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The Paycheck Protection Program (PPP) is a Small Business Administration (SBA) loan program created in March 2020.  in January 2021, the SBA updated the PPP loan program’s repayment forgiveness guidelines.

Under the PPP, borrowers must spend the funds within a specific period of time after receiving the loan. The funds must be spent on qualifying expenses, which are mostly payroll expenses, and if those requirements are met, the entire loan amount qualifies for forgiveness, but borrowers must apply for that forgiveness before the forgiveness period expires.

When to Apply for PPP Loan Forgiveness

Two of the qualifying factors to have a PPP loan forgiven are (1) to have used all the loaned funds within the specified time frame, and (2) the borrower applies for forgiveness within 10 months after the last day of the covered period (either 8- or 24-week period after funds disbursement).

The borrower may apply for forgiveness at any time up to the maturity date of the loan.

If the borrower applies for forgiveness after the 10 months past the last day of coverage, then PPP payments will no longer be deferred, and payments will be due to the lender.

How to Apply for PPP Loan Forgiveness

For borrowers whose lender is participating in direct forgiveness, the  U.S. Small Business Administration (SBA) has created a website which allows borrowers with PPP loans of $150,000 or less to apply for forgiveness directly through the SBA.
For borrowers whose lender is not participating, you must apply through your lender. Your lender will give you SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or an equivalent form. Your lender will advise further on submitting the application.

First Draw PPP Loan Forgiveness Qualifications

Your first Paycheck Protection Program (PPP) loan is a First Draw PPP loan. According to the SBA, borrowers qualify for full loan forgiveness if the following was in place during the 8-24 weeks following the disbursement of loan funds:

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

Second Draw PPP Loan Forgiveness Qualifications

A Second Draw PPP loan is if you had received a PPP loan once and you were eligible for and received another PPP loan.  Full loan forgiveness if the following was in place during the 8-24 weeks following the disbursement of loan funds:

  • Employee and compensation levels are maintained in the same manner as required for the First Draw PPP loan,
  • The loan proceeds are spent on payroll costs and other eligible expenses, and
  • At least 60% of the proceeds are spent on payroll costs.

PPP Forgiveness Application and Tax Impacts Planning

The details of PPP forgiveness can be complicated, and the potential tax liabilities can be significant.  For help with your forgiveness application and documentation requirements, give us a call.

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