Tips from William D King – When and how you should apply for loan forgiveness under PPP

Since its implementation in 2020, the Paycheck Protection Program has undergone several extensions and finally ended on May 31, 2021.  Businesses that availed loans under the PPP should have started the process of paying back the loan failing. They should turn their attention to the process of availing forgiveness for the loan, which was an option built into the program, explains William D King.

By looking at the structure of the Paycheck Protection Program, it should not be hard to realize that the government intended to assist businesses by going out of its way and extending loans which they were even ready to forgive. Finally, it turns out that money offered in the form of loans was in some way equivalent to government grants for businesses that avoid paying it back by seeking forgiveness.

The aspect of loan forgiveness as perceived by William D King

Since implementing the Paycheck Protection Program more than a year ago, the government issued more than 10 million loans amounting to $750 billion, one of the largest stimulus offered to businesses to help them stay afloat while combating the economic downturn triggered by the coronavirus pandemic. While extending financial support to businesses, the government was well aware of the precarious financial condition they were going through and how difficult it might be for businesses to pay back the loan. Realizing the hardships that businesses were experiencing, the government was even ready to forgo the loan amount provided it helped businesses to survive.

Stipulations for spending the loan

Since the loans were primarily for funding employee benefit costs and payrolls, businesses had to spend 60% of it. Companies had to ensure that they used the funds for retaining employees and paying a part of the overheads for maintaining the business infrastructure. It would help them stay ready to bounce back at the shortest notice.  Businesses could use the remaining 40% of the rent and lease payments, mortgage interest payments, operations expenditures, supplier costs, worker health protection, and utilities.

Applying for loan forgiveness

Businesses that availed loans under PPP could apply for PPP loan forgiveness since August 2020.  Businesses could approach their lenders and apply for forgiveness by fulfilling the lender’s conditions, which can be different from other lenders. The earlier businesses apply for forgiveness, the better it is because it will help avoid starting repayment of any portion not considered for forgiveness. However, the maximum time allowed for applying for loan forgiveness is 10 months from the date of disbursement of the loan.

The loan forgiveness process for first time borrowers

Those who borrowed $150,000 either as first time borrowers or second draw PPP loans can follow a simplified process for seeking forgiveness. Businesses must complete a certification duly endorsed by the SBA, including the total loan amount, number of employees on the payroll, and the amount of loan spent toward payroll costs.

For loans exceeding $150,000, borrowers must submit their lender documentation following the requirements of the paycheck Protection Program. Borrowers applying for loan forgiveness should note that the PPP Flexibility Act of June 2020 would impact their applications for loan forgiveness.