PPP Loan Forgiveness…Do you qualify? Let’s find out.

As we move into September, many of you may have taken advantage of the Paycheck Protection Program and are aware of the many changes that have taken place to the program. The major change is the possibility of receiving full forgiveness of the loan should your business qualify for the forgiveness by having your employees return. Even then there are some businesses that have not been able to bring back their employees and will still qualify for forgiveness if they can provide necessary information concerning the plight of their situation.

The Small Business Administration has been working with the lending institutions to begin to work on the forgiveness applications. 

The major points to the changes include the change from the 8 weeks to 24-week period to record your costs and the percentage of the use of the loan for payroll from 75% to 60%. 

Let’s look as some of the details.

To qualify for forgiveness using the EZ application, the business owner must meet one of three sets of criteria. Essentially, you need to be able to check the box under any of the following three options:

  1. You are self-employed and have no employees; or
  2. You had employees, but did not reduce their salaries or wages during the covered period by more than 25 percent ANDdid not reduce the number of hours worked by employees (essentially meeting the requirements of the FTE employee rule); or
  3. You had employees, but did not reduce their salaries or wages during the covered period by more than 25 percent, AND due to complying with essentially shelter-in-place laws during the covered period, you were unable to operate during the covered period at the same level of business that existed before February 15, 2020.
  • If any of the above describes you, you are allowed to use the SBA Form 3508EZ.
  • Owners of S-Corporations must qualify with option #2 or #3 above, as even having only yourself as an employee disqualifies you from option #1.
  • Next, you need to decide if you are going to apply under the eight-week covered period or the 24-week period (not to exceed December 31, 2020). Only borrowers who received their loan before June 5 can choose between the eight-or 24-week period; those who received it after June 5 must work with the 24-week period.
  • An owner’s personal compensation is limited before it can be added to other employee payroll costs, rent, lease payments, utilities and mortgage interest.  Your maximum personal compensation is either:
        • 15,385 if you choose the eight-week period, or
        • $20,833 if you choose the 24-week period.
  • Also, payroll cost for S-Corp owners does not include health insurance premiums for themselves, but only the premiums for their employees. This may be confusing because S-Corp owner/employees were allowed to include their health insurance premiums in their calculations for the PPP loan, but not on the forgiveness application.

The EZ application is designed to make the process much easier for everyone by requiring less documentation, fewer calculations and by simplifying the process dramatically for a large number of business owners.

Very important to note, business owners are still required to collect and submit a number of supporting documents with the forgiveness application to the bank or lending institution. Check with your bank or lending institution to see whether they will be creating a portal for you to submit your paperwork. As always, should you need any help with the PPP Loan application or any of your business finances, we are here to help.

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