If you’re a small business owner who received a Paycheck Protection Program (PPP) loan, you may be wondering how to tackle the next step in the process – applying for loan forgiveness. Here, with the help of the Small Business Administration’s (SBA) recently released FAQ guide, we’ve answered a few commonly asked questions to help the process go smoothly.
1. How do I apply for loan forgiveness?
Sole proprietors, independent contractors, or self-employed individuals with no employees can complete the Loan Forgiveness Application Form 3508 or lender equivalent.
2. How long is the covered period for loan forgiveness?
While earlier versions of the PPP allowed for a covered period of eight weeks, the Paycheck Protection Program Flexibility Act of 2020 (PPFA) extended this timeline to 24 weeks of coverage after the date of loan disbursement. This 24-week period applies to all borrowers, but if you received an SBA loan number before June 5, 2020, you have the option to use an eight-week period if you’d like.
Find out more about your coverage period here.
3. How much of my loan will be forgiven?
According to the Small Business Administration, loan forgiveness is based on a few different factors:
- Whether your business maintains (or quickly rehires) employees
- Whether your business maintains salary levels for workers
- What percentage of the loan is used for payroll expenses
Forgiveness will be reduced if full-time headcount decreases, or if salaries and wages decrease.
4. What if a laid-off employee declines an offer to be rehired?
If you made a good-faith, written offer to rehire workers and it was declined, it shouldn’t impact your loan forgiveness total. However, you’ll need to be able to provide:
- Documentation of an inability to rehire individuals who were employees on February 15, 2020
- Proof of an inability to hire other similarly qualified individuals for unfilled positions on or before December 31, 2020
- Written documentation of the good-faith offer and rejection
Learn more about this exemption on page eight of the loan forgiveness FAQ.
5. How much of my loan must be spent on payroll costs?
Thanks to the PPFA, now only 60 percent of the loan must be spent on payroll costs to qualify for full forgiveness (rather than the original 75 percent). Learn more in this statement from the U.S. Department of the Treasury.
6. Can I apply for another PPP loan?
No. As of September 10, 2020, there is no way to apply for a second PPP loan. However, some legislators are pushing for a second round of loans in the future. If you are still in need of financial assistance, consider applying for an Economic Injury Disaster Loan (EIDL). Learn more about EIDLs here.
Quick facts on PPP loans, according to the SBA:
- PPP loans have an interest rate of 1%
- Loans issued prior to June 5, 2020 have a maturity of 2 years
- Loans issued after June 5, 2020 have a maturity of 5 years
- No collateral or personal guarantees are required
- Neither the government nor lenders will charge small businesses any fees