PPP Loan Forgiveness: Best Practices for Applying
Important things to consider before beginning your PPP loan forgiveness application
2020 has been a rollercoaster year for business owners. While many businesses are still struggling to get by, there are some that have recovered and bounced back. For many, this was thanks in part to a loan received under the Paycheck Protection Program. Now that October is here, many businesses have started the process of applying for loan forgiveness. Here are some important things to understand before beginning your forgiveness application.
See if you qualify for the EZ Forgiveness Application
To qualify for the EZ application, ONE of the following must apply to you:
- You are self-employed and have no employees
- You did not decrease salaries or wages of any employee by greater than 25%, AND you did not reduce the number of employees or average paid hours of your employees between January 1, 2020 and the end of your covered period
- You did not reduce annual salary or hourly wages of any employee by more than 25%, AND your business was unable to operate at the same level of business activity as before February 15, 2020 due to restrictions related to COVID-19.
As long as you can answer “yes” to any one of those three, you should qualify for the EZ application. As you can imagine, the third bullet point is the one that will capture many businesses, as many companies were forced to either shut down or operate at a lower capacity due to governmental restrictions.
Make sure that if you qualify for this EZ application, you use it! It will save you a good deal of time and simplify the process for you.
If possible, use only payroll costs for your qualifying expenses
When the PPP Loans were originally issued, businesses were given 2.5 times their average monthly payroll costs. However, they were required to use the funds within an 8-week period beginning on the date they received the loan. As things continued to get worse in the U.S., this deadline for using the funds was extended to 24 weeks.
Because of this extension, many businesses were able to use up their entire PPP loan with only payroll costs. Although they may have paid other qualifying costs (rent, utilities, etc.), payroll costs are generally much easier to document. It’s usually as simple as pulling reports from your payroll software and giving copies of your quarterly payroll tax forms. If you are using other costs such as rent and utilities, you are required to upload copies of a current lease agreement and documentation for the expenses. If your payroll records are easily accessible, it is generally much easier to use those instead.
Work closely with your accountant or your banker
Even though the SBA attempted to simplify the process for small businesses, there may still be some items that are confusing about the forgiveness process. If you have an accountant you work closely with, it is usually a good idea to go over everything with them before submitting. If you don’t have an accountant, you can usually sit down with someone at your bank to make sure you haven’t missed anything.
If you need assistance with your application, please feel free to contact me. I offer free consultations to all small businesses in Illinois!