Forgiveness application available for smaller PPP loans

A simpler forgiveness application for Paycheck Protection Program loans of $50,000 or less has been issued by the Small Business Administration (SBA).

The prior version of the application had more complex documentation requirements and required several calculations that have now been removed.

Instead of the calculations, the new form asks borrowers to confirm that the loan was used for eligible expenses and to provide supporting documentation to prove that these expenses were paid.

The borrower must also certify on the application that the forgiveness amount falls within the SBA guidelines. Be aware that your forgiveness request could be audited by the SBA, and all business owners who have taken a PPP loan should keep their PPP records for six years.

For PPP loan borrowers, the original loan amounts were provided based on 2.5 months of the 2019 payroll for the business. However, since then, the period for when the funds could be used was changed from 8 weeks to 24 weeks. Given the extended length of time businesses had to spend the money, many small businesses that continued to operate or have reopened will find that their entire loan should be forgiven solely based on paying payroll costs.

Up to 40 percent of a business’ PPP loan can also be used on other qualifying expenses, such as business mortgage payments, rent and utilities.

Based on the simplified requirements, a small business that used the full amount of its PPP loan proceeds to pay themselves (as the owner) or their employees can submit bank statements or cancelled checks as documentation of payments. A business owner may also include Quarterly Tax Form 941, but that is not required.

The amount of a business owner’s own payroll compensation that will be forgiven may not exceed $20,833. If the business owner also received an Economic Injury Disaster Loan advance, the amount of that advance will be subtracted from this threshold to determine the cap for PPP loan forgiveness purposes.

It is important to be aware that the payroll costs eligible for forgiveness are based on gross pay. But a typical paycheck amount has already had FICA taxes, as well as state and federal tax withholding amounts, subtracted from it. In collecting the required documentation, remember that the eligible amount to be forgiven should also include the withheld amounts.

Also, certain small businesses with a loan amount of $50,000 or less may not use the new simpler forgiveness application. That includes businesses that have reduced pay rates for workers by more than 25 percent or that now have fewer full-time employees than they did before the pandemic. Those businesses must use the standard PPP loan-forgiveness application, and the payroll costs that qualify for forgiveness will be reduced based on the decrease in the number of full-time employees and any reductions in pay rate.

For small businesses with a PPP loan amount that exceeds $50,000, the SBA has provided a PPP EZ Application.

For small businesses that have a PPP loan greater than $50,000 but less than $150,000, there might be a simplified loan forgiveness application coming. A bill pending in Congress at press time would create this option. However, it is unclear whether the measure will be enacted on its own or as part of a future stimulus measure.

In order to request PPP loan forgiveness, a business must submit its application to the bank or lender that originated the loan. The bank has 60 days to issue a decision. If the forgiveness application is approved, the bank will then submit the loan to the SBA.

The SBA has 90 days to review and approve the forgiveness application. Following approval, the SBA will pay off the PPP loan by issuing payment to the bank or lender.

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