How to Apply For Forgiveness From the Paycheck Protection Program (PPP)
If you received money from the Paycheck Protection Program (PPP), you must apply for forgiveness so you don’t have to pay it back!
The PPP is a non-taxable, forgivable loan program sponsored by the Small Business Administration (SBA).
When can you apply for forgiveness for either the First Draw or Second Draw?
You have 10 months after receiving the money to apply.
You must spend the money before applying for forgiveness.
You must wait at least 8 weeks after receiving the money before applying.
Ideally, you want to wait at least 11 weeks before applying. (See below*)
You must spend the money within 24 weeks after receiving it.
Where do you apply for forgiveness?
Contact the same lender where you received the PPP money. If you received the First Draw and Second Draw from two different lenders, contact each lender to apply separately for forgiveness.
Fill out the forgiveness application form online.
Your lender will then forward your forgiveness form to the SBA who will give final approval.
Some lenders may not be ready to process your forgiveness application right away. If you don’t see the application form on their website, be patient and come back to it later. If you can’t see how to apply as the ten-month deadline starts to approach, contact your lender for help.
How do you fill out the forgiveness application form?
Forgiveness Application Form 3508S (as of January 2021) is for those who borrowed less than $150,000, which should include every family child care provider who is not incorporated.
You can use this form when applying for forgiveness for either the First Draw or Second Draw.
Fill out a separate form for each Draw. If you are incorporated and borrowed $150,000 or more, use Form 3508EZ.
The Forgiveness Application Form 3508S is one page. It asks you how much PPP money you received and how much you want forgiven. Then it asks you to certify that you followed all the rules associated with the loan. That’s about it!
The form does not require you to submit any records showing how you spent the money. The SBA advises that you do save records in case the SBA asks for them later (which is highly unlikely). It’s possible that your lender may ask you to submit documents showing how you spent the money before they will submit your forgiveness application form to the SBA. Therefore, you should keep your own records on how you spent the money for at least 4 years for payroll expenses and 3 years for non-payroll expenses.
For non-payroll expenses, keep receipts showing you spent the money on utilities, mortgage loan interest, rent, transportation, food and COVID supplies. You cannot spend more than 40% of the money on non-payroll expenses.
For payroll expenses:
You must spend at least 60% of the money on payroll, which can include payroll for yourself.
You can spend 100% on payroll for yourself. Records showing you paid yourself payroll could be cancelled checks, a note indicating you transferred payroll money from one account to another, or a note indicating the money in your original bank account was for payroll. Once you pay yourself, you can then spend the money on whatever you want and do not need to keep records of this spending.
How to fill out Form 3508S
Business Legal Name: Your answer should match what you put on your PPP application form.
DBA or Tradename: If you have one, list it. You are not required to have one. Your answer should match what you put on your PPP application form.
NAICS Code: Enter 624410.
Business TIN (EIN, SSN): Enter the same information you put on your application form.
First Draw PPP Loan, Second Draw PPP Loan: Indicate which loan you are asking for forgiveness. If you only got one PPP loan, check the First Draw box.
SBA PPP Loan Number: This should appear on the paperwork you got when your loan was accepted. If you can’t find it, ask your lender.
Lender PPP Loan Number: This should come from your lender (bank or online company).
PPP Loan Amount: Enter the amount you received.
PPP Loan Disbursement Date: This is the date the money was deposited in your bank account.
Employees at Time of Loan Application: Enter 1 for yourself and 1 for each employee you had when you applied for the loan.
Employees at Time of Forgiveness Application: Enter 1 for yourself and 1 for each employee you had when you applied for forgiveness.
Covered Period: Enter the date you received the money in your bank account in the first space, and the date when you finished spending the money in the second space. The last date must be at least 8 weeks after you received the money and no more than 24 weeks after you received it.
If Borrower … Received First Draw PPP Loans of $2 Million or More…: Leave blank.
Amount of Loan Spent on Payroll Costs: Enter the amount you spent on either payroll costs for your employees or payroll costs for yourself. You must spend at least 60% of the PPP money on payroll costs. You can pay yourself with 60-100% of the PPP money. If you paid your employees with this money, see the instructions to this form for details on what can be included in employee pay and benefits.
Requested Loan Forgiveness Amount: Enter the same amount as your PPP Loan Amount from the previous box. Don’t put a number here that is higher than the amount you received!
The rest of the form asks you to certify that you followed all the rules for this loan. Put your initial next to each paragraph.
Sign at the bottom of the page, date it and submit it to your lender.
There is a page two to this form that asks you for some demographic information about yourself. It is optional to fill out this page.
Note: If you are applying for forgiveness from the Second Draw PPP, you will have to submit required documents to your lender to show that you had at least a 25% reduction in your gross income from 2019 to 2020. You may have already submitted such documents with your initial application.
Worried?
As you can see, the forgiveness application process and form is a simple one. Some providers worry that they won’t be forgiven. Don’t worry! 98% of small businesses who have applied for forgiveness receive it! The only way you would not be forgiven is if you did not spend the money or spend it on something that was not allowed. Spending it all on yourself addresses this concern.
What happens if you don’t apply for forgiveness? You can either return the money or keep it and it will turn into a 1% loan you will have to pay back within 5 years.
A reminder: The PPP is not taxable income! Once you fill out this forgiveness application form, you will not have to pay it back.
*The reason you want to wait at least 11 weeks before applying for forgiveness is that you can then use 100% of the PPP money on payroll for yourself. Let’s say your gross income was $48,000 (Schedule C, line 7). Here’s how much you are entitled to get from the PPP: $48,000 divided by 12 = $4,000 x 2.5 months = $10,000. SBA rules use the following formula to determine how fast you can spend payroll for yourself: Take line 7 from Schedule C: $48,000. Divide it by 52 weeks = $923 per week. That’s how much you earned on average per week. Therefore, that’s the maximum you can pay yourself each week. If you paid yourself $923 per week, it would take you 11 weeks to spend it all ($923 x 11 weeks = $10,000). If you want to spend the PPP money on yourself in less than 11 weeks, you would need to spend some of the money on non-payroll expenses such as utilities, food, etc. Note: If your PPP loan was based on your net income, rather than your gross income, use your net income in this formula.
Tom Copeland – www.tomcopelandblog.com
Image credit: Small Business Administration
