The CARES Act, a.k.a. the Coronavirus Aid, Relief, and Economic Security Act, which was signed into law in 2020, authorized the United States SBA (Small Business Administration) to issue loans to business owners under the PPP (Paycheck Protection Program ). Eventually, with increased funding, it became more accessible to more people.
Through the Paycheck Protection Program, the United States Small Business Administration has managed to help many of those businesses. Other than that, COVID-19 Economic Injury Disaster Loan (EIDL), and the Targeted EIDL Advance, were also helpful. However, all of them end in 2021.
What’s the purpose of PPP?
The main aim of the PPP was to help businesses that have been affected the most by the pandemic keep their workers on the payroll. As it was a forgivable loan, business owners had to apply for it.
Out of the applied businesses, SBA managed to issue 1,444,981 PPP loans between 2020 and 2021 to business owners and the self-employed. PPP loans that were granted in 2020 and 2021 were required by law to be repaid. The only exception was being qualified to have yours forgiven. The SBA has received 9,408,548 applications for forgiveness. According to the act, any PPP loan borrowers who were granted forgiveness were released from having to repay the money.
If you are wondering if SBA will be issuing another round of PPP loans in 2022, So far, it seems very unlikely that they will issue PPP loans in 2022. There has not been an announcement confirming that they will issue loans again. However, it is possible that they could bring PPP loans back if the pandemic takes another turn for the worse.
If your business received a PPP loan, you must be wondering if you can apply for loan forgiveness.
Through this post, we hope to discuss if you could apply for forgiveness, the process you have to go through and some tips to help you successfully apply for PPP loan forgiveness. Go ahead and scroll through to learn all about the loan.
Requirements for Loan Forgiveness
If you want loan forgiveness, the act requires you to apply for forgiveness. They do not approve every applicant who applies, though. The SBA requires you to meet a set of criteria to have your PPP loan forgiven. How do you know if you qualify for full loan forgiveness? You are eligible if you were able to meet the criteria during the 8-to 24-week time frame after loan disbursement. Have a look at the following, which explains the points included in the criteria:
You should maintain employee and compensation levels
You have to spend the loan proceeds on payroll costs and other eligible expenses. The definition of “eligible expenses” was further expanded for the Second Draw PPP loan in 2021. Accordingly, it includes supplier costs, protective equipment, employer-provided group insurance payments, operational expenses, and property damage.
At least 60% of the proceeds should be spent on payroll costs.
How to Apply
If you can meet the above criteria, then you are eligible to apply for PPP loan forgiveness after the full amount of the loan has been spent. It could be any time up to the loan’s maturity date. Suppose you fail to apply for forgiveness within 10 months after the last day of the covered period. Then, your loan payments will no longer be deferred.
Let’s now discuss how to apply for PPP loan forgiveness. We have listed the steps below for you. Take a look.
1st Step: Use the portal (if you’re eligible).
The SBA has a page entirely dedicated to PPP loan forgiveness. It contains the application and instructions necessary for applying for forgiveness. Suppose your PPP loan was $150,000 or lower. In that case, you can use the SBA’s Direct Forgiveness Portal, given that you used one of the participating lenders.
You have the chance to submit for forgiveness directly to the SBA through the portal. You will notice that the questions are similar to those on SBA Form 3508S. If you need assistance, you can watch the video the SBA has put up with instructions on how to use the portal.
Suppose you don’t have a participating lender. If that is the case, then you cannot use the portal for applying. Here, you can apply through your lender. The lender will need to provide you with the appropriate form for the application process.
2nd Step: Get your paperwork together
As any other application process would, you will have to provide documentation. You will be required to submit documents regarding both payroll and non-payroll expenses you incurred during the covered period. Remember that the process could vary according to the type of business. Still, it would be best if you were prepared to submit the following details regarding payroll:
- Tax forms (or equivalent third-party payroll service provider paperwork) for the time overlapping with the covered time frame. It includes payroll tax filings such as Form 941 and the Employer’s Quarterly Federal Tax Return. Other than that, state quarterly business and individual employee wage reports and unemployment insurance tax filings reported, or that are going to be reported, to the specific state need to be included too.
- Bank account statements or third-party payroll service provider reports that include the amount of money your employees received as payments.
- All payment receipts, account statements, and canceled checks that report the number of contributions you made towards employee retirement plans and health insurance, and that the borrower included in the forgiveness amount.
- Similarly, you may need to have the paperwork ready for the following non-payroll expenses during the covered period. For the first three items, you’ll also need to submit reports that those services or obligations were present before February 15, 2020.
