A Guide To Applying For PPP Loan Forgiveness

WASHINGTON, DC - Flanked by Vice President Kamala Harris (L) and SBA Administrator Isabella ... Casillas Guzman (R), President Joe Biden, signs the Paycheck Protection Program (PPP) extension in the Oval Office of the White House on March 30, 2021. The extension extends the deadline for Paycheck Protection Program loans from March 31 to May 31. (Photo by Doug Mills-Pool / Getty Images)

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With the second round of the Paycheck Protection Program (PPP) ending on May 31, borrowers from small businesses who have already secured funding and spent their loan proceeds on covered expenses will soon be applying for lending.

After all, the beauty of the PPP is that it is designed to keep Americans working by keeping their companies paying their salaries. The program reimburses struggling small businesses - ultimately allowing them to survive - by allowing them to apply for the PPP loans they use to keep their employees on payroll, as well as certain other expenses.

Before applying, it is important to know the terms and conditions of forgiveness for both PPP Draw 1 and PPP Draw 2 loans.

First, draw the terms of the PPP loan forgiveness

First Draw PPP Loans are issued to Eligible Borrowers who are eligible for Full Loan if they have done the following within the 8 to 24 week period of the PPP Loan Disbursement:

· Maintaining the level of staff and compensation for employees

· Spent the loan proceeds on wages and salaries and other eligible expenses; and

· At least 60% of the loan used to cover labor costs

Second Draw PPP Loan Forgiveness Terms

Similarly, Second Draw PPP are eligible borrowers who will qualify for full lending if, during the 8 to 24 week period following the PPP loan disbursement, they have:

· Maintaining employee and compensation levels in the same way as required for the First Draw PPP loan

· Spent the loan proceeds on wages and salaries and other eligible expenses; and

· At least 60% of the loan used to cover labor costs

How and when to apply for a loan

Small business borrowers can seek forgiveness once all of the money on the loan for which the borrower is seeking forgiveness has been spent. Borrowers can apply for forgiveness at any time up to the loan maturity date.

If borrowers fail to apply for forgiveness within 10 months of the last day of the covered period, PPP loan payments will cease and borrowers will begin repaying the loan to their PPP lender.

Small business owners or their CPAs / accountants can apply for credit through AICPA's free online platform PPPForgivenessTool.com.

Frequently asked Questions:

What does the payroll include?

The payroll includes salaries, wages or similar allowances. Payment of cash, tip or equivalent; Payment for vacation or parental, family, doctor or sick leave; Severance pay due to dismissal or separation; Payments for employee benefits, including health insurance premiums; Payment of retirement benefits; and state or local taxes levied on workers' compensation.

PPP reimbursement covers salaries with a cap of $ 100,000. All employees, regardless of their salary over 100,000, can be considered in the allocation of PPP loans. However, anything above the $ 100,000 threshold is not covered. For example, if an employee's total compensation is $ 125,000, PPP will cover $ 100,000 of that person's compensation and the remaining $ 25,000 will not be covered by the program.

Part-time employees are counted towards the total wage bill for PPP calculations. To calculate the amount of compensation for part-time workers, take the average number of hours worked multiplied by the employee's hourly rate. It is important to note, however, that contractors and other 1099 workers do not count towards a company's payroll. The reason for this is that 1099 employees and other self-employed entrepreneurs can apply for PPP independently.

What Types of Businesses Are Eligible for PPP Loans?

· Self-employed, independent contractors and sole proprietorships.

· Small businesses with 500 or fewer employees.

· Non-Profit - 501 (c) (3) and 501 (c) (19) with 500 or fewer employees

· Location based franchise

For more information about Small Business Administration size requirements, see SBA Table Size Standards.

A breakdown of the forms required for PPP award depends on the type of business.

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What Kind of Documentation Do Small Businesses Need to Apply for PPP Loans?

The documentation required to apply for PPP loan issuance may vary depending on the type of business. Loan applicants should be able to provide documentation for any accounting period that overlaps the covered term of the PPP loan. These documents include:

· Bank statements or reports from third party payroll service providers document the amount of cash compensation paid to employees.

· Tax forms (or equivalent reports from third party payroll service providers) for the periods that overlap the period covered.

· Income tax returns filed or reported to the IRS (usually Form 941).

· State quarterly wage reports for companies and individual employees, as well as unemployment insurance tax returns, which are or will be reported to the state concerned.

· Payment receipts, canceled checks, or bank statements document the amount of all employer contributions to health insurance and retirement provision that the borrower has included in the award amount.

Non-billing costs covered by PPP include:

· Interest payments on commercial mortgages. (Provide a copy of the lender's amortization schedule and receipts for verification of payments or lender bank statements.)

· Business rent or lease payments. (Provide a copy of the current rental agreement and receipts or canceled checks that are used to verify eligible payments.)

Incidental costs (provide copies of invoices and receipts, canceled checks or bank statements.)

· Business expenses related to business software or cloud computing services

· Property damage costs related to vandalism or looting

· Payments to a supplier of goods

Expenditure on worker protection (masks, disinfectants, etc.)

The items covered have expanded from the first iteration of PPP forgiveness, which mainly focused on salary costs and rent, to items such as PPE, software, and supplier costs. Once the documentation is created, the small business owner is ready to submit the loan application to the lender. When the SBA does a review of your PPP loan application, your lender will notify you of the review and ultimately the SBA's review decision.

Entrepreneurs whose PPP award requests are denied have the right to appeal certain SBA loan review decisions. Your lender is responsible for informing you of the lending amount paid by SBA and, if applicable, the date your first payment will be due.

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