All That You Ever Wished For in a PPP Guide

PPP Guidebook

Updated June 16, 2021


Use these links to hop to the topics that catch your eye or dive right into our PPP guide and see where the journey takes you!

  1. PPP reopened for the third time
  2. What’s changed about the PPP loan?
  3. Who is eligible to apply for a PPP loan?
  4. What are the loan limits and terms for a PPP loan?
  5. Where can eligible borrowers apply for a PPP2 loan?
  6. When will the PPP loan portal stop taking applications?
  7. Why (not) apply for a PPP loan?
  8. How to get your PPP loan forgiven
  9. SBA audits PPP forgiveness applications
  10. Get answers to your PPP loan or forgiveness questions
  11. Your SBA PPP loan big takeaway

Check Your SBA PPP Loan Knowledge

After running out of money the first week of May, the historic Paycheck Protection Program (PPP) closed on schedule. In a June 1, 2021 news release, U.S. Small Business Administrator Isabella Casillas Guzman stated:

“The Paycheck Protection Program provided over 8.5 million small businesses and nonprofits the lifeline they needed to survive during a once-in-a-generation economic crisis.”

You may still have questions about your PPP loan; it wasn’t without its confusing moments. This article will be available as a resource for the foreseeable future. In it, you’ll find everything we thought small business owners need to know about PPP.

PPP reopened for the third time in January 2021

You read that correctly. The PPP has reopened for the third time. Since March 2020, our nation’s government emergency response to the coronavirus pandemic has undergone many changes; the PPP is no exception.

Get your copy of the PPP timeline here.

The Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020 became law on March 6, 2020. This law funded vaccine research and development to the tune of $8.3 billion. The first doses of the coronavirus vaccine available by mid-December in the United States.

Two weeks later, the Families First Coronavirus Response Act was enacted on March 18, 2020. The Families First Act provided $104 billion for emergency medical and family leave, nutrition assistance programs, and extended unemployment benefits. Emergency paid leave and employer tax credit have been extended through March 31, 2021.

The historic $2.2 trillion economic stimulus package known as the Coronavirus Aid, Relief, and Economic Security Act, aka the CARES Act, became law on March 27, 2020. It included $349 billion to fund the PPP. Administered by the Small Business Administration (SBA), the entire amount was allocated—a total of 1.7 million loans—between April 3 and April 16, 2020.

Further adjustments to the program were made by Congress or through guidance from the SBA. The PPP received an additional $484 billion from the Paycheck Protection Program and Healthcare Enhancement Act. It became law on April 24, 2020 and reopened the PPP for the first time.

In April, the SBA released guidance that publicly traded companies could not certify the necessity for a PPP loan. Any publicly-traded company that had received a PPP loan was allowed to return the funds without further action. Later, this certification of necessity became, well, necessary.

In June of 2020, The Paycheck Protection Program Flexibility Act changed forgiveness by altering the covered period (eight or 24 weeks); term limit of 5 years; safe harbor provision extended to December 31; forgivable non-payroll costs up to 40% from 25%; deferral of payments was extended; payroll tax deferral allowed after loan forgiveness.

On July 3, the deadline to apply for a PPP loan was extended from June 30 to August 8, 2020, with more than $130 billion unclaimed. This is the second time the PPP portal was reopened or not closed.

Summary of cumulative paycheck protection program data as of 11:59 p.m. EDT on August 8, 2020

Approved Loans Approved Dollars Average Loan Size # Participating Lenders
5,212,128 $525,012,201,124 $100,729 5,460

After many months of hotly debating continued relief bills, the Consolidated Appropriations Act became law on December 27, 2021. This reopened the PPP for the third time to first-time and “second-draw” borrowers.

What’s changed about the PPP loan?

The American Rescue Plan Act 2021 made several changes to the PPP to make it more helpful to the smallest of the small businesses, nonprofits, restaurants, and live venues.

