PPP Forgiveness: Why it’s important to apply

Jose Hernandez Business Banker

The Paycheck Protection Program (PPP), in partnership with the Small Business Administration (SBA), gave out $669 billion in loans to help small businesses across the country stay afloat and continue to pay their employees throughout the crisis.

If your business was one of the almost 12 million businesses that received a PPP loan over the past two years, it’s important that you apply for PPP loan forgiveness.

Why it’s important to apply for forgiveness

Once existing PPP borrowers have used up the loan proceeds they received for specified purposes, they can apply for loan forgiveness at any time on or before the maturity of the loan. Loan forgiveness means that you do not have to pay the loan back; it is essentially free money. If you don’t apply for PPP forgiveness within 10 months after the last day of the covered period, then the PPP loan payments are no longer deferred, and you’ll have to begin making loan payments to your PPP lender.

As long as you apply for forgiveness within that 10-month period, you will not be required to make payments or accrue interest while a decision is pending.

How do you know if you’re qualified for forgiveness?

Eligible borrowers can qualify for full loan forgiveness if, during the 8- to 24-week covered period following loan disbursement:

• Employee and compensation levels were maintained,
• The loan proceeds were spent on payroll costs and other eligible expenses, and
• At least 60% of the proceeds were spent on payroll costs.

If you don’t qualify for full forgiveness, you can still get most or some of your loan forgiven.

How do you apply for PPP loan forgiveness?

To get your PPP loan forgiven, you’ll need to fill out a PPP forgiveness application. In August of 2021, the SBA opened an optional direct loan forgiveness portal with a streamlined process for borrowers with loans of $150,000 or less, which represents more than 90% of all PPP borrowers.

You also may need to compile and submit supporting documentation. That documentation includes items such as:

• Bank account statements/payroll service provider reports documenting employee compensation
• Tax forms during the covered period
• Receipts/account statements documenting employer contributions to employee health insurance and retirement plans
• And non-payroll expenses including business mortgage/rent payments, utility payments, operations expenses, etc.

The SBA’s loan forgiveness application form includes a detailed list of the documents you need to submit with your application, as well as the documents you should retain but don’t need to submit, and the documents you’re required to keep for six years after the loan is forgiven or repaid.