SBA Loan Forgiveness for PPPs and EIDLs – Forbes Advisor
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Small business owners who have used the Paycheck Protection Program (PPP) can apply for loan forgiveness on qualifying expenses. PPP forgiveness requires an application through the Small Business Administration (SBA) online portal or an individual lender.
Keep in mind that depending on the loan amount, borrowers must certify that the funds were spent on applicable expenses or provide documentation of eligible expenses. However, Economic Disaster Loan Forgiveness (EIDL) is not available.
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What is loan forgiveness?
Loan forgiveness is the process by which a lender fulfills a borrower’s obligation to repay their loan. Depending on the loan and the nature of the cancellation, some or all of the outstanding loan balance may be cancelled. This contrasts with grants, which generally do not require repayment, even in the absence of an express pardon.
Under PPP loans, borrowers are eligible for loan forgiveness if they use the funds to cover designated expenses.
When to Request PPP Loan Forgiveness
PPP borrowers can apply for forgiveness until loan maturity – two years for loans taken out before June 5, 2020 or five years for those issued after that date. While it is best to apply for forgiveness before the end of the payment deferral period (10 months after the end of the covered period), borrowers should also wait until they have spent all the loan proceeds they want. to put back.
Notably, borrowers who received loan funds before the PPP closed on May 31, 2021 are now outside the coverage period and can apply for loan forgiveness.
How to Apply for PPP Loan Forgiveness
Depending on the lender, PPP borrowers must apply for loan forgiveness directly from the SBA or from their individual financial institutions. However, the process and requirements are similar regardless of the method. Follow these steps to apply for a PPP loan forgiveness:
1. Gather the necessary documents
The documents needed to complete a loan forgiveness application vary depending on several factors. Still, there are certain required loan forgiveness documents that many borrowers will likely need when preparing to apply for forgiveness.
For example, if your loan is less than $150,000, you do not need to provide receipts, but second-tier borrowers must show the necessary loss of income. Loans over $150,000 require more extensive documentation. Having these documents organized can streamline the process and improve your chances of getting your PPP loan forgiven.
2. Determine if your lender participates in direct forgiveness
Whether your lender participates in direct forgiveness determines how you request loan forgiveness. Start by researching your lender in the SBAs list of participating lenders to find out where to apply.
3. Submit Pardon Form and Documentation
If your lender participates in direct remittance, complete the remittance form via the SBA PPP Direct Forgiveness Portal. Otherwise, you will need to follow your lender’s instructions for completing and submitting SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or the lender’s equivalent. Also submit necessary documents as requested by the SBA or your bank or credit union.
4. Wait for a response
Depending on how you request PPP loan forgiveness, you may receive a response from the SBA or your lender. Generally, however, you will receive notice from either party if your loan is under review and a decision is made. Your lender will ultimately notify you of the canceled loan amount and, if applicable, when your first payment is due.
PPP Loan Forgiveness Conditions
To qualify for PPP loan forgiveness, recipients must have maintained their staffing and compensation levels during the period covered by the loan. The coverage period for loans granted in 2020 is 24 weeks after disbursement; however, borrowers can opt for a coverage period of eight weeks if their loan was funded before June 5, 2020. Borrowers who received a first or second loan in 2021 can choose between a coverage period of eight to 24 weeks.
Loan forgiveness also requires the proceeds to be used to cover eligible expenses during the covered period, with at least 60% spent on personnel costs.
Expenses eligible for loan forgiveness
Under the initial PPP, only salary and operating costs were eligible for the rebate. However, the Coronavirus Response and Relief Supplemental Appropriations Act passed in December 2020 expanded eligible expenses. Here are the expenses that are generally eligible for PPP loan forgiveness:
- Salary costs, including salaries, wages, tips, commissions and benefits
- Mortgage interest paid on property used for business purposes (for mortgages signed before February 15, 2020)
- Rent or commercial lease payments for contracts signed before February 15, 2020
- Business services including electricity, gas, water, transport, telephone and internet access
- Operating expenses, such as enterprise software and vendor costs needed to conduct business
- Repair costs for property damage or other uninsured losses incurred in 2020 and as a result of the Covid-19 pandemic
- Worker protection expenses like personal protective equipment or property improvements to comply with Covid
Documentation requirements for canceling a PPP loan vary depending on the size of the loan and how the funds were used. For loans over $150,000, borrowers must provide evidence of how PPP funds were spent. Loans under $150,000 do not require documentation of expenses. Instead, borrowers must certify that the funds have been spent in accordance with PPP guidelines via SBA Form 3508S.
If evidence is required for cancellation of a PPP loan, the exact documents required depend on how the loan funds were spent. For example, if loan proceeds were used to cover staff costs, you may need to provide copies of these documents:
- Third-party payroll reports or tax forms for the period covered, including payroll tax returns
- Quarterly reports on companies and individual salaries
- State unemployment insurance tax filings
- Bank account statements
- Payment receipts, canceled checks, or bank statements showing contribution to employer health and retirement accounts
If the loans were used to cover other expenses, these documents may be required as part of the remission process:
- Lender’s amortization schedule or receipts showing commercial mortgage interest payments
- Rent, lease and utility statements reflecting payments made
- Invoices, receipts or purchase orders showing covered operating expenses, property damage costs and supplier costs
- Voided or received checks for other covered expenses like protective gear and safety modifications
Covid EIDLs are not forgivable and must be refunded in full. Borrowers can, however, benefit from a 30-month payment deferral period that begins on the date of the note. This deferral period applies to loans approved in 2020, 2021 and 2022, and is an extension of the original 12 month deferral.
In contrast, EIDL Targeted Advance or Additional Targeted Advance funds (up to $15,000) are considered grants and do not require repayment.
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