➾ $7.25 billion appropriated to the SBA and available until expended. (The Economic Aid Act allocated $325 billion. in December 2020.) The deadline to apply was not changed. The deadline to apply for a PPP forgivable loan has been extended to May 31, 2021

➾ Added a new eligible type of business, “additional covered nonprofit entity,” included under section 501(c ) of the Internal Revenue Code with exceptions and qualifications.

➾ Therequirement of “no more than 500 employees” changed to “500 employees per physical location” for 501 (c)3 organizations and veterans organizations.

➾ Entertainment operations eligible for the Shuttered Venue Assistance were made eligible for PPP where previously they were not. The total amount of a Shuttered Venue grant is reduced by the entity’s PPP loan amount.

The American Rescue Plan Act of 2021 summary states:

“This bill provides additional relief to address the continued impact of COVID-19 (i.e., coronavirus disease 2019) on the economy, public health, state and local governments, individuals, and businesses.”

The American Rescue Plan Act of 2021, enacted on March 11, 2021, includes funding for small businesses and specific programs for restaurants and live venues.

How has the American Rescue Plan Act of 2021 changed funding available to SBA and small businesses?

The following chart chronicles the U.S. government’s small business stimulus during the coronavirus pandemic since the Consolidated Appropriations Action 2021 enacted in December 2020.

Chart 1: Chronology of small business relief since December 2020

Amount Purpose
$7.25 billion Added to PPP from a $1.9 trillion American Rescue Plan Act of 2021.
$284.45 billion Second round PPP loans and set aside:
$15 billion Set-aside for first and second-time loans to be issued by CDFIs and MDIs
$15 billion Set-aside for first and second-time loans to be issued by small depository institutions.
$35 billion First-time borrowers; $15 billion for businesses with 10 or fewer employees, or loans less than $250,000 in low-income areas
$25 billion Second-draw loans for borrowers with 10 or fewer employees or loans less than $250,000 in low-income areas
$1 billion Set-aside for businesses without employees in LMI areas (Feb. 22, 2021)
$28.6 billion Restaurant Revitalization Fund used to award grants necessary for ongoing operations and has not applied for or received a grant under section 324 of the Economic Aid Act 2021. (March 11, 2021)
$5 billion Set-aside for eligible entities with gross receipts during 2019 of not more than $500,000
$1.25 billion Appropriated for shuttered venue operators in 2021.
$20 billion Targeted EIDL Advance Program including:
$20 million Earmarked for the Inspector General
$15 billion Targeted EIDL Advance Program in addition to amounts otherwise available (March 11, 2021)
$10 billion To covered entities that have not received the full amounts to which the covered entities are entitled under section 331 of the Economic Aid Act
$5 billion To pay $5,000 covered entity that has a) suffered a loss of more than 50% and b) employs no more than 10 people.
$15 billion Grants to shuttered live venues, theaters, museums, and zoos
$3.5 billion SBA (7) a Debt Relief Program extension
$1.9 billion SBA 7(a) and 504 loan program modifications
$175 million Community Navigator Pilot Program ($100M for 2021; $75M for 2022) to increase the awareness and participation COVID relief for businesses.
$57 million Microloan program for technical assistance and direct lending to underserved borrowers
$50 million PPP auditing and fraud mitigation purposes
$25 million Technical assistance provided by Minority Business Development Centers

What got better for small businesses in this round of PPP?

The PPP got better for small businesses in several ways. Not only was more funding made available for potentially forgivable loans, but forgiveness was enhanced and clarified.

Another improvement to PPP was the commitment to mitigate fraud ($20 million to the SBA Inspector General). Also, $50 million was allocated to increase transparency (an issue last time) and accountability (audit reviews).

Who is eligible to apply for a PPP loan?

This time, the SBA guidance cleared a few things up about eligibility. Check your eligibility now.

