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As 2021 approaches, small business owners who took advantage of the Paycheck Protection Program (PPP) during the height of the COVID-19 pandemic are looking to have their loans forgiven by the US Government. In fact, loan forgiveness was one of the most attractive attributes of the PPP Flexibility Act. Not only did PPP offer a lifeline to businesses struggling during the pandemic; it promised achievable forgiveness if applicants followed the PPP loan rules.

Now that we are reaching the end of the year, it is time to evaluate the best ways to ensure your business’ PPP loan is forgiven. Use the following tips and guidance to navigate the PPP rules and regulations toward loan forgiveness.

Review Your PPP Loan Forgiveness Terms

First and foremost, let’s briefly review the terms of your PPP loan.

The total amount of funds your small business received should equate to 2.5 times your average monthly payroll cost. Your PPP funds could then be used for:

  • Payroll*: Paying employee expenses, including salaries, wages, PTO, and health coverage.
  • Rent & Utilities: Paying rent and utilities, so long as your lease and services were signed before February 15, 2020. Utilities include electricity, water, gas, internet, phone, and transportation.
  • Mortgage Interest: Paying your mortgage interest, so long as your mortgage was signed before February 15, 2020.

*According to the CARES Act, the loan you received is applicable for forgiveness if at least 60% of the funds went to payroll expenses. If your business falls short of that percentage, you may be eligible for partial forgiveness.

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Quick Tips Toward Loan Forgiveness

With loan forgiveness worth thousands on the line, take the time and extra precautions to ensure the following tips are followed to a T. Doing so will help strengthen your chances of having your PPP loan forgiven in full.

  1. Use your PPP funds only on eligible expenses. Reference the previous section (“Review Your PPP Loan Forgiveness Terms”) to see which costs are considered eligible.
  2. Keep the same number of staff. You must maintain the original number of employees you had on your payroll at the time you first applied for the loan. You have until December 31, 2020, to ensure your staff numbers meet this standard.
  3. Document everything. Maintain clear documentation on everything that pertains to your loan, such as accrued interest, expenses paid by the loan, and any written communication you may send or receive regarding employees.*

    *If your business was forced to lay off employees, and you’re now experiencing difficulty bringing your employee numbers back up to their original number (see Tip #2), you may qualify for an exemption if you provide documentation proving you offered re-employment.

  4. Maintain 75% total wages. Don’t reduce any employee’s wages by more than 25% of their most recent quarter of employment.

By following these rules, you have an increased chance of having your PPP loan fully forgiven.

Apply for PPP Loan Forgiveness

The final step to ensuring your loan is forgiven is to apply using the appropriate U.S. Small Business Administration (SBA) document. Complete the form yourself before submitting it to your lender for processing.

Depending on your circumstances, you will need to fill out the following document:

  • Form 3508: Can be used by any borrower.
  • Form 3508S: Specifically for borrowers loaned $50,000 or less.
  • Form 3508EZ: For borrowers who a.) maintained employee salaries OR did not reduce by more than 25%, and b.) did not reduce staff OR were unable to operate due to health guidelines (must provide documentation).

Once you complete the appropriate form, you will need to provide any and all supporting documents to your lender to submit, as well. For more information regarding the specific documents the SBA requires, consult your lender and the SBA FAQ page.

Ideally, your small business has and will continue to follow the PPP guidelines set by the SBA and outlined here. If, however, your loan is not forgiven, you have options, including appealing the decision.

You can also talk with a CREDO finance professional to help you determine the best path forward for your business. To begin an in-depth discussion tailored specifically to your business’ needs, schedule a complementary consultation today. 

Dan Lucas
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