For many businesses, the eight-week window to apply for a PPP loan has passed. Now it's time to begin the process of having the loan forgiven – an increasingly tough task. Rule changes and other inconsistencies have left many business owners in the dark.
Cynthia Yamasaki of the Small Business Administration (SBA) Hawaii joined a recent Better Business Bureau Northwest + Pacific webinar to help clear up some of the confusion.
PPP Loan Forgiveness Process
Yamasaki highlighted the six-step process for meeting loan forgiveness requirements:
- All PPP funds have been used either in the designated 8- or 24-week period, depending on when the business received the loan.
- Read the instructions and gather payroll documents, non-payroll expenses, and employee information for the specified time period.
- Submit information on one of the following forms: 3508EZ, 3508, or lender's application equivalent.
- The lender has 60 days to review and submit to the SBA.
- SBA has 90 days to make one of the following determinations: fully forgiven, partially forgiven or not forgiven.
- The lender informs the business of its status. If the loan is determined to be partially or not forgiven, then the business will be issued either a two- or five-year loan at a 1% rate with a six-month delay. If the PPP funds were received before June 5, then a two-year loan is issued. Businesses that obtained funds after that date are issued a five-year loan.
Form 3508EZ or 3508
The application form 3508EZ requires less information than form 3508. There are, however, requirements for using it:
- Small businesses with zero employees, including self-employed individuals, independent contractors, and sole proprietors.
- Small businesses with employees whose salaries or hourly wages weren't reduced by more than 25%, and the number of employees or hours paid from January 1, 2020, until the end of the loan period was maintained.
- If the small business was unable to hire the same amount of employees, either because the employee refused to return or they were unable to find a qualified candidate for the position. The safe harbor exemption is in effect, and the company can file the 3508EZ form. Keep written records of job offerings and refusals to better provide verification.
- Small businesses unable to reopen due to government regulations or health concerns and didn't reduce salaries or hourly wages by more than 25% are eligible for the shorter form. Compile regulations requirements for verification when completing the application.
The most recent SBA requirements for forgiveness are 60% of funds used for payroll and 40% for non-payroll expenses. Pay includes salaries, wages, tips, commissions, paid leave, and benefits. However, there are restrictions for owners and wages over $100,000. Only the employer's portion of health care and retirement costs are included. For owners, it depends on the type of entity. If the business is a C corporation, then wages and benefits are included up to $100,000. Owners of an S corporation will have health coverage excluded from forgiveness.
Non-payroll business expenses include mortgage interest, rent, lease fees, and utilities. Utilities include water/sewer, electricity, telephone, internet, gas, and transportation used by the business.
Once you have gathered the information related to payroll and non-payroll expenses, you can start filling out the form. Make sure the businesses' legal name, loan number, and PPP loan amount matches the information submitted on the original application request. If you received Emergency Injury Disaster Loan (EIDL) funds, include them on the form. The initial amount received will be reduced from your PPP loan forgiveness.
If you need assistance compiling your data and filling out the application, SBA has a list of resources. The PPP forgiveness loan application started on August 10, but many lenders are already waiting to hear if additional changes will be made to the requirements before accepting any forms. The business has ten months from the covered period to file, so now is the time to start pulling your documents.
For More PPP Loan Forgiveness Application Resources
- Loan Forgiveness Application Form EZ Instructions
- Loan Forgiveness Application Form EZ
- Loan Forgiveness Application Form Instructions (revised 6/16/2020)
- Loan Forgiveness Application Form (revised 6/16/2020)