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How to Get Your PPP Loan Forgiven: Important Facts

Have you applied or been approved for the coronavirus Paycheck Protection Program, but are now wondering how to get your PPP loan forgiven? The Paycheck Protection Program has assisted and continues to assist many small businesses to economically survive during these tough times. But sorting through all of the PPP’s rules and documents can be challenging, especially since these are updated on an almost weekly basis. 

We’re here to help you figure out what expenses are covered under the PPP loan, when the deadlines fall, what documents you’ll need to submit along with your PPP loan forgiveness application, and everything else you need to know about how to get your PPP loan forgiven.

A businessperson walks to the computer to learn how to get your ppp loan forgiven

An Overview of How to Get Your PPP Loan Forgiven

To get your PPP loan forgiven, small businesses need to keep all employees on staff and paid the same wages they received prior to the pandemic. Alternatively, Paycheck Protection Program loans will also be forgiven if employers are able to once again, by June 30th, have all employees working their usual hours for their typical salary. The application for loan forgiveness has to be submitted eight weeks after the first loan payment is given by the lender. 

As per recently updated regulations to the Paycheck Protection Program, small businesses requesting less than $2 million will now be approved for the loan without rigorous examination of the documents. Many business owners likely received or will receive their PPP on this “good faith” certification. 

However, this safe harbor for the application process does not mean that PPP loans will similarly be forgiven without undergoing review. Regardless of your particular loan’s approval process, the PPP forgiveness process requires a good deal of careful documentation.

PPP Loan’s Covered Versus Uncovered Expenses

The first step in having your Paycheck Protection Program loan forgiven is making sure you know what you can spend your loan money on. 

In order to get your PPP loan forgiven, you need to spend at least 75% of the money on payroll costs, such as salaries, wages, employee health care, and commissions. Excluded from these eligible payroll costs are compensation for an individual employee exceeding $100,000 annually, sick or family leave already covered by the Families First Coronavirus Response Act, and the employer’s share of FICA.

The PPP allows no more than 25% of the loan to be spent on eligible non-payroll costs. Costs covered by this category include paying for mortgages, rent payments, and utility costs for business properties. 

Maintaining Pre-Pandemic Staff Numbers and Salaries

If you want to ensure that your entire PPP loan is forgiven, you’ll need to keep both your employee counts and their wages at pre-pandemic levels. However, there is a safe harbor for those employers who reduced employee hours, wages, and/or head counts between February 15 and April 26, but subsequently restored all of the above by June 30. 

To calculate pre-pandemic employee numbers and wages, small business owners must choose a reference period of either February 15, 2019–June 30, 2019, or January 1, 2020–February 29, 2020. If the business is seasonal, then the employer can elect to choose instead any 12 consecutive weeks between May 1, 2019, and September 15, 2019. 

The Paycheck Protection Program refers to maintaining and calculating staff levels as full-time equivalency (FTE). To have the full amount of your PPP forgiven, small business owners must retain the same number of employees and keep those employees’ hours the same as pre-coronavirus levels. This regulation applies to both full-time and part-time employees. Similarly, employee salary and wages must not be reduced by more than 25% in total for all employees in order for business owners to still be eligible to have their entire loan forgiven.

Documents Needed to Get Your PPP Loan Forgiven

Although you don’t need to submit your PPP loan forgiveness application until near the end of your eight week borrowing period, there are numerous documents you can start collecting or filling out while, or even before, you receive your loan money. 

Both the PPP Loan Forgiveness Calculation Form and the PPP Schedule A Worksheet will need to be filled out. The Calculation Form will need to be submitted with your application. The Worksheet doesn’t need to be submitted, but will need to be kept with your records.

To get your PPP loan forgiven, you will also need to submit the following documents confirming that you spent the loan money on eligible cash compensation and non-cash benefit payments for your particular covered period: 

  • Bank statements or files from a third-party payroll service provider reporting cash compensation paid to staff
  • Tax forms or files from a third-party payroll service provider already reported, or to be reported, including: 
    • Payroll tax filings (most likely Form 941)
    • State quarterly business reports
    • Wage reports for each employee
    • Unemployment insurance tax filings
  • Any employer contributions to staff health care and retirement plans calculated in the forgiveness amount. Documents for this might include:
    • Payment receipts
    • Cancelled checks
    • Account statements

You will also be asked to submit documents verifying your FTE. These documents will need to prove that you either maintained or restored the same number of employees, with the same number of hours, that you had prior to the pandemic. The submitted papers can cover a longer period of time than specified in your application. 

These files should be already or to be reported to the IRS or relevant state, and may include: 

  • Payroll tax filings
  • State quarterly business reports
  • Wage reporting for each employee
  • Unemployment insurance tax filings

To have your nonpayroll items forgiven, you will be required to submit documents that confirm you gave your staff these services prior to February 15, 2020. These documents will include: 

  • Mortgage interest payments on your business 
    • A copy of the lender amortization schedule, plus receipts or cancelled checks, both from the covered period OR
    • Lender account statements from February 2020 and the covered period through one month after the covered period
  • Rent or lease payments on your business
    • A copy of the current lease agreement, plus receipts or cancelled checks, both from the covered period OR
    • Lessor account statements from February 2020 and the covered period through one month after the covered period
  • Utility payments on business properties
    • Invoices from February 2020 and the covered period
    • Receipts, cancelled checks, or account statements to verify

Although you will not be asked to submit the following documents, the PPP requires that each small business owner must maintain some files for record keeping. The federal government mandates that this documentation be kept for six years after the day that the loan is either forgiven or completely repaid. Representatives of the Small Business Administration will be allowed to view these files upon request.

The files that will need to be kept in your records, but not submitted with your forgiveness application, are:

  • PPP Schedule A Worksheet
  • Files backing up the listing of every employee on PPP Schedule A Worksheet Table 1
    • This might include the Salary/Hourly Wage Reduction calculation
  • Files backing up the listing of every employee in PPP Schedule A Worksheet Table 2 
    • These files need to prove that each staff member received during any single pay period in 2019 compensation at an annualization rate of more than $100,000
  • Records of any employee departures and hirings, including
    • Employee job offers 
    • Employee job refusals
    • Firings for cause
    • Voluntary resignations
    • Written requests by employees for reductions in work schedule
  • Paperwork supporting the PPP Schedule A Worksheet “FTE Reduction Safe Harbor”

What Happens If You Don’t Meet 100% of Loan Forgiveness Requirements

If you are not able to meet all of the requirements for the Paycheck Protection Program, then you will likely get your PPP loan forgiven partially rather than fully. The amount of the loan that was not forgiven will become a continuing loan six to twelve months after submitting your forgiveness request. The loan will have a maximum duration of four years and an interest rate capped at 4%.

If you are not able to maintain or restore by June 30, 2020, the same number of pre-pandemic employees with their original work hours, the loan forgiveness amount will typically be reduced by the same percentage as the reduction in staff. As an example, if a small business owner had 100 full-time employees before the pandemic but had to reduce their staff to 80 full-time workers, their FTE percentage went down by 20%. This would mean that only 80% of this small business’ loan would be eligible for forgiveness.

If you had to reduce the wages or salary for some or all of your employees by more than 25%, this will also most likely cause your loan forgiveness amount to be reduced. In this case, the loan forgiveness amount will be shrunk by the actual dollar amount of the reduced salary or wages per employee.

Canal HR Can Help Manage Your Payroll

As a small business owner, you have enough to do without thinking about payroll. That’s why we’re here to manage all the record-keeping and filing necessary to keep your business running. Contact us today to learn more about how we can help your company with payroll, workers’ comp, employee benefits, and more.