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The Small Business Administration (SBA) — which administers the Paycheck Protection Program (PPP) — published the PPP Loan Forgiveness Application on Friday, May 15, 2020.
Clocking in at 11 pages, this document provides instructions for PPP loan borrowers on how to apply for forgiveness on their PPP loans. The application details four key components necessary to complete before submitting to their lenders.
- The PPP Loan Forgiveness Calculation Form. The template for this form may be found on page 3 of the PPP Loan Forgiveness Application. It is required for submission to your lender.
- PPP Schedule A. Further instructions for PPP Schedule A are outlined on page 5 of the document. This is also required for submission to your lender.
- The PPP Schedule A Worksheet. If you are unable to complete this section, you must obtain an equivalent report from the borrower’s payroll system or payroll processor.
- The PPP Borrower Demographic Information Form. This form is on page 11 of the PPP Loan Forgiveness Application. It collects demographic information, such as gender and ethnicity data, for program reporting purposes only. It is the only form that is optional for submission.
The PPP Loan Forgiveness Application does address outstanding issues for small business owners that received PPP loans. These include how to calculate the average FTE (full-time equivalent) of employees during the Covered Period or Alternative Payroll Covered Period.
Additionally, borrowers may include eligible payroll and non-payroll expenses paid or incurred during the eight-week period after receiving the PPP loan.
However, small business owners that received PPP loans may still have questions about outstanding criteria necessary to get their loans forgiven:
- How much can be forgiven?
- What is the 75% rule as it pertains to payroll?
- And how quickly, exactly, will your PPP loan be forgiven?
- Now that we’ve gone over the application materials, let’s focus on the action steps business owners must take for PPP loan forgiveness.
1. Revisit the eight-week spending time frame
The clock officially starts ticking on the date the small business owner receives their PPP loan. There is now an eight-week time frame in which the money may be spent on allowable expenses, according to John Estill, Consulting CFO at Optima Office.
These expenses fall into two categories: payroll and non-payroll.
Estill says that payroll expenses include regular wages, paid time off (PTO), commissions, and tips that are paid over the eight-week period. This payroll amount is capped at an annual wage of $100,000.
Additional expenses may include employee healthcare, retirement plans, and state and local payroll taxes.
The amount of payroll forgiveness must be at least 75% of the forgiven amount.
What about non-payroll expenses? Payments for items such as rent and utilities cannot be more than 25% of the forgiveness amount.
“The timing of when the expenses are incurred and when the expenses are actually paid play a big part in the determination of them being forgiven,” Estill says.
The deadline for when employee FTE levels and compensation must be maintained or restored is June 30, 2020.
Read all 5 action steps business owners must take for PPP loan forgiveness at Godaddy