PPP Loan Forgiveness: Are you Meeting the Requirements?
If your small business received a PPP Loan (Paycheck Protection Program) under the CARES ACT, congratulations! You likely already know that you can apply to have the loan forgiven but are you a little fuzzy on the requirements to do so? Let’s bring them into focus.
Staying on Track
Make sure you have the details covered and documentation to stay on track (based on the EZ form):
- You must use at least 60% of the loan proceeds for payroll expenses. These include compensation, employer state and local payroll taxes, employer retirement contributions and employer health insurance contributions. Amounts deducted from employees’ paychecks (employee contributions) should not be included.
- The remaining 40% of the loan can be used for rent, mortgage interest payments and utility costs.
- You must not have reduced your payroll in the 24 weeks (or 8 weeks if applicable) after receiving the loan funds. This includes maintaining your full-time equivalent (FTE) headcount; maintaining the average paid hours of employees; and reducing salaries and wages by no more than a 25%.
- You will need to provide documentation verifying your payroll expenses during the 8- or 24-week covered period. See form instructions for a detailed list.
- You will need to provide information on the non-payroll, qualifying expenses for the covered period. Services for qualifying expenses must have been in existence prior to February 15, 2020, and incurred during the 8- or 24-week covered period. You cannot prepay future expenses to use up funds.
- You will need to provide documentation on the number of employees and payroll costs on the books at the time you applied for the loan and at the time you apply for forgiveness. (There are some exceptions for self-employed individuals and those unable to operate at the same level of business activity prior to February 15th.)
Forms and Resources
Additional supporting documentation is required to be maintained but may not be required to be submitted with your PPP Loan forgiveness application. The SBA has a checklist you can download to determine if you can use the SBA Form 3508EZ form. It also contains detailed instructions and documentation requirements. I recommend that you review this document now for more details. If you do not qualify for the EZ form, the SBA Form 3508 and instructions are also available on their site.