The SBA defines eligibility for a PPP forgivable loan as follows:

  • “Second-draw” borrowers who have used or will use the full amount of their first PPP loan are eligible.
  • Qualify as a small business concern under section 3 of the Small Business Act, U.S.C. with no more than 500 employees or 300 employees for second-draw applicants. Eligible employers with multiple locations may not have more than 300 employees per physical location.
  • A 25% reduction in gross receipts in either the first, second, or third quarter of 2020 compared to the same quarter in 2019. Note: A 25% reduction in Q4 gross receipts in 2020 is acceptable if you apply for a PPP loan on or after January 1, 2021.
  • Type of entity matters. Businesses, certain types of nonprofit organizations, housing cooperatives, veterans’ organizations, tribal enterprises, self-employed, sole proprietorships, independent contractors, small agricultural cooperatives and internet publishing organizations (NAICS Code 519130) can apply. can apply.
  • Those who certify that economic uncertainty make this loan necessary.

How has eligibility for a PPP loan changed?

The Economic Aid Act changed PPP eligibility by expanding permission to apply to certain types of entities and making it clearer what types of organizations are not eligible.

Clarification of entities not eligible:

  • Publicly traded companies
  • Any business ineligible for SBA loans per the 13 C.F.R. 120.110 list except those made eligible by statute or guidance
  • Companies affiliated with entities in the People’s Republic of China
  • Registered entities under the Foreign Agents Registration Act
  • Companies receiving grants for live venues, theaters, museums, and zoos

Expanded eligibility to include:

  • Local newspaper, television, and radio stations that were previously ineligible due to their affiliation with other stations are eligible.
  • Small businesses in bankruptcy may be eligible for a PPP loan.
  • Churches and religious organizations are eligible. Affiliation rules apply to nonprofit organizations.
  • As of February 2021, applicants or owners (at least 20%) with prior non-felony convictions (one-year look-back) may apply unless an applicant or owner are incarcerated at the time of application.
  • As of February 22, 2021, the restriction for applicants or owners (at least 20%) with delinquent student loan payments was removed.
  • As of February 22, 2021, lawful U.S. residents may use an Individual Taxpayer Identification Number to apply.
  • As of March 11, 2021, an organization (several exceptions) under 501(c) of the IRS Code 1986 with not more than 500 employees per physical location (increased from 300 employees for each organization); and “additional covered nonprofit entity” that does not a) have more than 300 employees, b) receive more than 15% of receipts from lobbying, c) count lobbying activity as more than 15% of its activity, and d) show $1 million in expenses for lobbying activity in its most recent tax year prior to February 15, 2020.

If you are not eligible for a PPP forgivable loan, fear not; you have other options for capitalization. If you are, let’s get into the loan limits and terms for a second-round PPP loan.

What are the loan limits and terms for a PPP loan?

You probably already know that PPP loan terms were made even more attractive to borrowers than the existing SBA 7a loan terms.

Want to know your loan terms such as how long before the loan matures? What is the loan’s interest rate? Can you defer loan payments? For how long?

Here are the terms.

  • Waivers of affiliation rules in the first round PPP remain valid in the second round except for those made eligible (see Who is eligible for a second round PPP loan?).
  • One second draw loan per eligible applicant.
  • Loan fees are waived for borrowers and lenders. Additionally, fee waiver, personal guarantee waiver, and payment deferral apply to the loan’s life (over and above the covered period) per section 38.
  • For second draw loans of $150,000 or less, the applicant may certify lost revenue on or before submitting a loan forgiveness application. Note: Applicants for second draw loans of over $150,000 will need to submit documents in support.
  • Veteran’s organizations may use gross receipts to calculate their revenue loss standard.
  • PPP loans carry a 1% fixed interest rate and 5-year rate of maturity.
  • Repayment of unforgiven loan amounts may be deferred up to a year (for bank and secondary market-owned loans alike).

How do you calculate your maximum PPP loan amount?

The SBA limits a loan amount to $2 million.

