Confused About PPP Loan Forgiveness? Understanding the Guidelines

 In Business Tips, Small Business Funding

Many small businesses have applied and received funding via the Payroll Protection Plan (PPP). As part of the federal stimulus package, PPP loans can potentially be forgiven. However, there are PPP loan forgiveness guidelines that must be followed. The funds must be used within a specific time period and only for certain business expenses for part or all of the loan to be forgiven. For many small businesses struggling to survive the economic downturn that resulted from the COVID pandemic, that forgiveness is essential.

Initially, the PPP loan forgiveness guidelines were very stringent. In June 2020, the PPP Flexibility Act was signed into law to make it easier for businesses to qualify for forgiveness. It only allowed 8 weeks for borrowers to spend their PPP funding. The Flexibility Act extended that period to 24 weeks to spend their loan on forgivable expenses. However, business owners should evaluate whether the 8 week or 24 week period is best for their particular circumstances. If you received a PPP loan and are confused about qualifying for loan forgiveness, here’s what you need to know.

ppp loan forgiveness requirements

Expenses Eligible for PPP Loan Forgiveness  

First of all, to qualify for PPP loan forgiveness, you must only spend the funds on eligible expenses billed or incurred in the 24 week period immediately following the receipt of your loan. Those expenses include:

  • Payroll expenses, including employee benefits
  • Interest on mortgage obligations originated prior to February 15, 2020
  • Rent, under lease agreements contracted prior to February 15, 2020
  • Certain utilities, for which service began before February 15, 2020. These include:
    • Water 
    • Gas
    • Sewage
    • Telephone (cell phone and landline)
    • Internet 
    • Transportation 

What qualifies as a transportation expense has been a source of much confusion. It is not “fuel” or “mileage” which most business owners typically think of as transportation expense. It is a fee used as a financing mechanism that treats the transportation system as a utility.  Residents and businesses pay a fee based on their use of the system rather than a tax on the value of their property.  Generally, only in small cities in Washington, Idaho, Utah, Colorado, Texas, Missouri, and Florida will you encounter this type of transportation expense. 

Forgiveness Eligibility Mistakes

PPP funds can only be spent on the expenses listed above and only within the 24 week period immediately following the receipt of your loan. If they are spent on anything else, you will end up sacrificing part or all of the PPP loan forgiveness. It is also important to keep in mind that Payroll costs must equal at least 60% of the forgiveness amount.

If you fail to maintain your staff and payroll, you could end up owing money and your loan forgiveness may be reduced. Eligibility mistakes include:

  • Decreasing your full-time employee headcount
  • Decreasing salaries or wages by more than 25% for any employee who made $100,000 or less annualized in 2019

You might avoid a reduction in forgiveness if you restore your full-time employment and salary levels by December 31, 2020.  You may also avoid a reduction if you can prove you were unable to return to your standard level of business activity due to compliance with COVID-19 requirements. 

ppp loan forgiveness deadline

Applying for PPP Loan Forgiveness

When preparing to apply for PPP loan forgiveness, gather all of your documentation and either apply through your lender or use the SBA application revised as of September 2020. There has also been some confusion about the application deadline. According to the SBA FAQs as of October 13, 2020 Question: The PPP loan forgiveness application forms (3508, 3508EZ, and 3508S) display an expiration date of 10/31/2020 in the upper-right corner. However, this is not the deadline for submitting your forgiveness application. Applications may be submitted any time before the maturity date of the loan, which is either two or five years from loan origination.

Here at CFG Merchant Solutions, we realize that many of our clients are struggling to successfully navigate the guidelines and forgiveness process of the Payroll Protection Plan. In an effort to assist them and other business owners, we continue to update our resource center and connect you with the latest information and forms relating to the PPP loan and forgiveness. 

We understand the pandemic has drastically altered the economic landscape and will do our best to help our clients not only survive but successfully rebound. Contact us to see how we might be able to help.

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