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Finding the Way to Forgiveness: How to Close Out Your PPP Loan

The Paycheck Protection Program (PPP) proved to be a vital lifeline for small businesses dealing with the perils of the pandemic. Initially launched in the early days of the pandemic, it has provided needed funds to help support payroll and other business functions. 

Businesses may be eligible to have their loan forgiven, and the time to apply for that is upon us. If you received a PPP loan, you probably have some questions around how to best manage the loan forgiveness process. As with any large government program, there can be a lot of red tape to cut through, which isn’t necessarily the best use of your time as you help lead your business back from the challenges of the past year. 

To give you a better understanding of what the loan forgiveness process looks like, here’s a quick primer. 

​Determining who is eligible for loan forgiveness 

PPP loans were awarded in Spring 2020 (First Draw) and again in Spring 2021 (Second Draw). Regardless of when you received the funding, you’ll need to apply to have the loan forgiven. For full loan forgiveness, you must meet the following criteria: 

  • You were able to maintain your pre-pandemic employment and compensation levels. 
  • You spent at least 60 percent of your loan on payroll costs.  
  • You spent the remaining 40 percent or less on other eligible business expenses, such as rent, mortgage, or utilities. 

Once all loan proceeds for which you are requesting forgiveness have been used, you can apply for forgiveness any time up to the maturity date of the loan. After 10 months from the last day of the loan period, the PPP loan payments are no longer deferred, and you’ll be on the hook for paying back the loan. Therefore, it’s important to work with your accountant or financial partner to ensure you’re adhering to any deadlines. 

What’s needed for forgiveness 

Depending on the amount of the loan and the forgiveness forms you’re required to submit (there are three), supporting documentation may be needed. As such, here are some examples of documentation to keep on hand to help verify how your loan was used: 

  • Bank account statements 
  • Third-party payroll service reports 
  • Payroll tax filings 
  • State quarterly business reports 
  • Payment receipts 

If you used a portion of your loan for non-payroll items like rent, mortgage, electricity, gas, water, transportation, telephone, or internet access be sure to have supporting records just in case. Keep in mind that when calculating your eligible payroll costs, you can’t include qualified wages paid from April 1, 2020 through December 31, 2021 that are being used to claim the Employee Retention Credit. 

A new, easy option for small businesses 

Most loans in the second round of funding went to small businesses like yours, with most of them being $150,000 or less in size. To streamline the process, saving potential hassle and headaches of navigating forgiveness, the Small Business Administration has launched an online portal for those with smaller loans.  

The portal went live on August 4, and it features more than 600 banks that have already opted in, serving more than two million borrowers. More lenders are opting in each day, making this a viable, efficient option for those with loans less than $150,000. 

Serving our clients in tough times 

COVID-19 brought in a wave of challenges for small businesses, and PADGETT BUSINESS SERVICES® quickly moved to provide the support, service and care needed for our clients. Our offices helped clients secure more than $94 million in pandemic relief funding, ensuring they could keep their doors open, their staff employed, and their customers served. If your small business needs help with the loan forgiveness process or is interested in finding a new partner to stand with you when the going gets tough, reach out to a Padgett office today. 

We encourage you to contact us with any questions.

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