CFGMS Admin April 5, 2023 Categories: Small Business Funding, Working Capital Financing

How and when to apply for PPP loan forgiveness

The Paycheck Protection Program (PPP) loan forgiveness application process can be completed after the borrower has spent all the PPP loan funds on eligible expenses and can demonstrate that the funds were used in compliance with PPP loan requirements. 

Here is a general timeline for the PPP loan forgiveness process: 

1. Spend all PPP loan funds on eligible expenses: Borrowers must use at least 60% of the PPP loan funds on payroll expenses. Additionally, the remaining 40% on eligible non-payroll expenses, such as rent, mortgage interest, and utilities. 

2. Wait for the end of the covered period: The covered period for forgiveness is either 8 or 24 weeks from the date the funding was disbursed. This depends on the borrower’s election. 

3. Prepare and submit the application: Borrowers should gather all relevant documentation, such as payroll records and receipts for eligible expenses, to support their loan forgiveness request. There are several forms available for loan forgiveness, including the full forgiveness application (Form 3508) and the streamlined forgiveness application (Form 3508EZ). 

4. Wait for loan forgiveness determination: After the loan forgiveness application is submitted, the lender will review the borrower’s documentation and decide on the loan forgiveness amount. The lender has 60 days to make a decision and notify the borrower. 

5. It is important to note that the PPP loan forgiveness process may change over time as the program evolves. New guidance is issued by the Small Business Administration and the Department of the Treasury. Borrowers should consult with their lender and stay informed of any updates to the process. 

Documents needed to apply for forgiveness  

Payroll Documentation

Payroll records: Borrowers must provide documentation of payroll expenses, including payroll tax filings, payroll reports, and payroll registers. 

Evidence of employee job offers and rehire: If the borrower reduced employees or their wages during the covered period, they would need to provide documentation that shows that the employees were offered their previous job or a similar job and their previous rate of pay. 

Non-payroll Documentation

Evidence of expenses: Borrowers must provide documentation of eligible non-payroll expenses, such as rent, mortgage interest, and utilities. This should include receipts, invoices, and canceled checks. 

What are the first draw PPP loan forgiveness terms? 

The Paycheck Protection Program (PPP) loan forgiveness terms for First Draw PPP Loans are similar to those for Second Draw PPP Loans, with a few differences.

The key terms for First Draw PPP Loan forgiveness are: 

• Eligible expenses: Businesses must use First Draw PPP Loan funds on expenses that qualify. This includes payroll costs, mortgage interest, rent, and utilities. At least 60% of the loan must be spent on payroll costs. While the remaining 40% can be spent on eligible non-payroll expenses. 
• Covered period: The covered period for the First Draw is either 8 or 24 weeks, beginning on the date the loan was disbursed. It ends on the date that is 8 or 24 weeks later. The borrower must choose which covered period they want to use. 
• Full-time equivalent (FTE) employee requirements: To be eligible for full loan forgiveness, First Draw PPP Loan borrowers must maintain the same number of full-time equivalent (FTE) employees as they had prior to the COVID-19 pandemic. 
• Reduction in employee salary and wages: If the borrower reduces employee salaries or wages by more than 25% during the covered period, the amount will be reduced. 
• Loan forgiveness application: To apply for First Draw PPP Loan forgiveness, borrowers must complete and submit a loan forgiveness application. Such as Form 3508 or Form 3508EZ, along with supporting documentation, to their lender. 
• The lender will review the borrower’s documentation to determine loan forgiveness after the borrower submits the loan forgiveness application. The lender has 60 days to make a decision and notify the borrower. 

What are the second draw PPP loan forgiveness terms?  

The key terms for Second Draw PPP Loan forgiveness are:

• Eligible expenses: Businesses must use Second Draw funds on expenses that qualify. This includes payroll costs, mortgage interest, rent, and utilities. At least 60% of the loan must be spent on payroll costs, while the remaining 40% can be spent on eligible non-payroll expenses. 
• Covered period: The covered period for Second Draw PPP Loan forgiveness is either 8 or 24 weeks, beginning on the date the loan was disbursed, and ending on the date that is 8 or 24 weeks later. The borrower must choose which covered period they want to use. 
• Full-time equivalent (FTE) employee requirements: To be eligible for full loan forgiveness, Second Draw PPP Loan borrowers must maintain the same number of full-time equivalent (FTE) employees as they had prior to the COVID-19 pandemic. 
• Reduction in employee salary and wages: If the borrower reduces employee salaries or wages by more than 25% during the covered period, the loan forgiveness amount will be reduced. 
• Loan forgiveness application: To apply for Second Draw, borrowers must complete and submit an application. Such as Form 3508 or Form 3508S, along with supporting documentation, to their lender. 
• After the borrower submits the loan forgiveness application, the lender will review the borrower’s documentation to determine loan forgiveness. Then, decide on the loan forgiveness amount. The lender has 60 days to notify the borrower. 

Access PPP Loan Forgiveness forms 

3508 PPP Loan Forgiveness Application 

This is the standard loan forgiveness application and requires the most detailed information. The program is intended for borrowers who have employees and have incurred eligible expenses during the covered period.

3508EZ PPP Loan Forgiveness Application 

This is a simplified loan forgiveness application for borrowers who meet certain criteria. For example, borrowers who are self-employed and have no employees, or who did not reduce their employees’ salaries or wages by more than 25% during the covered period, can use this form. 

3508S PPP Loan Forgiveness Application  

This is a streamlined loan forgiveness application for borrowers who received PPP loans of $150,000 or less. The form intends to simplify the loan forgiveness process for small borrowers. 

Monitoring your SBA loan  

SBA PPP Direct Forgiveness Portal 

The Paycheck Protection Program loan forgiveness portal is a platform provided by the Small Business Administration (SBA). Borrowers had to submit their applications and supporting documentation. Overall, the portal provides a streamlined and secure method for borrowers.