Although small businesses may get a discount on their Paycheck Protection Program (P3) loans, only about half of borrowers have requested relief, even though loans of $ 150,000 or less only require a one page request.
The reasons small businesses delay loan forgiveness vary. For some, rumors of impending full pardon from the federal government are to blame. For others, it’s procrastination. But with many PPP loans coming due with the first payment, small business owners need to act quickly.
What is PPP loan forgiveness?
The Paycheque Protection Program was created at the height of the pandemic to help small businesses survive. Congress authorized the Small Business Administration to issue hundreds of billions of dollars in low interest small business loans. Since then, nearly $ 800 billion has been released for 8.5 million small businesses. PPP loans are forgivable as long as the borrower uses the money for qualifying expenses, including keeping staff on their payroll. It can also be used for certain operating expenses and other business costs associated with the pandemic.
Borrowers are advised to request a loan discount as soon as the proceeds have been used. They can be applied at any time up to the loan maturity date, i.e. 10 months after the loan is issued. For example, companies that took out PPP loans in January must start repaying in November if they have not been approved for loan forgiveness.
“You have until the loan maturity date if you ask for a forgiveness, but there is no incentive to wait,” Alan Haut, US Small Business Administration district director for Dakota told business.com North. “You will need to start making payments if you apply after the deferral period. ”
How to request a PPP loan discount?
Depending on how much you have borrowed, applying for PPP loan forgiveness may be a matter of minutes or may require more effort. In any case, here are the steps to follow:
Step 1: Contact your lender.
The first step in getting a PPP loan discount is to contact your lender directly. The lender is responsible for helping borrowers get their loan canceled. The SBA streamlined the process by launching the PPP Direct Forgiveness Portal, which allows borrowers to automatically submit their rebate request to the lender.
There is a big caveat with this new tool. The lender must register with the SBA portal, which not all lenders have done. By the end of September, 1,400 PPP lenders, or more than half, had opted for the direct forgiveness portal. This means that about half of the lenders did not choose to participate. Therefore, contacting your lender should always be the first step.
“You need to contact your lender and make sure they’ve accepted,” Haut said. “Many lenders have their own online process that is quick and easy. Starting with the lender is the best option. “
If your lender is part of the Direct Forgiveness Portal and does not have their own online portal, use the SBA tool.
Step 2: Determine if you qualify for a loan forgiveness.
To get your PPP loan canceled, you must meet specific requirements. The amount of the loan will determine the amount of proof you will need to provide. The eligibility conditions are as follows:
- At least 60% of the total loan was used to cover salary costs and expenses.
- The remainder of the loan was spent on mortgage interest or rent, utility expenses, operating costs, property damage from the pandemic, supplies and personal protective equipment (PPE).
- Employers have attempted to keep employment and compensation levels in line with pre-pandemic levels.
If you check these boxes, you can proceed to the next step.
Step 3: Determine which app is right for you.
To get your PPP loan forgiven, complete an SBA 3508 form. There are three versions of the application, depending on the size of the loan and the number of employees on the payroll. Each application requires basic business information including name and address, tax ID number, and contact details. You will need to indicate whether this is your first or second draw PPP loan and enter the loan amount and terms.
The main difference between forms is the number of calculations you need to perform.
SBA Form 3508EZ
Use Form 3508EZ if your business has no employees and can meet any of the following criteria:
- You are self-employed without an employee.
- You haven’t cut employee salaries by more than 25%.
- Employee hours have remained the same.
This three-page application includes the Calculation Form, Signature Form, and an optional Demographic Information Form. It requires you to report how the PPP loan was spent and calculate your loan forgiveness amount.
SBA Form 3508S
Form 3508S is the easiest PPP loan forgiveness application to complete. It is only eligible for borrowers with loans of $ 150,000 or less. This two-page application requires no documentation and few calculations. When using Form 3508S, no documentation is required if this is your first PPP loan. For PPP Second Draw loans, borrowers must prove that their income has fallen by at least 25%.
SBA Form 3508
Form 3508 is the most complex of the three applications. It is aimed at small businesses that are not eligible to complete the 3508EZ or 3508S forms. The pardon application is five pages long and requires the most calculations. It includes a Calculation Page, Signature Form, Annex A, Annex A Spreadsheet, and the optional Demographic Information Form.
Step 4: Don’t wait too long to apply.
If you use your PPP loan money for its intended functions, you are guaranteed to receive loan rebate from your lender. But if you wait too long to apply, you may have to start paying off the loan.
“Small business owners need to know they only have 10 months to procrastinate,” said Brock Blake, CEO of online lending marketplace Lendio. “Once it’s 10 months after you get the loan, it’s accounts day. You have to start making payments after that.”