In 2021, there were $1.1 million worth of paycheck protection program (PPP) loans that were forgiven. This amounted to over $100 billion.
If you need your PPP loan forgiven, you’re not alone. It is possible, but you do need to make sure that you submit all of your paperwork and application on time.
But what is the deadline for PPP loan forgiveness, and what do you need to do to get approved? Click here to discover all you need to know.
What Are Qualifying Expenses?
If you want your loan to be forgiven, you have to have good FTE counts and records of the compensation that you’ve paid your employees. However, if you took out a loan of less than $50,000, you won’t have to worry about the compensation amounts, but you do have to make sure that the funds you took from the loan were actually used on qualifying expenses.
Keep in mind that any employee who voluntarily quit shouldn’t be counted when you’re calculating the difference while you were covered.
In addition, the qualified expenses are a 60/40 split. At least 60% of your PPP loans had to be spent on payroll expenses. The other 40% can be used on different business expenses.
The other 40% is normally referred to as non payroll expenses. In the qualified payroll expenses, however, you can pay for things like:
- State and local payroll taxes
- Employee compensation (this is capped at $100,000 per employee for an annual period)
- Employer benefits like health care and retirement
For non payroll expenses, you can use it to pay for things like:
- Any business supplies that are essential
- Qualified operating expenses
- Payroll processing
- Inventory tracking
- Property damage that insurance doesn’t cover
- Any COVID-19-related expenses
- Lease payments
- Mortgage interest
Keep in mind that if you spent your money on non-related items, then you may have a difficult time getting forgiveness for PPP loans.
What Is the PPP Loan Forgiveness Deadline?
If you meet all of those requirements, then you have ten months from the end of your loan’s covered period to apply. If you miss the ten-month deadline, then you’re responsible for the interest and payments.
In earlier versions of the PPP program, borrowers would only have eight weeks to apply for forgiveness. However, in 2020, these rules were changed to extend the forgiveness time period.
For example, if you had taken out a loan in April of 2020, you would have to spend the money by October 2020. That means your deadline would be in August 2021.
First Draw PPP Loans
However, there are two different types of loans, depending on when you took them out. If you took out a first-draw PPP loan before June 5, 2020, you’ll have an earlier deadline.
These loans have a maturity of two years and depending on when your loan was funded, you may have already missed the deadline. You’ll have to submit an application ten months after the last day of the covered period.
Second Draw PPP Loans
Second draw loans are different because they mature after five years. These PPP round 2 loans require that you submit an application ten months after the last day of the covered period.
So it’s still a ten-month deadline, but you’ll be able to use the loan for a little bit longer, meaning that you’ll have some time before you have to apply for forgiveness.
Loan Forgiveness Requirements
But what are the new rules for PPP loan forgiveness? If you want to have your PPP loan forgiven, you’ll need to meet some of the basic criteria.
You’ll need to ensure that you maintain all of the employee’s compensation levels and don’t reduce their pay. You’ll also need to spend the money from the loan on payroll costs or some of the other qualified expenses. Keep in mind that in 2021, the eligible expenses were broadened for the second-draw PPP loan.
You’ll also need to spend at least 60% of the loan on your payroll costs.
Submit an Application for PPP Forgiveness
Now you have to figure out how to apply for PPP loan forgiveness. For most businesses, it should be as easy as submitting an application online. You’ll first need to spend all of the funds, though.
If you took out the first-draw loan and then a second-draw loan, these will be two separate forgiveness applications.
When you need to apply, contact your lender, and they’ll give you an SBA form. This should either be a 3508, 3508EZ, or 3508S. They will have a long list of supporting documents that you’ll need to submit, and you will also have a lot of forms to fill out.
It might be best to have your accountant, attorney, lender, or any financial advisors on your team to help you go through this process and ensure that everything is accurate.
What to Do If You Miss PPP Loan Forgiveness Deadline
If you miss the Paycheck Protection Program (PPP) loan forgiveness deadline, there are some steps you can take to mitigate the consequences. First and foremost, it is important to explore all options with your lender. In addition to contacting your lender, it is also worth checking in with the Small Business Administration (SBA). The SBA provides guidance and assistance for businesses who have taken out PPP loans and need additional time. They have been flexible in responding to requests for extensions or modifications of repayment terms for borrowers who have missed the deadline for submission of their forgiveness forms.
If all else fails, it is critical that business owners contact their Congressional representatives for assistance. Representatives’ offices receive hundreds of inquiries every day from small business owners seeking help and can often provide necessary resources or advice on potential solutions.
If you miss the ten-month deadline, and you’ve already tried what you can to remedy the situation with the above tips, you’ll need to start making payments on your loan at a 1% interest rate. You can still apply for forgiveness once you’ve started repaying the loan, as long as it’s before the loan reaches maturity.
You can also ask your lender if they will agree to extend your loan terms. This applies if you have a two-year loan; you might be able to extend it to five years.
Learn More About PPP Loan Forgiveness
These are only a few things to know when wondering what is the deadline for PPP loan forgiveness. But there are many other factors to consider when working with a PPP loan.
Thankfully, we’re here to help you out so you don’t have to figure it all out on your own.
Contact ERC Today for more information about the Employee Retention Credit (ERC) and any questions you might have about it.