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.
First, here are the basics about the PPP loan you need to know so that the forgiveness rules will make sense.
If you used the loan as it was intended (i.e. solely for the aforementioned needs), then you are eligible for loan forgiveness.
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:
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:
Additional exceptions include if:
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.
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).
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:
As required by law, your lender will have 60 days to provide you with an approval or denial on your loan forgiveness application.
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):
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.
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:
Before you go, here’s a few extra tidbits of information about the PPP loan.
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.
Applying for a SBA business loan is a lengthy and timely process. Only small businesses that are eligible for the SBA programs should apply.