PPP Loan Forgiveness: A Q&A

U.S. lenders issued more than five million forgivable loans through the federal government’s coronavirus aid initiative for small businesses, the Paycheck Protection Program. The Small Business Administration in August started accepting applications to have the loans forgiven, and it began approving them this month. Here are some things to know.

How do I apply for forgiveness?

Borrowers should apply for forgiveness through the lender that issued the loan. The lender submits the application to the SBA, which makes the final determination on how much forgiveness a borrower should receive.

Submission procedures vary by lender. Some lenders have just begun to accept applications or have currently opened up applications to select borrowers.

For example, JPMorgan Chase, the top PPP lender by dollar amount, is emailing customers on a limited basis and inviting them to apply based on when they received their PPP funds.

Other lenders are still working to get technology and personnel in place before they start accepting applications.

Borrowers may apply for forgiveness at any time before the loan’s maturity date. However, to avoid having to start loan payments, PPP borrowers must apply for forgiveness within 10 months of the end of their covered period. The covered period began on the loan disbursement date and is either the subsequent 24 weeks, or eight weeks for some eligible borrowers who opt for this time frame.

What is required for loan forgiveness?

To have the full loan forgiven, borrowers must spend at least 60 percent of it on payroll. They may use the remainder for other eligible costs, such as mortgage interest, rent and utilities. The amount of forgiveness may be lowered if the business reduced its employee head count or cut salaries and wages.

Prepare to apply by gathering documents and taking stock of how much of the loan they have spent on allowable expenses, focusing especially on payroll.

Borrowers may also need documentation of other eligible expenses, such as utility bills and lease agreements.

What is the application like?

The SBA and U.S. Treasury Department have issued three different application forms. Which one borrowers should use depends on the nature of their business, their loan size and whether they reduced employee head count or salaries and wages.

The full forgiveness application and the EZ application both require the borrower to calculate their forgiveness amount, make certifications about how closely they followed program guidelines and submit supporting documentation. Only certain borrowers are eligible to use the EZ form.

The third and most recently released application, Form 3508S, is for loans of $50,000 or less and “streamlines the PPP forgiveness process to provide financial and administrative relief,” the SBA said.

Form 3508S “is less about the calculations and more about the certifications,” said Greg Clarkson with BBVA USA. “While the documentation is still required to be gathered and provided, it is not required to be reviewed (by lenders) to the same extent that it was in either the EZ form or the full form.”

Borrowers who use Form 3508S won’t face any reductions in their forgiveness amount if the business lowered head count or wages and salaries.

How long will it take to get an answer?

A lender has 60 days to review the borrower’s application and submit it to the SBA. The agency then has up to 90 days to review the submission and issue a decision.

Source: Wall Street Journal