The SBA Paycheck Protection Program (PPP) expired on May 31, 2021. This means that PPP applications submitted on or before May 31 will continue to be processed in June. However, no new applications will be accepted unless Congress extends the program.
Brief Background About PPP loans. Congress created the PPP “forgivable loan” (in other words, a grant) for small businesses in March of 2020. Congress has extended PPP several times. In December 2020, Congress separated PPP into two programs.
- First Draw PPP forgivable loans are for businesses that did not receive a PPP forgivable loan in 2020.
- Second Draw PPP forgivable loans are for businesses that received a PPP forgivable loan, but still have additional need for financial support. The Second Draw PPP loans are restricted to businesses with 300 or fewer employees and must be able to show at least a 25% reduction in revenue between comparable quarters in 2019 and 2020.
As long as borrowers use the funds for eligible expenses, borrowers can apply for “forgiveness”, which is what turns the loan into a grant that does not need to be repaid. Borrowers need to apply for forgiveness within 10 months of spending the money.
How and when to apply for loan forgiveness
Borrowers can apply for forgiveness once all loan proceeds for which the borrower is requesting forgiveness have been used. Borrowers must apply for forgiveness within 10 months after the last day of the covered period (the 8-24 weeks for which the loan covered). If the borrower does not file for forgiveness within 10 months, then borrowers will need to being making loan payments to their PPP lender to repay the loan.
To apply for forgiveness, contact your lender.
Once you have spent the PPP funds, contact your PPP lender and complete the correct form.
SBA Form 3508S. This form is for borrowers of $150,000 or less. It’s a short one page form. No calculations are required. Borrowers do not need to submit documentation (unless required by your lender). However, the SBA requires retaining all records for Form 3508S for four years. This is required in the event that you are selected for an SBA random audit. This form can be used for either First Draw or Second Draw PPP loans. Each loan must use a separate loan forgiveness application form. Therefore, the form cannot be used to combine both First and Second Draw PPP loans. In the event that borrowers received both a First and Second Draw PPP loan, borrowers must first apply for forgiveness for the First Draw Loan. Once that form has been submitted, borrowers can then apply for forgiveness for the Second Draw PPP loan. You may want to apply for forgiveness as soon as the funds are spent so that you don’t have to worry about bumping up against the 10 month time limit for submitting the forgiveness form.
Note: It is possible that your lender may have equivalent forms to the SBA form above. Lender forms may be in a PDF format or an online webform format.
Overview of Eligible Expenses for Forgiveness
In general, in order for forgiveness to be approved, at least 60% of the funds must be used for payroll related costs. This means up to 40% of the loan can be used for fixed costs such as mortgage interest, rent, utilities, software used for your business (e.g., for record-keeping or supporting other business operations), perishable goods (such as food costs), expenses for PPE, cleaning supplies, and other expenses related to social distancing and public health requirements related to COVID. For family child care providers, you are eligible for a PPP forgivable loan whether or not you have employees. (For example, for purposes of the PPP loan, an FCC provider is considered an employee). This means when completing the SBA form, the FCC provider is considered 1 employee. (e.g., In response to: Employees at Time of Loan Application, insert 1. In response to Employees at Time of Forgiveness Application, insert 1).
Allowable Expenses for Non-payroll Uses of PPP Funds. Four additional categories of eligible expenses for fixed costs were added through legislation enacted in December.
- Covered Operations Expenditures. Costs related to business software or cloud computing services that support business operations, billing, accounting, or record-keeping. For example, for child care programs, this means the cost of child care management system software that supports business operations or other business support.
- Covered Property Damage. Property damage due to public disturbances that occurred during 2020 that are not covered by insurance.
- Covered Supplier Costs. Expenses pursuant to a contract, order, or purchase order with respect to perishable goods and other items. For example, for child care programs, this means the purchase of food served to children.
- Covered Worker Protection Equipment. Expenses that support business activities to comply with COVID requirements established by the U.S. Department of Health and Human Services, Centers for Disease Control, Occupational Safety and Health Administration, or any equivalent requirements or guidance by a state or local government during the pandemic. For example, for child care programs, this means expenses for PPE, cleaning supplies, sneeze guards, portable water stations, and other expenses related to social distancing and public health requirements related to COVID.