (along with any additional paperwork that your lender may require):
- Payroll/Headcount documents
- Payroll reports
- Payroll tax filings (Form 941)
- Income, payroll and unemployment insurance filings
- Any documents verifying health insurance and retirement contributions
- Documents verifying rent, utilities and mortgage payments were active in February 2020
It’s more than likely that your lender will want these documents in digital format. It’s important to stay organized and maintain your bookkeeping accurately during these times.
Loan Forgiveness Denied? Try These Next Steps
If you’ve already applied for PPP loan forgiveness but you have been denied, try to ask your lender if there are any additional documents that you can provide to reassess your application.
If the answer is still no, then you’ll be repaying your loan. Keep in mind:
- You will accrue interest at a fixed 1.00% rate for the rest of the 2-year period
- You are able to pay off the outstanding balance early without facing prepayment penalties
Things to Remember
Before you go, here’s a few extra tidbits of information about the PPP loan.
- The forgivable PPP loan is tax-free; therefore, you cannot claim any expenses that have been forgiven under the PPP as tax deductions
- Utilities include: electricity, gas, telephone, internet, transportation, and water bills
- After the loan is fully repaid or forgiven, you have to keep your documents for at least 6 years thereafter
- You cannot use PPP loans to prepay mortgage
The Bottom Line
If you’ve been approved for a PPP loan, try to stick to the criteria so that your loan can be forgiven! These are undoubtedly hard times and the goal of this program is to help small businesses stay afloat.
That being said, the PPP loan is a solid option for small businesses that have medium-high payroll costs and low-medium overhead costs. However, for self-employed individuals, this equation is often flipped and so, the PPP may not be the best solution because of the forgiveness criteria (i.e. 75%/25% rule).
If your small business still needs additional capital and funding, check out Uplyft Capital’s funding programs. Whether you end up receiving funding straight from our platform or from a lender in the marketplace, our AI-based solution helps you and our team find the best funding partner for your business.