According to the Small Business Administration, approximately 5 million businesses borrowed a total of $525 billion through the Paycheck Protection Program (PPP) between April 3, 2020, when the program launched, and August 8, 2020, when the approval window closed.
All PPP loans have the potential to be 100% forgiven but frequent adjustments to the program like those introduced by the PPP Flexibility Act dated May 26, 2020 and the PPP Interim Final Rules issued by the SBA on October 8, 2020 have caused some confusion about the process.
The following list of Frequently Asked Questions (FAQ) will address common questions about forgiveness applications, eligibility criteria, and deadlines that could lead to a reduction in the level of forgiveness.
Which of my business expenses are eligible for PPP loan forgiveness?
- Payroll: Depending on the elected length of your “Covered Period” (period during which eligible expenses can be covered by the PPP beginning on the date of loan disbursement), a minimum of 75% for an 8 week covered period or 60% for a 24 week covered period of your loan must be used for payroll expenses. Eligible payroll expenses include:
- Salary or hourly wages.
- Employer retirement plan contributions.
- Tips, bonuses and commissions.
- Insurance premiums paid for group health plan.
- Employee vacation or leave (family, medical or sick).
- Rent: For business leases in place prior to 2/15/20 (even if a lease renewal occurs after 2/15/20).
- Utility bills: For services in place prior to 2/15/20.
- Mortgage interest: For mortgages closed before 2/15/20.
How long do I have to use the funds I received through the PPP program?
- PPP loans with loan numbers assigned on or before June 5, 2020 were originally assigned an 8-week covered period. The passing of the PPP Flexibility Act, however, offers the option to extend your covered period to 24 weeks.
- PPP loans with loan numbers assigned after June 5, 2020 also have the option of an 8-week covered period or a 24-week covered period.
- Note that all covered periods expire on December 31, 2020 even if 24 weeks have not yet passed since initial loan disbursement.
What is the difference between the three PPP loan application forms: 3508S, 3508EZ, and 3508?
- Form 3508S is used to apply for forgiveness of PPP loans equal to or less than $50,000. If, however, your business is affiliated with other businesses who received PPP loans which, in addition to yours, total more than $2 million, you must apply with the 3508EZ or 3508.
- Form 3508EZ is used to apply for forgiveness of PPP loans greater than $50,000 when also meeting at least one of the following criteria:
- You did not reduce the number of any FTE (full time equivalent) employees and also did not reduce the salaries of any employees earning less than $100,000 per year by more than 25%.
- You did not reduce the salaries of any employees earning less than $100,000 per year by more than 25% and you were unable to operate at the same level as you were operating on 2/15/20 due to COVID-19 safety restrictions.
- You had no employees at the time of PPP loan application and operate as an independent contractor, a self-employed individual, or a sole proprietor.
- Form 3508: If you borrowed more than $50,000 and do not qualify for the 3508EZ form using the criteria above, you are required to apply for loan forgiveness by submitting the longer version, form 3508.
What additional documentation will I need to include with my PPP loan forgiveness application?
- Payroll expenses: Documentation that provides verification of compensation and benefits paid for the covered period. Examples include:
- Bank account statements or payroll service provider reports.
- State and federal tax forms or equivalent payroll service provider reports.
- Number of employees: Documentation that verifies the number of FTE (full time equivalent) employees on your payroll between 2/15/19 and 6/30/19 and the number of FTE employees on your payroll between 1/1/20 and 2/29/20. Examples include:
- Payroll tax filings (IRS form 941).
- Unemployment insurance tax filings.
- State quarterly business employee reporting.
- Other eligible expenses: Documentation verifying that each expense obligation (utility service, business lease, or mortgage interest) was in place before 2/15/20as well as documentation that verifies the payments made during the covered period. Examples for specific expenses include:
- Utility Services: Copies of invoices paid in February 2020 and during the months of the covered period as well as receipts or cancelled checks for the applicable payments.
- Mortgage Interest Payments: Lender account statements from February 2020 and the months of the covered period or receipts or cancelled checks for mortgage payments plus a copy of your lender’s amortization schedule.
- Rent Payments: Currentlease agreement plus receipts or cancelled checks for rent payments from February 2020 as well as the months of your covered period.
Is there a deadline to apply for forgiveness of my PPP loan?
- Ultimately, borrowers can apply for forgiveness until the loan matures which is either two or five years after the date the SBA loan number was issued. Those issued on or before June 5 have a two-year maturity while those issued after June 5 have a maturity of at least 5 years.
- To avoid having to make any loan payments, however, borrowers must apply for forgiveness during the period that extends 10 months out from the day your funding expires. If your forgiveness application is not received within 10 months of the last day of your covered period, you will be required to begin making loan payments to your lender at that time. These loan payments can be reimbursed upon approval of your forgiveness application.
- Note that the date in the upper right corner of the SBA forgiveness application forms (3508, 3508S, 3508EZ) is for administrative purposes only and is not related to the expiration date of your specific loan.
Strobl Sharp is a team of experienced and trusted lawyers that can advise on all legal matters relating to the Paycheck Protection Program loan forgiveness eligibility and application process. For more information, visit Strobl Sharp online at www.stroblandsharp.com or on LinkedIn.