PPP Loan Forgiveness Application Deadlines Are Looming

If you were one of the nearly 12 million employers who benefitted from a PPP loan during the height of economic uncertainty brought on by the COVID-19 pandemic, there is a very important upcoming deadline you will want to keep on your radar. If you haven’t already done so, you should be preparing to apply for PPP loan forgiveness for the 1^st draw PPP loan that you received in 2020. It is important to start the process prior to the actual deadline so that you can plan for any unanticipated repayment requirements in case you determine some or all of your loan is not eligible for forgiveness.

When Are Loan Forgiveness Applications Due?

The deadline for loan forgiveness applications is based on when you originally applied for a loan and when it was funded. This determines the maturity date as well as the “covered period,” which is anywhere from eight to 24 weeks from the date of initial loan disbursement.

First Draw PPP Loans (Loans made prior to June 5, 2020)

Typically, any loans made under the First Draw portion of the PPP have a maturity date of two (2) years. These loans also will have the earliest deadline for submitting forgiveness applications and depending on when a loan was funded, that deadline may have already passed. The deadline for your PPP loan forgiveness application is ten (10) months after the last day of your “covered period.” Below is an example of what that timeline might look like:

Second Draw PPP Loans (Loans made after June 5, 2020)

Loans made under the Second Draw of the PPP generally will have a five (5) year maturity date. These loans also require that applications for forgiveness be submitted no later than ten (10) months after the last day of the “covered period.” Below is an example of what the timeline would like like for a loan under the Second Draw:

What Expenses and Amounts Are Eligible for Forgiveness?

In order for your loan to be forgiven, you must have maintained your FTE counts and employee compensation levels (an employee’s compensation may not be reduced by more than 25% during the covered period). If your loan was for less than $50,000, then you do not need to worry about FTE and compensation amounts, but you do still need to ensure the funds were utilized for qualified expenses. There is an exception for reduced employee headcount if it was based on health/safety requirements and there are also exemptions for employees who are eligible for rehire, but have refused to return to work. Finally, any employees who quit voluntarily are not counted when calculating the difference in FTE count that occurred during the covered period.

Qualified expenses are a 60/40 split, whereby at least 60% of the PPP loan funds must be spent on qualified payroll expenses and the remaining amount (up to 40%) for other permitted business expenses – also referred to as “nonpayroll” expenses. Here is a brief overview of what are considered to be qualified costs in each category:

Qualified Payroll Expenses

• Employer Portions of Benefit Expenses Paid Toward Health and Retirement
• State and Local Payroll Taxes
• Employee Compensation (cash payments to employees capped at $100,000 annually per employee – prorate for the covered period)
  • The maximum amount of PPP funds that can be used to compensate any individual, regular (non-owner) employee during a 24-week covered period is $46,153.85
  • The maximum amount of PPP funds that can be used to pay any employee on payroll who is a 2% or greater owner of the company, during a 24 week covered period, is $20,833.33

Qualified “Nonpayroll” Expenses

• Business Rent / Lease Payments or Business Mortgage Interest Payments (for contracts signed prior to February 15, 2020)
• Utilities (commenced prior to February 15, 2020)
• Essential Business Supplies
• Qualified Operating Expenses (software, payroll processing, delivery and inventory tracking)
• Some Property Damage (not covered by insurance)
• COVID-19 Related Expenses to Protect Employees and Customers

Beware of “Double Dipping” on Payroll Expenses

If you have taken advantage of any other COVID-19 employer relief programs (i.e. Employee Retention Tax Credits and emergency paid employee sick or family medical leave under the FFCRA), you need to be mindful in calculating your PPP loan forgiveness. In order to prevent “Double Dipping” from multiple COVID relief programs, employers are not permitted to count payroll expenses for which they received the Employee Retention Tax Credit and/or reimbursement of paid sick leave for eligible employee time off due to COVID-19.

There is an exception if your loan forgiveness application is rejected, then it is not considered “Douple Dipping” if you then claim any permitted tax credits.

How Do I Submit My Forgiveness Application?

If your PPP loan was for $150,000 or less AND your financial institution has opted in (click here to view the list of lenders), you can apply for forgiveness directly through the Small Business Association (SBA). They have created the Direct Forgiveness Portal, which can be accessed here: https://directforgiveness.sba.gov/requests/borrower/login/?next=/

For all other loans you will need to follow the process and complete the forms utilized by the bank from which you obtained your PPP Loan. Typically, your financial institution will utilize SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or their own equivalent form.

In Case of an Audit, Keep Copies of Your Backup Documentation 

While some of the loan forgiveness forms may not require backup documentation to show how you calculated forgiveness amounts, you will want to ensure that you have gathered this information and that you have it readily available. The SBA has the right to conduct loan reviews and/or fully audit your loan. Audits can be conducted up to six (6) years after your loan is forgiven.

NOTE: If an audit reveals that there was any malfeasance on the part of the applicant, it may result in the requirement to (a) immediately repay the loan, (b) pay civil penalties and (c) face possible prosecution under the False Claims Act.

Have money left over from your PPP loan?

If you have any funds left from your PPP loan that were not spent during the covered period, you can either return those funds to your financial institution or you can hold onto them with the understanding that you will need to repay them in accordance with your loan repayment schedule at a 1% interest rate.