Here's Why You Shouldn't Rush to Apply for PPP Loan Forgiveness
There is a lot of uncertainty and confusion on the regulations surrounding the Paycheck Protection Program (PPP), and borrowers are questioning whether they'll qualify for loan forgiveness. For small businesses, the main concern is meeting the maximum loan forgiveness. However, borrowers shouldn't rush their PPP loan forgiveness applications, and here's why.
More Time to Qualify for Full Loan Forgiveness
New guidance has been released that allows PPP recipients to apply for loan forgiveness before their covered period ends, but doing this may result in a portion of the loan proceeds not being forgiven. Organizations have 24 weeks to use their PPP money, leaving them more time to take steps that will help them qualify for full loan forgiveness. In the calculations for forgiveness, there is a reduction in the loan forgiveness amount if you reduce any employee’s wages by more than 25% during the covered period. However, if wages are restored by December 31, there is a safe harbor to avoid reductions in the loan forgiveness. If you apply early for forgiveness you may forfeit this safe harbor.
Application Processes are Still Being Finalized
Many lenders and payroll providers are developing tools and custom reports specifically to comply with PPP guidance to make the process more simple and efficient. However, until the U.S. Small Business Administration (SBA) and the U.S. Treasury Department issue final guidance, those technology tools can’t be finalized. The timing on when this guidance will be released is uncertain, so lenders and payroll providers are unable to finalize the development of their tools and reports needed to establish a forgiveness application process.
The Process May be Very Simple for You
Applying for forgiveness may be easier for your business than you might expect. If at least one of the following requirements have been met, borrowers can use a simplified process through SBA Form 3508EZ:
More Time to Qualify for Full Loan Forgiveness
New guidance has been released that allows PPP recipients to apply for loan forgiveness before their covered period ends, but doing this may result in a portion of the loan proceeds not being forgiven. Organizations have 24 weeks to use their PPP money, leaving them more time to take steps that will help them qualify for full loan forgiveness. In the calculations for forgiveness, there is a reduction in the loan forgiveness amount if you reduce any employee’s wages by more than 25% during the covered period. However, if wages are restored by December 31, there is a safe harbor to avoid reductions in the loan forgiveness. If you apply early for forgiveness you may forfeit this safe harbor.
Application Processes are Still Being Finalized
Many lenders and payroll providers are developing tools and custom reports specifically to comply with PPP guidance to make the process more simple and efficient. However, until the U.S. Small Business Administration (SBA) and the U.S. Treasury Department issue final guidance, those technology tools can’t be finalized. The timing on when this guidance will be released is uncertain, so lenders and payroll providers are unable to finalize the development of their tools and reports needed to establish a forgiveness application process.
The Process May be Very Simple for You
Applying for forgiveness may be easier for your business than you might expect. If at least one of the following requirements have been met, borrowers can use a simplified process through SBA Form 3508EZ:
- Self-employed individuals, independent contractors or sole proprietors who had no employees when they applied for their PPP loan and who didn’t include any employee salaries in calculating their average payroll amount in their application.
- No reduction of salaries or hourly wages for certain employees by more than 25% during the loan period and — except for specified exceptions — no reduction in the number of employees or the average paid hours for employees between Jan. 1, 2020, and the end of their covered loan period.
- No reduction in salaries or hourly wages for certain employees by more than 25% during the loan period and were unable to operate at the same business activity level during the loan period because of federal safety requirements or guidance related to the pandemic.
We understand that while this program has been a blessing to many small businesses, it can be difficult to understand all of the regulations and guidelines that go along with it. Our CPAs in Central Missouri want to help you however we can. Again, if you have any questions on any of this, please give us a call. Our phone numbers are listed below. We are constantly posting relevant updates in regard to your taxes, PPP, Loan Forgiveness and so much more on our social media platforms. Be sure to follow us on our social media platforms listed below to stay up to date on the latest information.
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