Important Rules to Know About PPP Loan Forgiveness
The answer should be simple, but it really depends on many factors. But let’s keep it simple. First, you need to make sure you follow the rules for using the PPP loan funds:
- A minimum 60% of PPP funds must be used on payroll to W-2 employees
- A maximum 40% of PPP funds can be uses for utilities, rent (or mortgage interest), some operations expenditures, non-covered property damage losses (resulting from public disturbances), worker protection expenses, and necessary supplier costs.
Simply put, if you don’t use at least 60 percent of your PPP funds exclusively on payroll costs, you may be on the hook to pay a portion of the PPP loan back. Having to pay it back may not break the bank at 1% over 5 years, but let’s face it – the reason you applied for the PPP loan in the first place was so you wouldn’t have to pay it back.
The PPP Loan Forgiveness Process
Next, you need to make sure you choose the correct covered period and use all of the funds within that covered period. The covered period is the 8 to 24 week period that starts the day PPP funds are disbursed into your account. From that day until the end of your covered period, you need to spend all the PPP funds correctly (60/40 as described).
Many of our clients are sole proprietors, and it is a good idea for all sole proprietors to choose the 24-week covered period when applying for forgiveness. By doing so, sole proprietors have ample time to spend all of the money. Larger businesses can also choose the full 24 weeks or they can choose a shorter covered period, as in many cases these businesses have spent the funds well before the 24-week covered period ends.
It’s important to know that you don’t have to wait until the end of your covered period to apply for forgiveness, thanks to the PPP Flexibility Act. However, if you do apply early for PPP forgiveness, you are still bound to spend all the funds within the covered period.
You also need to maintain documentation for these eligible expenses, because you may be asked to provide the documentation to the lender and/or the SBA. For PPP loans under $150,000, you are not required to provide documentation to apply for forgiveness, but the documentation can be requested if they need it or want it. For loans more than $150,000, you must submit all required documentation along with your forgiveness application.
Forgiveness Approval
Once your PPP Loan forgiveness application is submitted to your lender, the lender has up to 60 days to review it and submit it to the SBA. Once the SBA reviews and approves the application, they have 90 days to review and submit payment to your lender.
If you use the PPP funds and submit the forgiveness application and documentation correctly, you will likely be 100 percent forgiven. Those are the basics of PPP forgiveness.
Every business is different, so there are many variable and your time is valuable. Let our team of PPP loan forgiveness experts handle your PPP forgiveness application so you can focus on your business. You won’t be disappointed!