Don’t forget to Apply for PPP 1st Draw Loan Forgiveness

May 18, 2021

Editor-in-Chief: Dawntey Jensen (“DJ”)

The pandemic has been horrific for many small business owners. Whether a Borrower is a restaurant owner, mom and pop store owner, or an independent contractor, you were probably affected by the closing down of businesses and many months of low (if any) revenues.  However, the PPP (Paycheck Protection Program) was a life preserver given to many small businesses who experienced various challenges (financial, health related, and/or emotional).  For those who were able to apply for the first round of PPP and successfully receive funds it is now time to apply for loan forgiveness. In this article we will discuss what you, the Borrower, need to do to file for PPP loan forgiveness. 

Step 1:  Gather paperwork and/or sources of information

Borrowers of PPP can apply for loan forgiveness within 10 months after the ending of the “covered period” (this period begins when the Lender releases fund to you and ends either 8 or 24 weeks thereafter).  The PPP funds covered period depends on your initial PPP application.  Once you are given notification by your Lender (and the portal where you can login) you are able to commence the application process to have the loan forgiven.  However, only certain costs, expenses, and circumstances are eligible for 100% loan forgiveness.

• Eligible Costs: 
  • Payroll costs (includes salary, wages, commissions, and/or tips) are eligible
    • Payroll costs must be a minimum of 60% of the PPP amount, in order to qualify for loan forgiveness
  • Non-cash payments (includes employer paid benefits, such as health insurance as well as paid state/local taxes) are also eligible.
• Eligible Expenses (if incurred prior to February 15, 2020): 
  • Mortgage Interest of business property only (can’t include mortgage interest on personal property)
  • Business rent or lease payments
  • Utility bills (including electricity, gas, water, transportation, internet access, and telephone)
  • Miscellaneous can include operational expenses, such as, damage costs, cost of PPE (personal protective equipment)
• Full Time Employees:
  • If the number of full-time employees has been reduced (for instance, when Borrower applied there were 25 full-time employees and now when applying for forgiveness there are only 10 full-time employees).  This could result in the loan amount being reduced from 100% forgiven to only 40% forgiven (effectively reducing the forgiven amount by 60%).
    • An FTE Exception can apply if the Borrower can prove (with documentation) that an attempt was made to rehire employees who were let go but the employee(s) refused the job.

Step 2:  Borrower completes application via Lender’s portal

Your lender must make available a process for borrowers to submit the SBA’s PPP Loan Forgiveness application.  Usually, the lender sends the borrower a link to their online portal. Keep in mind the questions asked will gauge whether the Borrower qualify for full forgiveness, partial forgiveness, or no forgiveness at all.

Borrower will be required to answer all applicable questions and provide any necessary documentation. Depending on your loan amount (under $50,000) the Borrower may be able to complete a shortened application which requires less documentation and fewer questions to answer.  Upon completion of the application the Borrower submits the application for review by the Lender.

Step 3:  Lender’s Review of PPP Loan Forgiveness Application

The Lender has up to 2 months to review the PPP Loan Forgiveness Application.  The Lender is looking at the Borrower’s calculations, submitted documents, as well as verifying receipt of the certifications (included in the PPP Loan Forgiveness Application).

Once Lender’s review is complete the Lender will submit the Borrower’s application, along with their decision, to the SBA.

Step 4:  SBA’s Review of PPP Loan Forgiveness Application

The SBA has up to 3 months to review the application.   Upon completion the SBA notifies the Lender of their decision. The SBA can decide to forgive the entire loan, forgive a portion of the loan plus accrued interest on the portion not forgiven, or the SBA can require the entire loan to NOT be forgiven and charge accrued interest on the entire loan amount.

Exceptions to the rule

As always, there are exceptions that can prevent Borrower from paying the loan back, whether in part or in its entirety.  If a Borrower meet certain conditions, she/he can still qualify for loan forgiveness despite costs, expenses, and/or FTE status affecting normal qualifications.

• Safe Harbors:
  • Business Activity and FTE reductions can reduce PPP loan forgiveness unless the Borrower can verify that the cover period for the loan fell within a time when the Borrower’s business was forced to close (such as due to state requirement or protests).
  • Borrowers with PPP loans under $50,000 are exempt from salary and FTE reductions
• Recommendations:
  • Have documentation of all things related to the PPP application and the PPP loan forgiveness. Money paid to employees (salary, wage, tips, benefits, etc.), rehire offers to former employees, business related expenses (mortgage, rent/lease, utilities, internet access, etc.), and, lastly, if you received PPP money, at the very least, do apply for PPP loan forgiveness.
  • Apply for loan forgiveness as soon as possible. The absolute maximum date to apply is 10 months after your cover period. Your lender has up to 60 days to process your application and the SBA has up to 90 days.

In summary, the PPP loan program came as a lifeline for many small businesses who saw massive reduction in revenues.  Although, many communities are starting to rebound and have re-opened, there remains many small businesses that continue to struggle and seek to strive toward a more stable income stream. In my opinion, and as a small business owner, I believe applying for PPP Loan forgiveness is absolutely necessary for every small business.

For more detailed information on the PPP 1^st Draw Loan Forgiveness process please visit https://www.sba.gov/

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