June 03, 2021

What You Need to Know About PPP Loan Forgiveness

Lenders, not the SBA, are responsible for approving applications for PPP loan forgiveness, so it’s important that you and your lender work together to ensure application forms and documentation are accurate and complete.

The Payroll Protection Program, part of the CARES Act legislated last year to help businesses get through the COVID-19 pandemic, pumped $81 billion into the restaurant and hospitality industry in loans during 2020 and 2021. Making those first- and second-round PPP loans forgivable was essential in making sure that restaurants aren’t burdened by more long-term debt.

Bill Briggs, an independent consultant and former Small Business Administration official, and Aaron Frazier, the Association’s Director of Health Care and Tax Policy, moderated a webinar on May 25 that helps explain how you can qualify and apply for PPP loan forgiveness.

Learn about our efforts to advocate for policies and relief packages helping restaurants survive the COVID-19 crisis. Visit Restaurants Act now!

The program, Briggs explains, was designed to help businesses stay open during the pandemic and keep people employed. And Congress legislated more changes in subsequent bills to make more expenses forgivable and the loan forgiveness process more streamlined. The process, he says, really starts with you and your lender.

Lenders, not the SBA, are responsible for approving applications for PPP loan forgiveness, so it’s important that you and your lender work together to ensure application forms and documentation are accurate and complete. Here’s how it works:

Loan Forgiveness Requirements

Both 1st- and 2nd-round PPP loans qualify for full loan forgiveness during the 8- to 24-week covered period if:

  • Employee and compensation levels are maintained
  • Loan proceeds are spent on payroll costs and other eligible expenses (such as rent, utilities, etc.)
  • At least 60% of the proceeds are spent on payroll costs (wages, tips, benefits and other expenses related to payroll).

Safe Harbors for Reducing FTEs

Two separate safe harbor rules exempt certain borrowers from having their loan forgiveness amount reduced based on a reduction in FTE employee levels.

  • Safe Harbor 1: If you’re unable to return to the same level of business activity the business was operating at before February 15, 2020, due to compliance with requirements or guidance issued between March 1, 2020 and December 31, 2020 by federal, state or local government.
  • Safe Harbor 2: If you reduced your FTE employee level between February 15, 2020 and April 26, 2020, and you restored FTE levels to either the level before December 31, 2020, or to the FTE levels in the pay period that included February 15, 2020.

Applying for Forgiveness

You can apply for loan forgiveness once you’ve used all the proceeds you received, and you have until the maturity date of the loan to apply. If you don’t apply within 10 months after your covered period ends, however, your loan repayment will no longer be deferred and you’ll have to start making loan payments to your lender.

To apply, here’s what you need:

  • Application form SBA 3508, SBA 3508EZ, SBA 3508S or a lender equivalent. Forms 3805EZ and 3805S are shorter versions of the form for specific types of borrowers, and your lender can help you determine which form is best for you.
  • Documentation for payroll expenses (such as bank account statements or 3rd-party payment records, IRS or state tax filings, and payment receipts or statements for employer contributions to health insurance or retirement plans).
  • Documentation for non-payroll expenses (business mortgage interest or lease/rent payment receipts or account statements; utility payment receipts, cancelled checks or bank account statements; grocery, supplies and PPE receipts; etc.).

Submit the form and documentation to your lender and follow up to make sure you provide any additional documentation your lender might need.

And give the process time. Briggs says lenders have 60 days from the time you submit your application for forgiveness to reach a decision on how much of your PPP loan can be forgiven. The SBA has an additional 90 days to process and review the lender’s decision and repay the lender.

You might have questions along the way, as did some of the webinar attendees. Examples include:

  • Q: What if you're not open during your 24-week window but plan to open once mandates are lifted and supplies can be obtained, or if you're a seasonal operation that won't start up until after your 24-week window?
    A: If a business cannot spend the PPP loan on eligible expenses during the 24-week covered period, the loan is not eligible for forgiveness. If only part of the expenses fall within the 24-week period you can still apply for partial forgiveness.
  • Q: What options do I have for PPP loan forgiveness if I can't meet 60% payroll?
    A: You can seek forgiveness for a portion of the loan, and then retain the unforgiven loan funds at a 1% interest rate over five years.
  • Q: Can I get PPP loan forgiveness if I received an RRF grant?
    A: PPP loan forgiveness is unrelated to RRF grants. If you received a PPP loan, the amount of any RRF grant you receive will be reduced by the amount of the PPP funds you received. However, you still can apply for PPP loan forgiveness by giving your lender the completed application form and proper documentation.
  • Q: What expenses are forgivable if I use a 3rd-party payroll processor?
    A: A any software you needed to purchase and the processing fees for payroll are forgivable, but not any other administrative costs.

Other questions participants asked included “safe harbor” rules governing how to calculate FTEs during the covered period you choose, and how to treat salary of owners of multiple restaurants. These and others are answered on the SBA FAQs page.