Businesses that received Paycheck Protection Program funds are no doubt aware that all or a portion of the loan is forgivable if funds are used according to program requirements.
The following information comes from a webinar hosted by a Small Business Administration lending specialist. Borrowers should always check with their lender or CPA for specific answers pertaining to their individual situation.
Borrowers will submit an application for forgiveness to their lender. The Paycheck Protection Flexibility Act extended the amount of time for submission from eight weeks after the date you received the proceeds to 24 weeks. There are two different applications— form 3508 and form 3508 EZ. The EZ form is shorter, but not all businesses qualify to use this.
You are eligible for the EZ form if you:
• are a self-employed borrower with no employees and did not include any salaries in the calculation of your monthly payroll when determining your eligible loan amount.
• didn’t reduce wages by more than 25% and didn’t reduce the number of employees or average paid hours of employees.
• weren’t able to rehire/hire similarly qualified employees.
• didn’t reduce wages by more than 25% and were unable to operate at the same level of activity due to government restrictions.
The lender will review the application and confirm:
• appropriate documentation has been submitted to validate the information.
• the borrower’s certifications are true and correct.
• your math is accurate.
The lender has 60 days for the process to be completed, and then will issue a decision to SBA along with the required documents. The lender’s decision will fall into one of these categories:
3. Denial with prejudice due to pending SBA review
Examples of supporting documents to be included with the forgiveness application include bank statements, tax forms, receipts, and canceled checks.
For allowable non-payroll costs you must prove the service or obligation was in place prior to Feb. 15, 2020, and provide proof of payment. For example, if you started new internet service on Feb. 15 or after, it would not be an allowable utility expense. For such things as mortgage interest payments, rent, or leases you will likely need to produce an amortization schedule, lease agreements, copies of canceled checks, etc.
If using the 3508 form, you will need to include the loan forgiveness calculation form, the PPP schedule A and documentation showing the average number of full-time employees on your payroll during the referenced time periods.
Should you be required to pay back any portion of PPP funds, no payment will be due for 10 months. Ask your lender about additional terms and conditions or refer to your loan documents.
SBA emphasizes simply approaching the forgiveness process with honesty and integrity. With careful record keeping and aligning the use of funds with allowable expenses, you should be able to produce necessary documentation for forgiveness. Rely on the expertise of your CPA and always reach out to your lender first as they are the ones who will be recommending to SBA whether the loan is forgivable.
Greg Smith is the executive advisor of the Umatilla Electric Cooperative Business Resource Center.
The center offers free, confidential business advising at 1475 N First Street, Hermiston, and can be reached at 541-289-3000 or email firstname.lastname@example.org.