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3 Things Small Businesses Should Know About PPP Loan Forgiveness

SBA streamlines process that some borrowers can use to convert money to a grant

Paycheck protection program papers on a desk

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En español | When federal lawmakers created the Paycheck Protection Program (PPP) as part of stimulus legislation last spring, they added a potential lifeline for small businesses that were seeing their revenue decline as a result of the coronavirus pandemic. Entrepreneurs could borrow money through their local lenders and, if they used the money to pay employees or cover some other expenses, the loan would become a grant instead.

Businesses eagerly grasped at this aid. According to the Small Business Administration (SBA), the federal agency that manages the PPP, the program provided 5.2 million loans worth more than $525 billion to small businesses, helping to save millions of jobs.

Many of the small businesses that borrowed through the PPP have now hit a key milestone: It's time to apply for loan forgiveness. Entrepreneurs who borrowed money through the PPP were given a period of 24 weeks to use the funds in order for the loan to become a grant. That means that businesses that borrowed in the early spring can now file the paperwork to have the loan forgiven.

That application process hasn't been quite as easy or automatic as some borrowers had hoped it might be. Among those business owners who took PPP loans, 62 percent said they were worried the loan might not be forgiven, according to a survey by the Main Street Alliance (MSA), an advocacy group for small businesses. Another 39 percent said they tried to start the process to convert their loans to grants but lenders weren't ready to handle applications.


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To make the process of converting a PPP loan into a grant easier, the SBA recently released a streamlined application for businesses that borrowed $50,000 or less through the program. “The Paycheck Protection Program has been an overwhelming success and served as a historic lifeline to America's hurting small businesses and tens of millions of workers,” says SBA Administrator Jovita Carranza. The new application “demonstrates our relentless commitment to using every tool in our toolbelt to help small businesses and the banks that have participated in this program."

Here are answers to three key questions about the streamlined PPP forgiveness application:

1. Where can I get the forms?

Just as they were the key point in applying for federal PPP money, banks and other lenders also are where borrowers should go to start the loan forgiveness process. If you are a PPP borrower, reach out to your lender directly if they have not already contacted you about converting your loan to a grant. You can also find the necessary paperwork on the SBA website. You can find the PPP Loan Forgiveness Application Form 3508S for borrowers of $50,000 or less here. The instructions for completing that form are available here.

2. Who qualifies for loan forgiveness through this process?

To be eligible to convert to a grant, the money borrowed though the PPP must be used primarily to cover payroll along with some other expenses such as rent, utilities and interest on a mortgage. The payroll amount can include health care and retirement benefits, and state and local payroll taxes paid by the employer. That payroll calculation for PPP forgiveness also can include owner compensation. The non-payroll expenses cannot be more than 40 percent of the amount asked for forgiveness.

The money generally also has to have been spent during a 24-week period that started once the business received the PPP funds.

3. What if my business laid off employees or cut wages?

The PPP was intended primarily to keep small businesses — which employ roughly 47 percent of all private sector employees — from firing workers. That means that borrowers were expected to keep the same average number of employees while also not cutting wages for workers who were earning less than $100,000 annually. Under the original PPP guidelines, significant drops (more than 25 percent) in either of those criteria can reduce the amount of the PPP loan that is eligible to be forgiven.

The new simplified application, however, does not actually require borrowers to do the calculations to reduce the amount eligible for forgiveness based on any drops in staffing and/or wages. Removing that step will make it easier for borrowers of small PPP loans to apply for forgiveness, but financial advisers warn that it doesn't necessarily mean that those owners who significantly cut staffing and/or wages have nothing to worry about. The SBA might eventually ask for further documentation during follow-up.

If changes to staffing and/or wages have you concerned about how much of your PPP loan could ultimately qualify for forgiveness, you have until Dec. 31, 2020, to raise wages and bring back workers to be eligible for the full amount of forgiveness.

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