Despite reported differences between how Congress intended PPP dollars to be spent by small business owners and what the SBA initially had to say on the subject, the point is moot. The SBA has spoken, again, and new guidelines are out. Here are the top five things you must know to get your PPP loan forgiven:
1) You Must Apply
Just because you received PPP money doesn’t mean it will automatically be forgiven. You must file SBA Form 3508, Paycheck Protection Program Loan Forgiveness Application. It consists of four parts. The first two you’ll submit, the last two will guide you as you prepare your application. You can access the form here.
2) 75% Payroll Requirement for 100% Forgiveness
Some businesses were hoping the latest guidelines might loosen up on this, but…no go. The SBA has confirmed that you have to use at least 75% of your PPP funds on payroll in order to be fully forgiven. Your loan can still be partially forgiven if you fall short of the 75% mark. The SBA definition of payroll is the sum of pay, health insurance expenses, and retirement plan expenses. The other 25% can still go to the same things that were originally allowable—rent, mortgage interest payments, and utilities.
3) Return to Same FTE Count
As you spend the PPP money, remember that you must get back to the same number of full-time employees you stated on your original application, even if they are different employees with slightly different, but still full-time hours.
4) Your 8-Week Period Can Shift…Somewhat
You have 56 days to spend your PPP money, the equivalent of eight weeks. You can start counting your 56 days, also known as the ‘covered period,’ from your loan origination date. Or, you may delay the start of your 56 days to match your payroll schedule, meaning you start counting on the first day of your next payroll period after the loan origination date. It means you won’t have to do all sorts of payroll re-scheduling just to fit the SBA requirement.
5) More Flexibility in Calculating Wages
The SBA has granted a bit more flexibility regarding how you must calculate your 75% payroll number. During the 56-day period, you may count both wages “paid” — on the day paychecks were distributed or the day you set up an ACH to occur— and wages “incurred,” pay earned but not yet paid out. This was a definite win for business owners, providing the extra leeway needed.
Be sure to keep a copy of all the proof documents you submit plus all the backup documents and worksheets you used, whether you have to submit them or not, for six years in case of audit.
One last caveat, if you and any affiliates combined received over $2 million dollars in PPP loans, be sure to get legal counsel before applying for forgiveness. If your counsel indicates that according to the SBA’s affiliation rules you must check the “in excess of $2 million” box, be aware that this will likely trigger an audit by the Treasury Department. It’s better to know so you can be prepared.
Armed with an understanding of these basic SBA requirements, your business should stand in good stead to have your PPP loan forgiven.