By Greg Smith
Those businesses which received Paycheck Protection Program funds (PPP) are no doubt aware that all or a portion of the loan is forgivable if funds are utilized according to program requirements. The following information comes from a webinar I participated in hosted by a Small Business Administration lending specialist, and I want to emphasize borrowers should always check with their lender or CPA for specific answers pertaining to their individual situation.
To begin with, 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. There are two different applications— form 3508 and form 3508 EZ. The EZ form is considerably 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 percent 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 percent and were unable to operate at the same level of activity due to government restrictions. (i.e. from OSHA or another similar agency).
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 mathematical calculations are 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 portal for submission by lenders to the SBA is targeted to be available on August 10, but this could change. The lender’s decision will fall into one of these categories:
- Approval (in whole or in part)
- Denial
- Denial with prejudice due to pending SBA review
Examples of supporting documents to be included with the forgiveness application for payroll costs include bank statements, tax forms, receipts, and cancelled checks. For allowable non-payroll costs you must prove the service or obligation was in place prior to February 15, 2020 (with bills and invoices) and provide proof of payment. For example, if you started new internet service on February 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 cancelled 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 FTE (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.
While there is justifiable angst surrounding the forgiveness process, SBA emphasizes simply approaching it with honesty and integrity. With careful record keeping and aligning the use of funds with allowable expenses, you should have little difficulty being 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, either in whole or in part.
Greg Smith is the executive advisor of the Umatilla Electric Cooperative Business Resource Center located at 1475 N. First St., Hermiston. If you are seeking free, confidential business advising, please call 541-289-3000 or email uecbrc@gmail.com.
