The Time to Start Thinking About PPP Loan Forgiveness is Right Now

Updated: Jan 10, 2021




Note: Since this post was originally published Congress has passed a second stimulus package some of which affects the details of this blog post. Please refer to our latest post for the most up to date information.


As we move into the final months of 2020, it’s time to not only begin thinking about tax planning strategies, but also about applying for PPP Loan Forgiveness.


With constantly evolving guidelines and policies, our ever-changing economic environment may at times seem daunting. That’s why we are here to answer questions and help you navigate through these uncharted waters.


Whether you have already started receiving communications from your lender regarding the forgiveness application process or received a PPP loan earlier this year but haven't thought much about it since, please read on so that you know what to expect and can confidently take the first steps in deciding how and when to apply for forgiveness.


What does the general application and approval process look like?


Step 1: Submit a forgiveness application through your PPP lender

Step 2: The bank will approve your application and send to the SBA (up to 60 days)

Step 3: The SBA will approve forgiveness (up to 90 days)


Once a completed application and the required documentation have been submitted, it can take anywhere from a couple weeks to 5 months to complete the approval process.


What application should you use?


3508S form – borrowers with loans $50k and under

EZ form – borrowers with loans greater than $50k; must meet additional eligibility requirements regarding reductions in employee salaries and wages and reductions in employee headcount to qualify

Full form – all other borrowers that do not meet the eligibility requirements for applications listed above


What circumstances may impact the amount that will be forgiven?


In most cases, the full loan amount (including interest owed) will qualify for forgiveness. However, there are specific circumstances noted below which may trigger a reduction in the loan amount forgiven.


Your loan forgiveness amount may be reduced if you:

-Spent less than the full amount of the loan received

-Spent less than 60% of the loan amount on payroll expenses

-Reduced your number of employees during the covered period

-Reduced the annual salary or hourly base wages of employees during the coverage period


Some great news ... The latest updates to the PPP Forgiveness guidance have resulted in eased restrictions on forgiveness criteria, specifically for borrowers who received PPP loans of $50,000 or less. Borrowers who fall under this category, will not be subject to a reduction in loan forgiveness for a decrease in employees or a decrease in employee salaries and wages.


What additional documentation is required to be submitted with the application(s)?


Supporting documentation is required for all applications to prove that the PPP Loan funds received were in fact used towards approved and eligible business expenses. The most common documents are payroll reports and/or bank statements showing proof of payments. Additional documentation and calculations may be required if funds received were spent on other eligible business expenses (ie. utilities, rent) or if your business is required to submit a Full form application.


Will the timing of my forgiveness application have tax implications?


Based on guidance recently published in Revenue Ruling 2020-27, if at the end of 2020 you have the reasonable expectation that your PPP loan will be forgiven (applicable to most taxpayers), you may not deduct PPP expenses (payroll, mortgage interest, utilities, rent) paid or incurred during the current tax year regardless of the year of forgiveness. This rule applies whether you have submitted an application for forgiveness by December 31, 2020 or not.


How do I know when to apply?


The biggest question still remaining on most small business owners' minds is … how do I know when to apply? The simple answer is that it depends on your business’s specific situation.


Per the PPP Flexibility Act, you have 10 months from the end of your 8/24-week coverage period to apply for forgiveness (original guidelines stated 6 months).


As a general rule of thumb, it’s better to apply while you have the greatest number of employees on staff if there is a chance you may not qualify for full forgiveness. Some key things you will want to consider when making your decision include:

-The amount of PPP loan funds spent to date

-Expense allocation of PPP loan funds to date

-Future plans for layoffs

-If the number of your staff has been reduced, identifying the reason why


In order to determine the optimal time to apply, it may be beneficial to discuss and review expenses and operations during the covered period as well as future business plans with your accounting professional. This will help ensure that your business receives the greatest forgiveness amount possible. If you are ready to discuss your forgiveness options, schedule a time to reach out to us today.



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