Calculating your loan amount differs by type of business:

  1. If your business classification is NAICS code 72 (Accommodation and Food Services), calculate your loan amount by finding 3.5X the average monthly payroll costs.
  2. If you’re a seasonal employer, you may use the average total monthly payments for payroll during any consecutive 12-week period between May 1, 2019, and September 15, 2019.
  3. If neither a nor b is true, find 2.5X the average monthly payroll costs in the previous 12 months or the calendar year.
  4. As of March 3, 2021, if you file Form 1040, Schedule C, Profit or Loss from business, with no employees, you may calculate your loan amount using gross income instead of net profit. If you are a Schedule C filer with employees, you may calculate the owner’s compensation of payroll costs based on net profit or gross income minus expenses. Note: This change is not retroactive. If you have a PPP loan, you cannot request an increased amount based on gross income. See SBA PPP IFR Loan Amount Calculation and Eligibility pdf for details on changes to covered expenses and safe harbors for these borrowers.

What form do I use to apply for a PPP loan?

The SBA administers the program and guarantees the loan, but it does not lend the money. Your lender may use their own application form, but it must include the required information. It’s smart to be acquainted with what the SBA requires and get your accounting team working on gathering the information you’ll need to apply.

↠ First Draw PPP Applicants use Form 2483 updated March 3, 2021.

↠ Second Draw PPP Applicants use SBA Form 2483-SD updated March 3, 2021.

↠ First Draw PPP applicants use SBA Form 2483-C, who are Schedule C filers using gross income to calculate the loan amount.

↠ Second Draw PPP Applicants who are Schedule C filers using gross income to calculate their loan amount use SBA Form 2483-SD-C.

Talk to an expert

Where can eligible borrowers apply for a PPP loan?

For first-time PPP loan applicants, an easy way to find a 7(a) lender in your area is to use the SBA’s Lender Match. Our friends at Gusto created this list of CFI and fintech lenders.

This time around, the PPP reopened in phases, starting with community financial institutions (CFIs), followed by small depository institutions’ loans, followed by all SBA 7(a) lenders. The Economic Aid Act set aside funds to provide greater access for low-income, underserved borrowers.

What is a CDFI, and where can you find one to apply for a PPP loan?

The Economic Aid Act specifically looks out for small businesses in rural and underserved areas to increase their opportunity to receive forgivable PPP loans.

A community financial institution can be either one of four types of lenders including:

Community Financial Development Institutions (CDFI). They are community development banks, credit unions, and venture capital funds that provide financial services in low-income areas. Find a CDFI in your state with this database by the Opportunity Finance Network.

Community Development Corporation (CDC). A CDC is a 501(c)(3) non-profit organization that provides impoverished communities with commercial development, housing, and other services. They’re a CFI subcategory.

Minority Depository Institution (MDI) are FDIC-insured banks and credit unions owned or directed by members of an ethnic minority. Check out the National Credit Union Administration database to find an MDI in your state.

Microlender Intermediaries work with the SBA to capitalize (fund) loans (typically less than $100,000) to underserved, veteran, minority, or women-owned businesses. Visit the SBA searchable database of microlenders here.

When will the PPP loan portal stop taking applications?

March 31 Deadline

Originally, the deadline to apply for a PPP loan was March 31, 2021, or until funds are no longer available. Remember, the first round of PPP went out the door in a matter of days. A week before the deadline, a bill to extend the deadline to May 31, was passed by the Senate.

Here are some other important dates related to the second round PPP:

⭐  January 11, 2021, lending opened to first-time, eligible applicants through CFIs.

⭐  January 13, 2021, lending opened to second-draw, eligible applicants through CFIs.

⭐  January 15, 2021, lending opened through small depository institutions with less than $1 billion in assets.

⭐  January 19, 2021, lending opened through all SBA 7(a) lenders.

February 24–March 9, 2021, applications suspended for all except businesses with 20 or fewer employees.

⭐  May 31, 2021, is the **new** deadline for applying to the PPP as long as funds are available.

