Back in April we lived in this topic of federal relief under the CARES Act which provided stimulus funds to small business owners and individuals via the Payroll Protection Plan, Economic Injury Disaster Loan, Unemployment benefits, stimulus checks. Sole Props and Indp Contractors benefited from these stimulus plans as well.
Today, June 30, hits a few milestones with respect to those federal reliefs that are worth revisiting. Today is the last day to rehire and restore wages for those employees you let go, furloughed, or reduced salaries, IF you accepted PPP money and would like it to be counted towards “forgiveness.” (more on that below)
Today is also the one-month countdown to the federal unemployment relief (up to an extra $600/week) coming to a close on July 31st.
And with this in mind, we need to start planning for applying for loan forgiveness and what that means for our business. I’m breaking down updates, common questions and everything else you need to know to apply for PPP Loan Forgiveness - which if you’re like me - you’re ready to check off your to-do list and move on!
Now only 60% of your PPP funds must be spent on payroll (in order for the $ to be forgiven). It was previously 75%. This means that 40% of your PPP funds may now be spent on mortgage interest, rent and utilities.
The loan forgiveness period, the “Covered Period” (more on that below) is extended from 8 weeks to 24 weeks.
Recipients of PPP have a 24-week (6-month) “Covered Period” to use the funds received. The Covered Period begins the day that money is deposited into your bank account.
However, no one’s Covered Period may extend beyond December 31, 2020. This means even if you get your PPP money in October, you still must spend it by December 31.
You have 10 months from the date your Covered Period ends to apply for forgiveness.
Once you submit your application for loan forgiveness, it will likely take SBA up to 3 months to inform you of the decision.
In the event your loan is not forgiven and you owe loan repayment, you may defer the first repayment for up to 6 months from the decision date.
**Note: you do NOT have to make loan payments until AFTER SBA makes a decision. So if the loan is appearing in your online banking portal and showing an amount due, you can disregard it for now.
Can I request forgiveness if I didn’t use all of my loan funds within the Covered Period?
You can apply for loan forgiveness up to the amount of money you spend. If you don’t spend all of the money, you will owe it back. That been said, the amount you received is intended to cover payroll for only 2.5 months and you have up to 6-months in your Covered Period - so pay yourself! There is NO reason to not spend all of your PPP $$.
What counts as a payroll cost?
Salary: wages, commissions, bonuses, cash tips
Leave: vacation, family, medical
Coverage: health insurance, retirement
Taxes assessed as part of payroll
Indp Contractor and Sole Prop Wages
Where do I apply for forgiveness?
The financial institution who issued your PPP Loan is responsible for handling your forgiveness application. Most banks and credit unions have already begun sending out notifications and information re: forgiveness and what we can expect on the application.
What does the forgiveness form look like?
SBA Form 3508 is the official long form to use for PPP Loan forgiveness. However - many small businesses will qualify to use the SBA Form 3508EZ, which is substantially shorter, clearer and easier to fill out.
You qualify to use 3058EZ if you:
Are self-employed, an Indp Contractor or Sole Prop;
Did not reduce hourly wages by more than 25% and did not reduce hour of your employees; or
Experienced reductions in business as a result of health directives related to COVID (aka the govt shut your business down or limited its activity) and you did no reduce salaries/wages by more than 25%.
The form is going to ask you:
SBA PPP Loan Number (your bank should have this auto-filled for you)
Funded PPP Loan Amount
PPP Loan disbursement date (this date triggers your Covered Period
Payroll expenses during the Covered Period;
Total cost of other expenses during the Covered Period - mortgage interest, rent, utilities;
PPP Loan amount;
Comparison: are 60% of PPP funds spent on payroll costs?
What else do I need to submit with the form?
Bank statements documenting cash compensation paid;
Payroll tax filings (if applicable);
State quarterly business wage reporting;
**Note: if you have a payroll processor (Gusto, ADP) they will be able to automatically generate these reports, as well as a PPP report, for you.
Copies of mortgage bills to prove monthly mortgage interest
Copies of utilities bill to show monthly utility totals
Documentation of rent amount and payment
Are there any red flags that my loan won’t be forgiven?
If your business reduces wages and/or headcount by more than 25% and you do not rehire or restore wages.
If you don’t spend the total loan amount.
If you spend less than 60% of the loan amount on payroll costs.
I’ll keep you guys posted as I learn more about PPP Forgiveness, and as I apply for forgiveness myself.
Until then, make sure we’re staying in touch! My weekly newsletters are filled with subscriber-only content, and industry insider information.