Paycheck Protection Program Loan Forgiveness

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What is the Paycheck Protection Program Flexibility Act?

Have a Paycheck Protection Program (PPP) loan? If so, you may be wondering how to qualify to have the loan forgiven. 

Well on June 5, 2020, the Paycheck Protection Program Flexibility Act (PPPFA) was signed into law.  This means the PPPFA makes it easier for small business owners to obtain loan forgiveness by relaxing the original PPP rules. 

Need to know what changed? Let’s dive in!

PPP Forgiveness Time Period

The Paycheck Protection Program (PPP) is a federal financial assistance program that provides forgivable loans to small businesses. So as a small business owner, you receive funding equal to 2.5 times your average monthly payroll costs. 

Originally, business owners had only 8 weeks to use the loan funds and obtain forgiveness. However, the PPPFA extends the forgiveness period from 8 weeks to 24 weeks after loan origination. 

How Can PPP Funds Be Spent?

The primary goal of the Paycheck Protection Program is to help small business owners continue to pay employees.  For the loan to be forgiven, you were originally required to spend at least 75% of PPP funds on payroll-related expenses. However, many small business owners were unhappy with this requirement. 

Why? Most small businesses were running at a fraction of their original capacity.  They suffered from greatly reduced income. To protect what profit they did have, many businesses decided to reduce their expenses. In many cases, this meant laying off staff.

Therefore,  the PPPFA reduces the requirement for payroll-related spending from 75% to 60%. Furthermore, no more than 40% of the funds can be spent on rent, mortgage interest, and utilities.

Rehiring Deadline and Requirements

The PPPFA also extends the deadline for you to rehire laid-off workers by six months. You now have until December 31, 2020 to rehire your team. In addition, the PPPFA relaxed the requirements for rehiring workers. 

Are you still operating with less staff? Well you may be eligible for loan forgiveness if you demonstrate an inability to:

  1. Rehire similarly qualified employees as those that were laid off
  2. Return to previous levels of business activity
  3. Rehire someone the business employed on or before February 15, 2020

What to Track to Qualify for PPP Forgiveness

How do you apply for PPP Forgiveness? First, keep detailed records of how you used your PPP funds. Be sure to spend only on approved expenses.

Second, provide payroll and other financial information. Thankfully, many payroll processors have developed PPP payroll reports specifically for this purpose. Not working with a CFO? Schedule your free financial consultation now and learn how we can help!

Additional information you’ll need to share:

  • your number of employees
  • how much you spend on mortgage or rent
  • your utilities 

Did you receive an SBA EIDL loan? If so, you’ll be asked to report the loan and loan advance amounts you received. 

How to Apply for Paycheck Protection Program Forgiveness

Here’s the steps to take to apply for loan forgiveness:

  1. Complete the SBA’s revised 3508 application or the 3508EZ form
  2. Unsure of which one to use?  Review this checklist to see if you qualify for using the simpler EZ form. 
  3. Check with your lender for specific requirements for submitting your application.
  4. Submit your application.
  5. Need assistance gathering the required documentation? Your payroll processor, CPA, or CFO may be able to help. Operating without one? Momentum brings the benefits of Fortune 500 financial expertise without the expense of hiring a full-time CFO. Schedule your free financial consultation now.

Repayment of Unforgiven Funds

The PPPFA enables more small business owners to obtain full loan forgiveness. However, if based on your use of the funds, you still feel you will not receive full loan forgiveness, there’s good news. The PPPFA extended the repayment term for the loan from two years to five years.  

In addition, the annual interest rate for the loan was left unchanged at 1.0% annually. 

Need more information about the Paycheck Protection Program Flexibility Act? View the full text of the Act here. 

Still Have Paycheck Protection Program Questions?

Need more help with PPP loans and long-term financial planning? Well, we offer services for small to mid-size businesses to help them avoid the expense of hiring a full-time CFO! 

Save money and time by contacting us at 858.284.0314. Or, schedule your free financial consultation.