10 months after the last day of a Borrower’s Covered Period is the deadline to apply for forgiveness. For example, a borrower whose covered period ends on October 30, 2020, has until August 30, 2021, to apply for forgiveness before loan repayment begins.

⭐  1-year from the date of disbursement may be sought to begin payments on SBA 7 (a) loans. Remember, the 1% interest rate is non-adjusting and non-compounding for first-time and second-draw loans during the covered period (Section 39).

Why (not) apply for a PPP loan?

Forgiveness of your loan is a primary reason for eligible businesses to apply for a PPP loan. Forgiven PPP loans are considered non-taxable income. Depending on your situation, a $150,000 PPP loan that is forgiven and non-taxable income is a reason to apply for a PPP loan if you can meet the qualifications for forgiveness.

This round, eligibility for the forgiveness of your PPP loan has changed. The Economic Aid Act expanded the covered expenses to include software, cloud computing, and accounting services and made the covered period more flexible. Great!

However, together with their affiliates, borrowers that received over $2 million in PPP funds will be audited to ensure that the loan was necessary to continue operating during uncertain economic conditions and that the funds were spent properly.

Though PPP loans have a low interest rate and payment deferral, check with your CFO and tax expert before jumping at a PPP loan. There are other relief options for businesses beyond PPP, such as EIDL and the SBA 7 (a) debt relief program, community and corporate grant options, and traditional ways to raise capital like equity investment should be considered.

How to get your PPP loan forgiven

Make sure you know how to get most, if not all, of your PPP loan forgiven.

The PPP was created to prevent lay-offs by small businesses. A primary factor of forgiveness is spending 60% (initially 75%) of your loan funds on covered payroll costs. Spending your PPP loan on covered payroll expenses is your top priority. Permissible payroll costs have been expanded to include vision, dental, disability, and life insurance costs. To make sure that you do not miss covered expenses, we have a handy chart of PPP forgiveness changes.

Remember, forgiveness is not a given. Your accounting of covered expenses that qualifies your loan for forgiveness will need to be clean and clear. Making false claims to receive an SBA-guaranteed loan is punishable by law. It can result in up to 30 years in prison and a fine of up to $1 million.

Chart 2: Changes to PPP loan forgiveness

Criteria PPP 2020 PPP 2021
The covered period is the period of time that PPP funds are considered for forgiveness. The covered period starts when PPP funds are disbursed. PPP funds received must be used in either 8 weeks or 24 weeks. The covered period is 8 to 24 weeks rather than 8 or 24 weeks. The last day of your elected covered period starts the “10-month loan payment deferral clock.”
Covered operations expenditures Not covered Any software, cloud computing, human resources, and accounting needs are covered.
Covered property damage Not covered Includes costs related to property damage due to public disturbances (not covered by insurance) in 2020.
Covered supplier costs Not covered Expenditures to a supplier pursuant to a contract, purchase order, or order for goods in effect prior to taking out the loan that are essential to your operations at the time at which the expenditure was made.
Covered worker protection expenditures Not covered Personal protective equipment (PPE) and adaptive investments to comply with federal health and safety guidelines or any equivalent State and local guidance related to COVID-19 during the period between March 1, 2020, and the end of the national emergency declaration are covered.
Payroll expenditures Includes salaries, wages, tips, payments for vacation, several types of paid leave, health and retirement benefits, insurance premiums, and state and local taxes assessed on the compensation of employees related to payroll and not covered by some other emergency loan or grant. In addition, costs of group insurance plans such as vision, dental, disability, and life insurance are also covered payroll expenditures.

Section 44 clarifies the applicable period for employee’s salaries of $100,000 on an annualized basis as prorated during the period in which compensation is paid or incurred.

