Update: The SBA has now issued official guidance for PPP loan forgiveness, including an application form. We’ve updated the post below with the latest information.
If your business received a Paycheck Protection Program (PPP) loan, chances are you’re hoping to take advantage of the program’s generous loan forgiveness offer. With the SBA’s recent release of PPP loan forgiveness guidance, we now know more about how that will work.
When Congress created the PPP as part of the Coronavirus Aid, Relief, and Economic Security (CARES) act, the intent was to preserve employment by helping small businesses cover payroll and other expenses during the economic interruption caused by COVID-19. This is reflected in the requirements set out for loan forgiveness:
The application form to request loan forgiveness is now available from the SBA. Like the loan application itself, however, forgiveness will be handled through your lender, not directly through the SBA. You’ll need to work with your lender to find out their specific PPP forgiveness process.
Regardless of the steps in their process, however, one thing is guaranteed: you’ll need to have evidence of how the money was spent to prove that you qualify for forgiveness. The application form includes a page-long list of documentation required to show eligibility.
If you aren’t in the habit of keeping clean, well-ordered books, this is absolutely the time to start. You’ll need to be able to produce a paper trail of where the money went, including documentation for rent, utility payments, and the all-important payroll records.
If you haven’t already, start working with your bookkeeping and payroll providers to make sure you have the documentation you need to show your lender. This can include your payroll tax filings, insurance payments, and contributions to health or retirement plans. If you have any reductions in pay or headcount, be prepared to explain them. For example, if you ran into the situation where you offered to rehire an employee and they declined it, you’ll need documentation of the offer and their refusal.
Your lender may also have additional documentation requirements as part of their process. Even after you’ve provided everything you need for your lender to forgive your loan, it’s a good idea to keep your documentation handy. The Treasury has indicated it intends to audit some – or even maybe all – PPP loan recipients. Assume you will be audited for how you spent your loan money, and prepare accordingly.