How do I Start my PPP Loan Forgiveness Application?

By Iliana De Lara // November 02, 2020

Businesses that were granted a PPP loan are at the point where they have to start thinking about the process for loan forgiveness.

The latest we know is that you may submit a loan forgiveness application any time before the loan’s maturity date, which is either two or five years from loan origination.

If you don’t do this process, you have to pay the loan back.

Unlike traditional loans, the great benefit the Paycheck Protection Program (PPP) offers is that you can have the loan forgiven if you use the funds for certain qualifying expenses, mainly retaining your employees.

So, What Now? How do I Start my PPP Loan Forgiveness Application Form?

According to the SBA, “to apply for forgiveness of your Paycheck Protection Program loan, you (the borrower) must complete the application and submit it to your lender (or the lender that is servicing your loan). Borrowers may also complete this application electronically through their lender.”

It is important that you are informed… so please read along.

As forgiveness opened up, some banks and small businesses reported difficulty navigating the process, claiming that the process is complicated. (I’m one of those unsatisfied customers.)

On October 8, 2020 the SBA (Small Business Administration) and Treasury released a new simplified forgiveness application form for businesses who had loans with less than 50,000 dollars. The Form 3508S requires fewer calculations and less documentation for eligible borrowers.

Given that the process is complicated, around 100 trade groups are working with lawmakers to get a simplified loan forgiveness process for under $150,000, not just $50,000.

“We think that a simplified loan forgiveness is something that will occur once congress and the administration agree. Now, that said I can’t guarantee when that is going to happen,” said Neil Bradley, executive vice president & chief policy officer at the U.S. Chamber of Commerce during The Big Week for Small Businesses online event held by CO- on October 13-15th.

How is This Relevant to My Situation?

Knowing this will help you determine the proper timing to start your loan forgiveness process. But again, remember to contact your bank/lender to find out what they suggest.

Bradley separates small businesses that were approved for a PPP loan into three categories.

  • The first group is small businesses who used their loan proceeds for qualifying expenses -mostly to pay employees’ salaries- and there is no doubt in their mind that they will get 100% of the loan forgiven. These companies might want to go ahead and file that paperwork with their Lender to start the process.
  • Second, those companies who think they might qualify for full loan forgiveness but are overwhelmed by the paperwork and would rather wait to see if the “easy” process for loans under $150,000 is approved.
  • Finally, “there are those (companies) who used some of their loan proceeds to pay for qualifying expenses but know that they will owe some of the loan back. In which case, they might want to wait to see if congress expands the eligible uses for a PPP loan,” said Bradley, suggesting that they might include PPE equipment and sanitation expenses. “You may be able to get more loan forgiveness after congress has made those changes. If you are in that third bucket, it makes more sense to wait a few weeks, be alert to what congress does, and then decide how to proceed.”

Important note

the forgiveness loan application process has opened, but that does not mean that you need to pay your loan right now. You don’t have to pay back your loan for up to 10 months after the end of the covered loan period.

What Do you Mean my Expenses are Not Tax Deductible?

“As of today, the expenses are not tax-deductible. Traditionally when you get a loan and is forgiven, it becomes taxable income. What congress said was that forgiveness – which is usually taxable – is not taxable,” said Manny Cosme, President & CEO at CFO Services Group, during The Big Week for Small Businesses event. “Let’s say you get a PPP loan for 100,000 dollars and that the full amount is forgiven; normally, that 100,000 dollars would be taxed, but in this case, the PPP is not taxable so that’s great.”

The PPP funds were mostly meant to pay for payroll, and payroll is usually an expense, so you wouldn’t have to pay taxes for it. “But the IRS didn’t want everyone double-dipping, so they said you can’t get a deduction for 100,000 dollars in payroll, which means that the entire payroll expense that you incurred this year now becomes part of your profit which you are taxed on,” said Cosme. “Congress is looking at it, but as of today, is still not deductible.”

Important note

your tax bill this year can be higher than usual. You might need to put some extra cash away to be prepared. Make sure you talk to your tax accountant to know what you need to do.

Will There be a Reopening of the PPP Loan?

It is very likely to have a reopening of the PPP loan program as part of the second stimulus, which means that small businesses might have a second opportunity to get approved. What we don’t know is when this will take place. It is improbable that it will be before the elections. It could happen after the elections during a “lame-duck session,” or possibly with the new administration.

However, it is believed that the reopening of the PPP loan will only be for those who didn’t receive the funds before, as well as for small businesses who are continuing to experience significant revenue loss. If you previously received a PPP loan you will have to demonstrate that you had a substantial reduction in revenue, between 25-35% less gross receipts in a month or a quarter of this year compared to the same period the year before.

The SBA offers guidance for loan forgiveness on their website; make sure to check it out.

The Paycheck Protection Program (PPP) is a forgivable loan that started in April 3rd and closed on August 8th when the funds were exhausted. As of June 30th, 2020, 4.9 million forgivable loans were approved with a total of $521 billion via 5,500 lenders.

About the author

Iliana De Lara // Editor in Chief at The Inc. Framework. Iliana has been a journalist for over 17 years. She enjoys meeting new people and having interesting conversations with them. She loves to tell stories. Iliana lives in San Diego, California with her husband, two children and a dog. She has lived, studied and worked on both sides of the border all her life, and is proud to describe herself as bicultural and bilingual.