Other covered expenditures Includes mortgage interest installments, rent or lease payments, utilities (e.g., electricity, gas, water, transportation, telephone, or internet access), and interest on other debt obligations incurred prior to February 15, 2020. Extends the existing covered expenditures.
FTE Reduction Safe Harbor 1 Provides a safe harbor from reductions in forgiveness, based on reductions in full-time equivalent (FTE) employees, for borrowers that are unable to return to the same level of business activity as before February 15, 2020, due to compliance with requirements/guidance between March 1, 2020, and December 31, 2020, by the:
• Secretary of Health and Human Services
• Director of the Centers for Disease Control and Prevention
• Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
Extends the safe harbor on restoring FTE and salaries and wages due to compliance with requirements/guidance between March 1, 2020, and December 31, 2020, by the:
• Secretary of Health and Human Services
• Director of the Centers for Disease Control and Prevention
• Occupational Safety and Health Administration, related to worker or customer safety requirements related to COVID–19.
FTE Reduction Safe Harbor 2 If the Borrower reduced its FTE employee levels in the period beginning February 15, 2020, and ending April 26, 2020; and
• The Borrower then restored its FTE employee levels by not later than December 31, 2020, to its FTE employee levels in the Borrower’s pay period that included February 15, 2020.
The existing FTE Reduction Safe Harbor 2 remains applicable.
As of March 3, 2021, according to the SBA IFR on Loan Calculation and Eligibility. Schedule C filers with or without employees may use PPP loan for the following: Owner compensation; Employee payroll costs; Mortgage interest payments; Business rent payments; Utility payments (if deducted in 2019 or 2020); To the extent each of the following is deductible on Schedule C including, covered operation expenditures, property damage costs, supplier costs, and worker protection expenses. The final allowable expense is also not forgivable: interest payments on other debt incurred before February 15, 2020.

Now that we’ve gone over what qualifies your PPP loan for forgiveness let’s take a look at the forms needed to apply for forgiveness.

What form do I use to apply for forgiveness of my PPP loan?

There have been almost as many versions of forgiveness forms as Oreo flavors. You’re in good company if you have no idea which PPP form to use to calculate forgiveness. Source: iHeart Radio

Lenders are responsible for the forgiveness application process. They don’t have to use the SBA Forms, but lender forgiveness forms must have the same information. To prepare you, take a look at the SBA Forms for forgiveness highlights below.

The three primary forms that lenders will use to calculate forgiveness are:

PPP Forgiveness Form 1: SBA Form 3508 (01/21)

Use Form 3508 to apply for forgiveness for a first- or second-draw PPP loan. First-draw forgiveness requires additional disclosures to be submitted to the lender no more than 30 days after submitting Form 3508.

PPP Forgiveness Form 2: SBA Form 3508EZ

Use Form 3508EZ if your loan amount exceeds $150,000, and you meet one or both of these combined requirements:

1. Pay Cuts. You did not reduce employees’ salary or hourly wages by more than 25% during the Covered Period as compared to the most recent full quarter before the Covered Period. This only applies to employees who were paid less than $100,000 annually (or <$50 per hour) at any single period in 2019.


Reduced hours. You did not reduce the number of employees or the average paid hours of employees between January 1, 2020, and the end of the Covered Period.

Safe Harbor applies for reductions in numbers of employees that arose from

          1. the inability to rehire individuals who were employees on February 15, 2020,
          2. if you were unable to fill positions with similarly qualified individuals on or before December 31, 2020 (or, for a loan received after December 27, 2020, the last day of the Covered Period).

Safe Harbor applies for reductions in employees’ hours if you offered to restore and the employee refused.

2. Pay Cuts. You did not reduce employees’ salary or hourly wages more than 25% during the Covered Period as compared to the most recent full quarter before the Covered Period. (Do not include employees’ wages or salary at an annualized rate of pay of more than $100,000.)


Compliance. The Borrower was unable to operate during the Covered Period at the same level of business activity as before February 15, 2020, due to compliance with requirements established or guidance issued between March 1, 2020, and December 31, 2020 (or, for a PPP loan made after December 27, 2020, requirements established or guidance issued between March 1, 2020, and the last day of the Covered Period) by

          1. the Secretary of Health and Human Services,
          2. the Director of the Centers for Disease Control and Prevention, or
          3. the Occupational Safety and Health Administration,

related to the maintenance of standards of sanitation, social distancing, or any other work or customer safety requirement related to COVID-19.

