When the CARES Act became law in March of 2020, one of the most in demand offerings was the Paycheck Protection Program (PPP), which offered loans to businesses facing hardship as a result of the pandemic, and offered a path to full forgiveness of that loan. Businesses could receive these loans for up to 2.5 times their monthly payroll. Since then, there was an additional round of which millions of businesses took advantage.
In order to qualify for forgiveness of the loan, businesses now have to prove that they:
- spent the loan in the approved ways, towards the payroll of employees and other additional related expenses.
- spent the amount of the loan within the “covered period”, which falls between 8 and 24 weeks after the loan was issued.
Following that covered period, borrowers may apply for forgiveness of the loan with the lender that gave or serviced the loan. This application requires documentation of how the loan was used, any potential reductions, and the time period in which it was applied. This application may be completed by the borrower itself or with the guidance of a small business tax accountant due to the regulations attached.
How To Begin Applying for PPP Loan Forgiveness
To apply, the borrower may use one of three forgiveness forms: Form 3508, the standard form, Form 3508EZ, or the most recent, Form 3508S, which is available for loans less than 150,000 dollars.
The most simple way to complete the application is to start with the PPP Schedule A Worksheet, found on page 4. The results of the calculations found here will be useful for the remainder of the application. This table will request information such as:
- Employee Information (name, last for digits of Social Security number).
- Sum of all compensation, including salary, tips, commissions, and paid leave.
- Average FTE (full-time equivalents)
Safe harbors were built into the program in order for companies to avoid reduction in unforeseen circumstances. If a business, for instance, was unable to operate during the covered period due to lockdown restrictions, the borrower is considered exempt from reduction. A borrower may also be exempt if, after reducing its employee levels in the covered period, it then restores them.
What To Expect
Upon completion of the PPP Schedule A Worksheet, move onto the PPP Schedule A section of the application. Because you already calculated the sums required, the remainder of the application will be that much easier.
The PPP Schedule A section will request information about what your costs were during the covered period, to employees’ salary, towards benefits and retirement, and to business owners. Much of this, again, you already would have figured out by starting with the worksheet.
Your next step is to complete the PPP Loan Forgiveness Calculation Form, followed by the Forgiveness Amounts Calculation. These sections will ask for specifics: the dates of the covered period, the date the loan was deposited into your account, total payroll costs, business mortgage interest costs, property costs, etc.
Following this, the borrower must also certify that all stipulations of the loan were adhered to, and that all information provided is accurate.
Be sure to hold onto records of this information for at least six years after forgiveness of the loan.
This process is complex, and you, as the borrower, may not be comfortable filing the information on your own. In that case, do not hesitate to reach out to your local small business CPA in Charlotte for guidance or assistance.