The Small Business Association (SBA) has clarified the rules surrounding loan forgiveness of the Paycheck Protection Program (PPP). Until recently, many small business owners I spoke with were uncertain about what the process would look like and how they could apply for forgiveness of their loans.
Are You Eligible To Use the EZ PPP Loan Forgiveness Application?
There are two applications that must be completed and submitted when requesting a Paycheck Protection Program loan forgiveness. Those are the 3508 applications and the new 3508EZ form. If you meet at least one of the three requirements below, you may be able to complete and submit the EZ PPP loan forgiveness application.
1) You are self-employed and do not have any employees.
2) You did not reduce your employees’ hours or did not reduce their salaries or wages by more than 25%.
3) You experienced reductions in business as a result of health directives related to the Coronavirus (COVID-19) AND did not reduce the salaries or wages of your employees more than 25%.
We encourage you to understand the checklist for using SBA Form 3508EZ. This checklist will give you more information about what steps you need to take as the business owner to ensure your PPP Loan Forgiveness Application is approved.
When given the option, I think most business owners will opt to use the EZ application. Why? The EZ PPP Loan Forgiveness Application requires fewer calculations and less documentation for eligible borrowers.
For business owners to don’t meet at least one of the three requirements listed above, therefore can’t use Form 3508EZ, please review the updated PPP Loan Forgiveness Application Form 3508 and the revised Schedule A Worksheet. This application is a bit more cumbersome but still worth the hassle.
Tips for Applying for PPP Loan Forgiveness
Whichever form you use, we recommend tracking your eligible payroll and non-payroll costs as you incur them. Also, know which documents you will be required to submit in order to get your PPP loan forgiven. A full list of documents needed can be found here. You will also need to understand how to account for payments to furloughed employees, owner-employees, and self-employed individuals. If you received a PPP Loan, it might be a great time to enlist the help of a trusted financial planner and Certified Public Accountant (CPA). They can help guide you through the process of getting your Paycheck Protection Program loan forgiven.
PPP lenders should be incorporating the latest SBA PPP loan forgiveness updates as they prepare to start accepting online forgiveness requests. I would expect the loan forgiveness process to begin in the coming months. In a perfect world, your lender will contact you with information about how to apply for PPP loan forgiveness. However, you should be proactive as they may not all make the process as simple as possible.
Exactly how the application process will work is still unclear. Banks are pushing back on how much work they will have to do to clear these applications and forgive the loans. More work for them will translate into a smaller profit from this program, not to mention more hassle for the business owners.