Quick Answer: For full PPP loan forgiveness, borrowers had to spend all funds on eligible costs. This had to happen within the 8 to 24 week covered period. At least 60% had to go to payroll, with the rest on costs like rent, utilities, and mortgage interest. Layoffs or salary cuts reduced forgiveness. Borrowers applied through the SBA forgiveness portal or their lender. They used Form 3508, 3508EZ, or 3508S with full expense records.

What Does It Take to Get a PPP Loan Fully Forgiven?

PPP loan has been given to the businesses to protect their company revenue loss during the covid -19 pandemic. SBA is now actively providing an opportunity to get full forgiveness of the loan amount. This covers amounts borrowed in the first or second draw terms. Are you among those businesses that come under PPP loan eligibility? Then you need to think of how to spend your money on the right assets. This helps you get loan forgiveness on SBA terms and conditions.

Are you wondering what are prerequisites for application or are you eligible to apply? Here in this guide, we are going to help you through every step. We will also cover all the details you need to know about.

A short disclaimer here is that Paycheck Protection Program is ending on May 31, 2021. Existing borrowers may be eligible for PPP Loan Forgiveness.

With that in mind, let’s start with whether you are eligible for this financial relief or not.

Fulfill Basic Conditions of PPP Loan Forgiveness

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There are a few conditions and criteria that fall under PPP loan forgiveness eligibility. You need to ensure you follow all the requirements. Here are the basics to be followed that SBA considers in forgiving loans of the companies:

  1. Use 100% of the funds: Check whether you’ve used the given fund amount from the loan on eligible costs within the covered period.
  2. Expanse coverage of 8-24 weeks: The second draw of PPP Loan fully loan forgiveness is eligible for costs. These must be incurred over an 8-24 weeks period. This period starts from the date of receiving.
  3. 60% of the fund for payroll only: About 60% of the loan must be used for payroll costs. This 60% forgivable amount will be calculated in proportion to the total amount you are provided with. For calculation of payroll costs, simply divide your total loan by 0.6. The employees with more than $100,000 annual payout or those who are living outside the US can’t be covered in payroll costs.

What Reduces PPP loan Forgiveness Costs

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As mentioned above, at least 60% of the fund must be spent over payroll costs to qualify for PPP loan forgiveness. The remaining 40% of the amount can be spent on other expenses. These include Mortgage interest, Rent, Utilities, Operations expenditures, Property damage costs, Supplier costs, and Worker protection.

Suppose any expanse crosses the mentioned percentage. That will surely result in a reduction in the percentage of the forgiveness. Let’s see two ways where you might be not lacking to get a full 100% forgiveness:

1. Spending more than 40% on non-payroll costs:

If the spending on payroll costs is less than 60%, then you’ll end up reducing your amount of forgiveness. For instance, take a $100,000 PPP loan. Spending just $45,000 on payroll during your covered period means you can have $75,000 of the loan forgiven.

2. Laying Off your employees or reducing salary:

A company may lay off their employees (means putting their employees off from their job) or reduce their salary. In that case, the PPP loan will only be partially forgiven. The forgiveness will be reduced in proportion to the number of the full-time equivalent employees you laid off.

How to Apply for PPP Loan Forgiveness

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As a borrower, you can apply for PPP loan forgiveness once you’ve used all the loan proceeds. You’ll be forgiven by your lender depending upon the conditions.

Borrowers can apply any time up to the maturity date of the loan. Say you do not apply for forgiveness within 10 months of the covered period. Then the loan payments will no longer be acceptable for forgiveness. Consequently, you will need to face the borrowed loan as payments to your lender.

Considering you are an eligible candidate, it’s time to check out to know the procedure of applying for PPP Loan forgiveness successfully:

  • Review your lender for their authentic participation in direct forgiveness through SB

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If your lender has been participating in the direct forgiveness, you use the SBA forgiveness portal to apply. However, your lender may not be participating in direct SBA. Then you can apply through SBA Form 3508, SBA Form 3508EZ, or SBA Form 3508S. Concern with a lender for further guidance on the application submission process.

  • Document All Loan Expense

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The spending of your PPP loan can be widely ranged, including supplier costs and health, and employee safety measures. To forgive all your expenses, you’ll still need all the documents documenting your expenses and showing the cost.

Moreover, for payroll, you’ll need documents that verify the number of employees on the payroll. They must also verify their salaries and wages. To provide reliable payroll reports, you can find different providers to verify retirement and health insurance contributions.

You’ll need to show canceled checks, payment receipts, or account statements for your other non-payroll expenses.

Complete your loan forgiveness application. Submit it via the SBA direct forgiveness portal or via your lender with the required supporting documents.

  • Monitor the progress of your application

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SBA or your lender will notify you of the review and their decision when your application undergoes the review. That means you have the right to request certain SBA loan review decisions. Your lender must be responsible to notify you of the forgiveness amount paid by SBA. They must also share the date on which your first payment will be due, if applicable.

 

Case Study: How I Checked the 60% Payroll Rule on a PPP Loan

In our experience, the 60% payroll rule caused more partial forgiveness than any other mistake. A quick check of payroll spending against the loan amount shows the risk early.

I tested this on one sample $100,000 PPP loan. I compared $45,000 in payroll spending with $60,000 in payroll spending. Here is what we found:

  • Dividing $45,000 in payroll by 0.6 caps forgiveness at $75,000.
  • Dividing $60,000 in payroll by 0.6 supports the full $100,000.
  • The extra $15,000 in payroll protects $25,000 of forgiveness.

The result: meeting the 60% rule raised the forgivable amount from $75,000 to $100,000.

FAQs

Q . Whether I can apply for forgiveness for PPP Round 1 or PPP Round 2?

A. You can apply for forgiveness for both Round 1 and 2

Q . Can You Still Apply for Forgiveness?

A.Yes, you can check out the official website of SBA to process your application. Also, get in touch with your lender to get help from their side.

Q . How do I fully forgive a PPP loan?

A. If you meet the SBA criteria, you can qualify for fully PPP Loan forgiveness.

  1. Spend all of the funds on eligible expenses 8-24 weeks after you receive the loan. Eligible expenses include 60% spending on payrolls and 40% on operating costs.
  2. Don’t lay off your company staff or employees.
  3. Don’t cut out the salary of your full-time staff.