PPP Loan Forgiveness FAQ

Updated 7.16.20

About Forgiveness

How do I get loan forgiveness for a PPP Loan?

Borrowers will have their loans forgiven if they used the money for designated expenses. The amount of forgiveness is equal to the total amount of payments for payroll, mortgage interest, rent, and utilities. At least 60% of the loan amount may be used for payroll costs and no more than 40% of the loan amount may be for non-payroll costs.

What can be forgiven?

Payments made in the 24 weeks after the loan is provided for:
1. Payroll
2. Rent for the office
3. Mortgage interest for the office
4. Utilities

Using the provided funds for rent, mortgage and utilities is capped at only 40% of the forgiveness amount.

What is the Covered Period?

The covered period is the period that starts when your loan was disbursed to your bank account through 8 weeks or 24 weeks depending on which option you choose to use.

The Covered Period is either:
1) The 24-week (168-day) period beginning on the PPP Loan Disbursement Date, or
2) The 8-week (56-day) period beginning on the PPP Loan Disbursement Date if you received your PPP loan before June 5, 2020, and elect to use an eight-week (56-day) Covered Period.

The Covered Period cannot extend beyond December 31, 2020.

When does the Covered Period begin?

The covered period begins once the funds are transferred to your bank account. You cannot change or delay the start of your 8-week or 24-week period. The SBA automatically begins the clock as soon as the loan proceeds transfer to your account.

What is the Alternative Payroll Covered Period?

The Alternative Payroll Covered Period is an additional choice for companies that have a biweekly (or more frequent) payroll schedule. You can always choose the Covered Period.

What is the difference between the 8 and 24 week payback period?

The SBA expanded the Covered Period to 24 weeks from 8 weeks on June 5th, 2020. Any loan made after June 5th, 2020 must use the 24 week period. Loans made before June 5th can elect to use an eight-week period. 

We recommend applying for forgiveness as soon as possible. Having an outstanding loan on your business could hinder your ability to obtain another loan or a line of credit. The sooner you’re able to receive loan forgiveness the better. 

When do I need to decide to use the 8 or 24 week period?

You can only elect to use an 8 week Covered Period if you received your PPP loan before June 5th, 2020. Otherwise you will automatically be granted the 24 week Covered Period. 

If you received your loan before June 5th and have the option to elect for an 8 week Covered Period, you do not have to decide immediately on which time frame you’ll use. Our Upside Advisors can help you determine the best option for your business. If your business is not harmed by waiting, you can wait the 24 weeks and determine after the time has passed which Covered Period is most beneficial for your business needs.

Is Loan Forgiveness automatic?

No. Each unique loan must apply for Loan Forgiveness. If you receive two PPP loans for two separate businesses, you must apply separately for both loans to be forgiven.

Applying for Forgiveness

How do I apply for PPP Loan forgiveness?

You will need to submit an PPP loan forgiveness application package to your lender. The application for forgiveness, created by the SBA, is called the 3508 (or 3508EZ) form. It is accessible for download on the SBA’s website. 

You will need to provide form 3508 with fully completed calculations and accompanying documents to your lender. You will be held accountable for any and all calculations you complete on form 3508 and may be audited according to your answers. It is incredibly important that your form is completely accurate. 

How do I decide which form I should use, 3508 or 3508EZ?

If you choose to use PPP Advisor Pro, we will make that determination for you based on the information you provide.

Essentially, you may be able to use Form 3508EZ if you:
1) Are self-employed and have no employees; or
2) Did not reduce the salaries or wages of your employees by more than 25%, and did not reduce the number or hours of your employees; or
3) Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of your employees by more than 25%.

Otherwise you will have to use Form 3508.

What documentation should I submit in order to receive forgiveness?

These are the documents we believe you will need to collect and provide with your PPP forgiveness application. Your lender may have additional requirements:
1) Documents verifying the number of full-time equivalent employees on payroll and their pay rates, for the periods used to verify you met the staffing and pay requirements;
2) Payroll reports from your payroll provider;
3) Payroll tax filings (e.g., Form 941);
4) Income, payroll, and unemployment insurance filings from your state;
5) Documents verifying any retirement and health insurance contributions; and
6) Documents verifying your eligible interest, rent, and utility payments (canceled checks, payment receipts, account statements).

Good record keeping and bookkeeping will be critical for getting your loan forgiven—you’ll need to keep track of eligible expenses and their accompanying documentation over the eight week period.

