Working to keep your small business going during the COVID-19 pandemic? The Paycheck Protection Program might help. Here's how it works.
Updated on June 22, 2020, at 7:40 a.m. CT
If you received a Paycheck Protection Program loan to help your small business, your loan might be eligible for forgiveness.
But it’s important to think carefully about what’s in your best interest—repaying the loan or applying for forgiveness.
You must understand the Small Business Administration’s eligibility requirements. And it’s essential to lean on your attorney and accountant to help you determine whether PPP loan forgiveness is right for you and your business.
And you can use these questions to start weighing your options:
- What is PPP loan forgiveness?
- Why should I consult with my attorney and accountant before applying for loan forgiveness?
- Do I need to act quickly to apply for loan forgiveness?
- How long do I have to spend my funds to be eligible for forgiveness?
- What expenses qualify for forgiveness?
- What happens if a laid-off employee declines my offer to return to work?
- Are there any other exemptions from loan forgiveness reduction?
- How do I apply for PPP loan forgiveness?
- Who reviews the loan forgiveness application?
- When can I expect a decision on my loan forgiveness application?
What is PPP loan forgiveness?
If you used your loan funds for eligible expenses, you might not need to repay all or part of your loan.
You must apply for forgiveness with the lender that provided you the PPP loan. But applying does not guarantee forgiveness of all or part of your loan.
Why should I consult with my attorney and accountant before applying for loan forgiveness?
The program’s requirements continue to evolve. Your accountant and attorney can help you navigate the latest updates and what those mean for your business.
Your accountant also can help you understand the documentation, requirements and when to submit your application to maximize your potential forgiveness amount, said Danielle Gratton, chief financial officer at Dupaco Community Credit Union.
“The best time for each business to file the forgiveness application will be different based on each business’ circumstances,” she said.
Filing for loan forgiveness might have tax ramifications, so consult with your tax advisor to help you understand the potential impact.
Do I need to act quickly to apply for loan forgiveness?
Thankfully, time is on your side when weighing this option.
Again, your accountant can help you determine the best time to apply if you decide to move forward with PPP loan forgiveness.
“There isn’t the need to rush to apply for forgiveness like we saw with the initial PPP loan funding,” Gratton said. “You have time to consult your advisors. You have time to consider the implications this might mean for your business. And you have time to make the right decision for you.”
How long do I have to spend my funds to be eligible for forgiveness?
Initially, the program provided an eight-week covered period to spend loan funds eligible for forgiveness.
The Flexibility Act extended the covered period from eight to 24 weeks. If you received your PPP loan before June 5, 2020, you’re eligible to elect to use the original eight-week covered period.
Current guidelines provide you with two options to begin your eight- or 24-week covered period:
- The date your lender made the first disbursement of your loan.
- The first day of your first pay period after receiving your loan.
What expenses qualify for forgiveness?
The SBA said your loan, plus accrued interest, might be fully forgiven if you used the funds for:
- Payroll costs, including salary, wages, commissions and benefits. As of June 17, as much as 60% of the funds must go toward payroll to have all or part of your loan forgiven.
- Mortgage interest payments made during the covered period on mortgages established before Feb. 15, 2020.
- Rent payments incurred during the covered period on leases that were signed before Feb. 15, 2020.
- Utility costs paid during the covered period that were under service agreements before Feb. 15, 2020.
The revised SBA guidelines say you have until Dec. 31, 2020, to restore your full-time employment and salary levels for any changes made between Feb. 15, 2020, and April 26, 2020. Otherwise, your loan forgiveness might be reduced or denied.
What happens if a laid-off employee declines my offer to return to work?
Your loan forgiveness amount will not decrease if the laid-off employee declined your offer to return with the same salary and number of hours, the SBA said.
To qualify for this exception, you must have made a good faith written offer of rehire, and you must document the employee’s rejection.
Are there any other exemptions from loan forgiveness reduction?
You have two safe harbor exemption criteria to prevent a reduction in your forgiveness amount, according to the revised SBA guidelines:
- You’re exempt from a reduction in loan forgiveness based on a reduction in full time equivalent employees if you reduced your full time equivalent employee levels between Feb. 15, 2020, and April 26, 2020; AND then restored those levels by Dec. 31, 2020, to what they were during the pay period including Feb. 15, 2020.
- You’re able to document that you were unable to operate between Feb. 15, 2020, and the end of the covered period at the same level of business activity because of compliance requirements established or guidance issued by the Secretary of Health and Human Services, director of the Centers for Disease Control and Prevention or the Occupational Safety and Health Administration related to sanitation, social distancing or any other worker or customer safety requirement related to COVID-19.
How do I apply for PPP loan forgiveness?
You must apply for PPP loan forgiveness through the lender with whom you worked.
But it isn’t time to apply for forgiveness just yet.
Dupaco is still waiting for guidance from the SBA about how to process forgiveness applications. The credit union is working hard to understand all of the recent rule changes, and there are still details that need to be finalized.
If you received your PPP loan from Dupaco, the credit union will reach out to you with information on the application process when you’re able to apply.
Who reviews the loan forgiveness application?
You’ll need to complete and submit the Loan Forgiveness Application to the lender servicing your PPP loan.
Typically, if your lender determines that you’re entitled to forgiveness of some or all of your loan amount, your lender will request payment from the SBA at the time of issuing its decision to the SBA.
Your loan and loan application are then subject to an SBA review. Here are some of the possible outcomes of that review:
- If your loan forgiveness is approved, the SBA will send the funds to your lender, plus any interest accrued through the payment date.
- If your loan isn’t eligible for forgiveness, your lender must notify you.
- If only part of your loan is forgiven, or if your request is denied, you must repay your remaining balance on or before the maturity of your loan.
When can I expect a decision on my loan forgiveness application?
Your lender has 60 days to complete its review once you submit your forgiveness application.
Lenders are required by the SBA to complete a thorough review and recalculation of the amounts on the application. That’s why it’s critical to submit a complete application, along with the mandatory supporting documentation.
Once your lender submits your application to the SBA, the administration will make its decision within 90 days.