REFRESHER: What is the Paycheck Protection Program?
The Paycheck Protection Program (PPP) is a Small Business Association (SBA)-backed loan to help businesses retain employees during the Coronavirus (COVID-19) pandemic enacted under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Funds can be used for payroll expenses and benefits and some non-payroll related expenses such as mortgage interest, rent, and utilities.
There are first and second-draw PPP loans. First-draw loans are available for first-time applicants, and second-draw loans are for businesses who already took advantage of a first-draw PPP loan.
PPP Loan Forgiveness
PPP loans can be forgiven if the following criteria are met:
- employee retention and compensation rates must be maintained
- loan funds must be spent according to the loan terms
- no less than 60 percent of loan funds are spent on payroll
When Congress passed the new spending bill at the end of 2020, the covered period for PPP loans was extended through March 31, 2021. With this extension, the SBA released new guidance for these loans and loan forgiveness.
Expanded PPP Loan Forgiveness
Eligible Forgivable Non-Payroll Expenses
Under these new guidelines, the number of eligible “forgivable” non-payroll expenses were expanded to cover payments for:
- software and cloud computing services
- property damage costs related to vandalism or looting not covered by insurance
- supplier costs for contracted goods (including perishable goods) ordered before taking out the loan
- expenses related to compliance with federal, state, or local health and safety guidelines related to the pandemic from March 1, 2020, until the national emergency declaration expiration
Covered Period for Forgiveness
The covered period for PPP loans is when a recipient can spend the funds and still qualify for loan forgiveness. The covered period was either eight or 24 weeks; however, recipients can choose when the covered period ends under the new guidelines. They can choose a date between 8 and 24 weeks after their loan origination date.
Simplified Loan Forgiveness Application
For loans under $150,000, a simplified forgiveness application is available. For borrowers who submit a signed certification under one page in length to the lender, loans are forgiven in full. The certification must include:
- the total loan amount
- an estimate of the total loan amount spent on payroll costs
- the number of employees the employer retained as a result of receiving their PPP loan
Applying for PPP Loan Forgiveness
Borrowers must wait until all PPP loan funds are used before applying for forgiveness. Forgiveness can be applied up to the maturity date of the loan. Forgiveness must be applied for within ten months after the last day of the covered period of the loan, or payments will no longer be deferred, and borrowers must begin repayment of the loan.
The appropriate loan form with all documentation for payroll and non-payroll expenses along with the forgiveness documentation should be submitted to the borrower’s lender to start the forgiveness process.
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