Your lender will likely require these documents in digital format, so take the time to scan any paper documents and keep backups of your digital records.

When can I apply for forgiveness?

Currently, the SBA has not come out with a deadline for owners to submit a forgiveness application to their lenders. Many lenders have not provided guidance on timing to begin accepting loan forgiveness applications. However the terms of most loans do have a written date within their terms - you should check with your lender on when your application is due. 

Be mindful that if you do not apply for forgiveness, your loan WILL NOT automatically be converted into a grant, and your business will be responsible for repayment of your loan in accordance with the loan terms. 

Can I apply for Loan Forgiveness early?

If you are ready to complete your loan forgiveness application, we encourage you to do so as soon as possible. Much like when the loans were being disbursed, we fully expect lenders to have a backlog of applications when they begin accepting them. The earlier you are able to submit your application to your lender, the better. 

PPP Loan Repayment

Is there a payment deferral period for a PPP Loan?

You will not have to make any payments for six months following the date of disbursement of the loan. However, interest will continue to accrue on PPP loans during this six-month deferment. Payments for the first six months can be deferred. There is no prepayment penalty.

Is a PPP loan taxable?

Any amount of loan forgiven as part of the PPP is excluded from gross income, and, as such, is not taxable. The CARES Act and the SBA guidance is clear that payroll costs include state and local payroll taxes paid (e.g. state unemployment taxes), but does not include the employer-paid portion of federal payroll taxes known as FICA (e.g. social security and medicare payroll taxes).

What is the Paycheck Protection Program Flexibility Act?

The PPP Flexibility Act allows for a modification of the covered period in both time and authorization of spending.

1) Extends the Covered Period: The covered period begins on the date the loan is disbursed into your bank account and ends 24 weeks (168 days) later, or Dec. 31, 2020, whichever occurs first. If you received the PPP loan before June 5, 2020 (the date that the Flexibility Act was put into effect) you may choose to use either the eight-week or 24-week covered period.

2) Loan Forgiveness: The Flexibility Act amended the 75/25 rule to make it now 60/40, meaning that no more than 40% of the borrowers loan could be used for non-payroll costs and not less than 60% of the loan could be used for payroll costs.

3) FTE/Hourly Wage re-Hire: This clause extends the time a borrower can qualify for bringing their FTE count back to pre-pandemic levels. Now borrowers have until Dec. 31, 2020 to fully restore FTEs.

What happens if I’m not approved for Loan Forgiveness?

If you have not abided by the SBA’s policies and you find yourself not eligible for Loan Forgiveness, your outstanding balance (all funds that were not deemed forgivable) will continue to accrue interest at 1%, for the remainder of the 5-year period.

There is no prepayment penalty; you can pay off the outstanding balance at any time without any additional penalty or fees.

Allocating the Loan

What can a PPP Loan be used for?

Loan proceeds should be used for payroll, benefits, taxes on compensation, mortgage interest, rent, and utilities. At least 60% of the total should be spent on payroll.

What happens if I use a PPP Loan for funds that do not qualify?

If you use PPP funds for any other valid business purposes, the SBA will direct you to repay those amounts. If you knowingly use the funds for non-business purposes, you will be subject to additional liability, such as charges for fraud.

Are there certain aspects of this loan that pertain only to nonprofit organizations?

No, there are no specifics that pertain only to nonprofit organizations.

PPP & Other Assistance Programs

Am I able to receive a PPP Loan and collect unemployment?

The CARES Act not only provides relief for small business owners through loans but also allows self-employed people, independent contractors, and part-time workers to collect unemployment benefits. You cannot receive both a PPP loan and unemployment assistance however.

What is the difference between a PPP Loan and an Economic Injury Disaster Loan?

The Economic Injury Disaster Loan Program (EIDL) can provide up to $2 million of financial assistance (actual loan amounts are based on amount of economic injury) to small businesses or private, non-profit organizations that suffer substantial economic injury as a result of the declared disaster, regardless of whether the applicant sustained physical damage.  

a. It can be used for a slightly wider amount of obligations than the PPP.
b. You can apply for both—but they can’t be used for the same obligations.

Can I receive a PPP Loan and use the Employee Retention Credit?

No, if you receive the Employee Retention Credit, you may not receive a PPP loan and no payroll tax deferral is permitted if you receive PPP loan forgiveness.