What to Know About PPP Forgiveness Before Applying Through the SBA Portal

The Paycheck Protection Program (PPP) program provided the relief many companies needed to stabilize their financial position and see them through the pandemic-created economic crisis. The capital was intended to help business owners pay employees, pay outstanding rent and other bills, and invest in reopening and getting back to business.  The PPP program offered 5-year loans carrying a 1% interest rate making it some of the lowest cost financing small businesses were able to find.

The Small Business Administration (SBA) recently announced that on August 4 it will open a portal for small businesses that obtained loans of $150,000 or less to seek PPP loan forgiveness directly, assuming that the bank or financial institution that the small business applied through agrees to allow the SBA to process forgiveness applications on their behalf. Approximately 600 financial institutions have agreed to participate thus far.  There are a few important things small businesses will need to consider in preparation for requesting forgiveness.

How much is forgivable?

Much, if not all, of the loan is likely to be forgiven if you’ve continued paying bills and employees. However, 60% of the forgivable amount must come from payroll, so if your business has reduced its staff significantly from pre-pandemic levels, not all of the loan may be forgiven.

What are the requirements to obtain forgiveness?

1. Forgivable expenses include payroll, rent, mortgage interest, and utilities.  The second round expanded forgivable expenses to include general operating expenses, property damage expenses, supplier costs and worker protection expenses.
2. Sixty percent of eligible forgiveness must come from payroll expenses.
3. The loan forgiveness period in which forgivable expenses may be accrued is 24 weeks from the time the loan is issued.
4. If the borrower’s loan is less than $150,000, they will be eligible for a simplified one-page loan forgiveness process.

What are the qualifications for receiving a forgivable loan?

The maximum loan that a small business could qualify for was calculated as 2.5x the average monthly payroll of the company during either 2020 or 2019.  Businesses in the accommodation and food service industries (defined as businesses with a NAICS code beginning with “72”) had a maximum loan size of 3.5x average monthly payroll.  Payroll is capped at an annual rate of $100,000 per employee when calculating average monthly payroll.

Key qualification requirements for the second round of PPP funding include:

1. Eligible businesses must have experienced a 25 percent reduction in revenue in one quarter of 2020 (1st, 2nd, 3rd, 4th) over the same quarter in 2019.
2. Must have been in business on or before Feb. 15th 2020 (before COVID shut down the US)
3. Must have 300 or fewer employees
4. Public companies are ineligible