As the landscape surrounding PPP loan forgiveness continues to develop, it’s important to remain updated on how the approved changes and pending legislation can affect you as a recipient of PPP funds.
Our last update covered what loan recipients should do while lenders and the SBA waited to process forgiveness applications. Additional guidance has now been issued, prompting many lenders to move forward with processing applications and passing them along to the SBA for review.
The following is a brief summary of how the program looks as of this writing and what you should do while you apply for PPP loan forgiveness.
PPP Loan Forgiveness Form 3508S
On Oct. 8th, the SBA and Treasury approved the use of Form 3508S for those applying for forgiveness for PPP loans of $50,000 or less. The simplified form streamlines the application process for both applicants and lenders while providing exemptions from reductions in loan forgiveness due to a) reductions in full-time employees and b) reductions in employee salaries and wages.
The form also removes the requirement that loan recipients complete salary calculations, though they will still be required to provide documentation for how the funds were used to cover payroll and non payroll expenses.
For lenders, guidance on the new simplified forgiveness application eases some concerns regarding lender responsibility in processing applications and collecting appropriate documentation. As a result, many lenders began processing forgiveness applications on Oct. 9th.
Pending PPP Legislation
The House, Senate, and Treasury are currently in talks to approve an additional round of PPP loans for small businesses that are struggling amidst the continued pandemic. As of Oct. 21st, a bipartisan deal had yet to be secured, with representatives for Senate Majority Leader Mitch McConnell and House Speaker Nancy Pelosi expressing their mutual desire to reach an agreement by Friday, Oct. 23rd.
Basic Facts to Keep in Mind
While much about the PPP loan forgiveness process has yet to be ironed out in practice, there are many concrete facts to keep in mind when planning to finish out the year and move into 2021.
The SBA has advised that loan payments will be deferred while borrowers wait to hear back from lenders regarding the status and amount of loan forgiveness. As long as you’ve adhered to the rules of the Paycheck Protection Program and maintained documentation, it’s likely that your forgiveness application will be approved.
However, it doesn’t hurt to create a plan that includes loan repayments in your future business operations. When planning, keep in mind that loan maturity dates depend on when you received funds. Loans issued prior to Jun. 5th, 2020 have a maturity date of 2 years, while loans issued after Jun. 5th mature after 5 years. Regardless of when a loan was issued, an interest rate of 1% applies to any funds received that are not eligible for forgiveness.
Next Steps in the PPP Loan Forgiveness Process
It’s a good idea to keep in touch with your lender and find out how they plan to accept and process forgiveness applications. In the meantime, continue to maintain documentation regarding payroll expenses and other approved expenses like rent and utilities. The more familiar you are with how you used your PPP loan, the easier the forgiveness process will be for both you and your lender.
Strategizing when you apply for forgiveness might also serve you and your business well. As of right now, the IRS will not allow deductions on PPP expenses that have been forgiven by the SBA. That means, that if you wait to apply for forgiveness until after the first of the year, you can legally deduct qualifying PPP loan expenses. The SBA stated in their PPP loan forgiveness FAQs that borrowers can submit an application for forgiveness any time before the maturity date of the loan. Borrowers will, however, be responsible for making payments within 10 months after the covered period. The SBA offers this example: “a borrower whose covered period ends on October 30, 2020 has until August 30, 2021 to apply for forgiveness before loan repayment begins.” While legislation regarding deductions on PPP loan expenses is still pending, strategizing when you apply for forgiveness is a valid option moving forward.
To help you along in the journey to PPP loan forgiveness, you can download forms, read application instructions, and explore documents on our Resources page or by going directly to the SBA site. You can also reach out to us directly any time.