The COVID-19 pandemic has hit small businesses particularly hard. Many have been able to survive only through the assistance of various state and federal programs. One of those programs that has helped tens of thousands of businesses is the Paycheck Protection Program (PPP), run by the U.S. Small Business Administration (SBA).
There have been several draws available of these loans through the SBA over the past year and a half. If your business has received a PPP loan under a certain amount, the good news is that it might be eligible for 100% loan forgiveness. Here’s what you need to know.
What is PPP Loan Forgiveness?
The attractiveness of the federal PPP program is that it was designed to help small businesses survive during the pandemic by allowing these companies to continue to pay salaries. This helps business owners, their employees, and consumers who use their products and services.
The program also allows these small businesses to apply for loan forgiveness if the business follows three simple rules:
- You must follow the 60/40 rule. This means that 60% of your loan proceeds must be spent on eligible payroll expenses and only 40% can be spent on eligible non-payroll expenses, such as rent, utility payments, operations expenses, and supplier costs.
- You must adhere to a covered period. From the date you receive your loan proceeds, the covered period will be between 8 and 24 weeks.
- You must maintain employees on the payroll. Since the reason for the program is to keep people working, you must maintain the same number of employees on your payroll (at least 75% salary) that you had prior to February 15, 2020.
How to Apply for PPP Loan Forgiveness
The SBA has tried to make applying for PPP loan forgiveness as simple as possible. If your loan was for $150,000 or less and your lender has opted into the program, you can apply directly on the SBA portal (if your lender hasn’t opted in, you can apply through your lender). The information you will need to apply for forgiveness includes:
- Your SSN, EIN, or ITIN number
- Your SBA loan number
- A statement of which covered period you’ve chosen (8 weeks vs. 24 weeks)
- Your gross receipts for 2019 and 2020
- The number of employees you had in 2020 and 2021
- The amount of your loan spent on payroll
- Your PPP loan forgiveness request
As you work through the instructions on the portal, you may be asked to upload certain documentation. However, most loan forgiveness applications are simple to fill out and won’t require much, if any, documentation.
Get the Small Business Accounting Help You Need
Nolan Accounting Center is a group of professional CPAs and Accountants offering accounting, bookkeeping, tax preparation, and payroll services to small businesses throughout Southeast Wisconsin. If your business would like to simplify its financial and tax planning strategy, contact us today to learn more about our services.