Start planning to get your loan forgiven
If your small business has received a PPP loan, there are specific requirements you’ll need to meet in order to get your loan forgiven. We will update this page with the latest information from the SBA, and provide helpful resources for beginning your loan forgiveness process. Please check back frequently to stay informed and prepare for this next phase of the PPP loan.
Key changes to PPP and loan forgiveness
Updated: June 19, 2020
In June 2020, several significant changes were made to the SBA’s Paycheck Protection Program (PPP). Here are the key changes we wanted you to know about:
- Your business now has 24 weeks to spend PPP loan funds (up from the original 8 week period). Importantly, you are still allowed to use the original 8-week period if you prefer for your forgiveness application.
- Your business now must use at least 60% of PPP loan funds on payroll (down from the original 75% requirement for payroll). The remaining 40% has to be spent on approved non-payroll expenses.
- The deferral period for payments of principal, interest, and fees on PPP loans has been deferred to the date on which the SBA remits the loan forgiveness amount to the lender, or, if you do not apply for loan forgiveness, 10 months after the end of your loan forgiveness covered period.
- You now have until December 31 to fill positions if you’ve had layoffs. The prior timeframe was June 30 to rehire or fill vacant roles created due to layoffs.
- Additionally, there are new exceptions to the program’s rehiring requirements. If your business is unable to fill vacant positions, you can still qualify for forgiveness on payroll amounts if you are able to document one of the following:
- An inability to rehire any individual who was your employee on or before February 15, 2020, and an inability to hire a similarly qualified employee for each such unfilled position on or before December 31, 2020; or
- Your business has been unable to return to your pre-February 15, 2020 level of business activity due to compliance with certain government requirements for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
- If any portion of your loan is not forgiven, it will convert into a term loan and your business must pay principal and interest. Under the recent Flexibility Act, if your loan was approved by the SBA on or after June 5, the term of your loan will be 5 years on the unforgiven amount; if your loan was approved by the SBA prior to June 5, the term of your loan is 2 years on the unforgiven amount, but can be extended to 5 years at your request.
- The SBA rolled-out new forgiveness applications incorporating recent amendments made by the SBA, including, the introduction of an EZ application. Borrowers can use the EZ application if they meet one the following requirements:
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.
Bank of the West, along with other PPP lenders, is awaiting further guidance from the SBA and the U.S. Department of the Treasury on the manner in which these changes will be implemented. In order to take full advantage of these new provisions, we suggest you wait to submit requests for forgiveness until the SBA provides more guidance, while continuing to gather documentation in support of any forgiveness request.
Get prepared
While specific guidance has not been given by the SBA or Treasury, you will likely have to provide proof of qualifying expenses, so make sure to keep very good payroll and expense records. Some small businesses may want to consider working with a tax professional or a CPA for help with recordkeeping.
The following actions may increase your likelihood of forgiveness after the eight-week period:
- Keep the PPP funds separate: Consider putting the loan into its own designated account to better keep track of the funds.
- Keep disciplined records: Create account codes or sub-codes so there’s a paper trail for qualified expenses.
- Keep supporting documents: Stay organized with your documentation of PPP fund usage - especially for payroll, interest, rent, and utilities payments.
- Payroll: Retain payroll registers and proof of ACH transfers. If you outsource to a professional employer organization (PEO), save your payroll invoice that shows payroll costs and employee benefits.
- Utilities: Keep invoices and statements for electric, phone, internet, gas and heating providers.
- Rent and mortgage interest: Keep proof of payments.
If you have questions regarding the forgiveness process, talk with your lender. Each bank may have its own forgiveness application process.
Please keep in mind, these are just a few of the things your small businesses may want to consider, but they are by no means all the factors you may need to take into account to qualify for PPP loan forgiveness. Finally, as a PPP lender, Bank of the West can’t offer an opinion on whether the loan of any particular borrower qualifies for forgiveness.
Gathering your documents for loan forgiveness
To apply for the Paycheck Protection Program (PPP) loan forgiveness, you’ll need to provide documents to substantiate how your loan proceeds were used by your business. Many payroll providers are creating custom reports for this purpose, so you may want to check in with yours to see what’s available. If you plan to start gathering documentation on your own, here’s what you’ll need.
1. Payroll Documents
You'll need to provide documents that verify your eligible cash compensation and non-cash benefit payments during the 8 or 24-week loan Covered Period (or Alternative Payroll Covered Period), including:
Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees.
Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period (or Alternative Payroll Covered Period):
- Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans
2. Full-time Equivalent (FTE) Documents
Note: If you qualify for the EZ application, you may not need to gather the FTE documents.
For the full forgiveness application, you'll need to provide documents showing your average number of FTE employees on payroll per month based on one of the following date ranges of your choice:
- February 15, 2019 and June 30, 2019;
- January 1, 2020 and February 29, 2020; or
- If you're a seasonal employer, either of the previous date ranges or any consecutive twelve-week period between May 1, 2019 and September 15, 2019.
You’ll need to provide Average FTE for this date range when you apply for forgiveness, but your document(s) can cover periods longer than your chosen reference period. These include:
- Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941), and
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state.
If you were unable to return to the previous FTE levels, be prepared to maintain documentation related to any permitted “safe harbor” FTE reduction situations, that include:
- There was an inability to rehire individuals who were employees on February 15 (for example an employee refused a written offer of rehire because they left the area or were concerned about their health status);
- There was an inability to hire similarly qualified employees for unfilled positions on or before December 31, 2020 (for example, you placed advertisements that required certain education or work history, and no applicants applied who met that minimum criteria), or;
- You were unable to return to prior FTE levels because your business was not able to operate at the same level of business activity due to compliance with legal requirements established or guidance related to the maintenance of standards for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19 (for example local authorities only permitted your restaurant to provide take-out or delivery, or only allowed 50% of the tables to be occupied).
3. Nonpayroll documents
Finally, for any nonpayroll expenses you submit for forgiveness, you’ll want to gather documents showing (1) that these obligations/services existed before February 15, 2020 and (2) eligible payments from the 8 or 24-week loan Covered Period. These include:
Business mortgage interest payments
- Copy of lender amortization schedule and receipts or cancelled checks verifying eligible payments from the Covered Period; or
- Lender account statements from February 2020 and the months from the beginning of the covered period through one month after, verifying interest amounts and eligible payments.
Business rent or lease payments
- Copy of current lease agreement and receipts or cancelled checks verifying eligible payments from the Covered Period; or
- Lessor account statements from February 2020 and from the beginning of the Covered Period through one month after, verifying eligible payments.
Business utility payments
- Copy of invoices from February 2020 and those paid during the Covered Period, and
- Receipts, cancelled checks, or account statements verifying those eligible payments.
This list applies to the majority of businesses, but your situation may be unique, especially if you are a self-employed. The Paycheck Protection Program Forgiveness Applications (SBA Form 3508 or 3508EZ) covers many special circumstances, provides information on selection of the Covered Period (or Alternative Payroll Covered Period) for payroll, and addresses how to treat FTE Reduction. The SBA also continues to provide updates on forgiveness documentation requirements at SBA.gov.
Organize all the documents you gather and put them in a safe place; the SBA requires you to retain them for six years after your loan is fully forgiven and/or repaid, and to have them available for review in the future if requested.