- Business rent or lease payments: Get a copy of the current lease agreement and receipts or canceled checks verifying eligible payments.
- Business mortgage interest payments: Get a copy of the lender amortization schedule. You also need receipts that verify payments or lender account statements.
- Business utility payments: Get copies of receipts and invoices, canceled checks, or account statements.
- Operations expenditures: Get copies of orders, purchase orders paid, receipts, invoices, canceled checks, or account statements that verify eligible payments.
- Supplier expenses Get copies of orders, or purchase orders and contracts in effect at any time before the covered period apart from perishable goods, copies of invoices, orders, or purchase orders, paid receipts, canceled checks, or account statements that verify payments.
Suppose you’re claiming that some expenses were due to uninsured property damage caused by vandalism that happened in 2020. Then, you’ll need copies of orders or purchase orders paid, and receipts, invoices, canceled checks, or account statements.
Worker protection expenditures: Get copies of orders or purchase orders paid as well as receipts, invoices, canceled checks or account statements that verify eligible payments and verification that expenditures were used to follow COVID-19 guidance
Third Step: Submit the application
Once you have all the necessary documents, you are ready to submit the form. Suppose you met the criteria in the 1st step we discussed. Then you can use the Direct Forgiveness Portal to submit the form directly to the SBA. What if you do not meet the criteria? Then, you can submit the documentation and application to your lender. In some cases, this process may require more paperwork and details than what’s been mentioned in this post.
The 4th step: Wait for the decision
Once you have submitted your application, you can await the decision. When they get your form, the SBA or your lender will notify you of their decision within 60 days. Suppose they decide to forgive your loan. It is great news, but it could be for the full amount or only a part of the amount. In case you didn’t receive full loan forgiveness, you’ll have to repay the remaining amount with 1% interest over the remainder of the loan term. The lender will notify you when your first payment is due.
On the other hand, suppose the SBA denies your loan forgiveness either partially or fully. In that case, you have the right to appeal the decision. You can do so through the SBA’s Office of Hearings and Appeals (OHA). However, this process is only applicable to loan review decisions made by the SBA. You cannot appeal the decisions made by the lender through OHA. What you can do is directly contact the lender to discuss the situation and decision.
The SBA has a separate page with filing instructions for PPP appeals. You have a month(30 days) from the page date of the choice to appeal. When you do, the deferment period for the loan will be extended till a decision is made by the OHA. You’ll have to inform your lender regarding the appeal. That way, they can extend the deferment period, letting you hold off on making principal or interest payments until a decision is reached.
There are specific documents you have to submit when admitting your appeal. We listed them down for you.
- A copy of the loan review decision made by SBA
- Your or your lawyer’s name, address, contact number, and email address
Once you submit it, wait till you get a notification through the post. That’s how the OHA will contact you to inform you about the next step. They may request additional details and paperwork that they need to review before finalizing the decision. Remember that they may have a tight deadline for submitting these details and expect you to provide them before the closing date. So make sure not to delay. Also, make sure your appeal includes all the necessary details and is complete and mistake-proof before sending it away. If the appeal is not complete or deficient, the OHA could dismiss or disqualify it right away.
Other ways for you to access funding
Currently, it is unlikely the SBA will issue another round of PPP loans in 2022. However, they do offer businesses several alternatives to acquire funding, which are noted below for you.
- Microloans, which provide funding of $50,000 or less, to assist with start-up costs or for a business to grow,
- 7(a) loans, which refer to “guaranteed portions of the whole amount, capped interest rates, and limited fees.”
- 504 loans, which refer to “long-term, fixed-rate financing to buy or repair real estate, machinery, equipment, or other assets.”
How to find lenders
Maybe you are a new business owner or someone who already runs a business. Either way, if you need funding, you can go through the SBA directly to connect with lenders. That way, you are reducing risks. Otherwise, you may encounter predatory lenders that might take advantage of your situation. So make sure to do your research on lenders before giving out any personal information.
We hope you found the answers to your questions about PPP loans in 2022. So far, there has not been any announcement about another round of PPP loans anytime soon. There could be another round of it if COVID takes a turn for the worse. If you were a business owner who received PPP and wanted loan forgiveness, we hope this post helped you with the necessary tips.
We discussed the application process, the necessary documents you have to submit, and the appeal process too. Other than that, you’ve got to learn about how to find lenders. Make sure to be cautious when contacting lenders, as they could be scammers who want to take advantage of your situation.