Businesses with no employees note: You use form 3508EZ if one or both of the safe harbor FTE reduction requirements are met.

PPP Forgiveness Form 3: SBA Form 3508 S

The Form 3508 S was created for loans under $150,000. It simplifies the application for forgiveness by enabling the lender to certify your compliance with the PPP and verifies all information is true and correct.

Now you should have the right application form for PPP loan forgiveness.

Can I get forgiveness for a first-draw and a second-draw PPP loan?

For those with a first-draw and a second-draw PPP loan, you must apply for forgiveness. Turning your PPP loan into a grant will depend upon your adherence to the rules and procedures set forth by the SBA.

Take note.

➾ Each loan needs its own forgiveness application. If you apply for first-draw and second-draw loan forgiveness, you have to submit a form for each draw.

➾ If you request a second loan over $150,000, you must submit your first-draw forgiveness form at the same time or before you submit for forgiveness of your second-draw loan, even if your first-draw forgiveness total is zero.

What you need to know about the PPP loan forgiveness application process

With the right preparation, applying for forgiveness of your PPP loan shouldn’t be too arduous or time-consuming. In this section, we break down the forgiveness process into four essential questions. Keep checking in to our blog for updates as the SBA clarifies the PPP forgiveness process moving forward.

How much time does it take to fill out the application?

The answer to that question depends on you and your accounting system. The SBA estimates that it takes 180 minutes to get your records together and complete the 3508 Form.

Your lender is responsible for providing you with a way to apply for forgiveness. Whether they use their own form of the SBA’s form, the best way to optimize your time is to know what information you will need to have on hand.

We hope you have done the following things to make data collection much faster and more accurate.

  1. Build a report to help you track your payroll and non-payroll covered expenses during the covered period. The SBA will want to see an account of how the loan was spent. You will need to show that you have met the basic requirement of at least 60% on payroll and up to 40% on non-payroll expenditures during the covered period.
  2. Keep a PPP file. You’re not required to submit documentation of your calculations to the SBA. However, you are required to maintain records supporting your forgiveness application for up to six years after the date the loan is forgiven or repaid in full.

What documentation will I need for PPP loan forgiveness?

You’ll submit to your lender your forgiveness form (either the SBA Form or an equivalent lender form) with your final calculations and supporting documents. The supporting documents, as your third-grade math teacher used to say, “show your work.”

Payroll documentation to show:

  1. Cash compensation paid to employees during the covered period like a bank statement or records from your payroll service provider.
  2. Amount of federal and state payroll taxes during the covered period like the IRS form 941 and your quarterly state filings.
  3. Amounts contributed by you (the employer) to employee health insurance and retirement plans like account statements, canceled checks, or payment receipts.

Non-payroll documentation to show:

  1. Proof of obligation before February 15, 2020.
  2. Payments of mortgage interest payments like the lender amortization schedule and account statements verifying payments.
  3. Proof of rental payments like current lease agreement and canceled checks or receipts to verify payment.
  4. Payments of business utilities like invoices, receipts, canceled checks, or account statements.

How long does the forgiveness process take?

The short answer is that if everything goes to plan, the process should take no more than 150 days or just under 21.5 weeks or 5 months. The process is subject to change by the SBA. An estimate can take longer if your lender does not agree with your calculations.

60 Days after you submit to your lender

Your lender has 60 days to review your completed application if needed.

The lender can submit your application to the SBA as approved (in whole or part), as denied, or as denied without prejudice due to SBA review. At that time, your lender will request payment (in whole or in part) of the approved application for forgiveness from the SBA.

90 Days after your lender decision

The SBA has 90 days to review your application and your lender’s decision if needed.

Your lender will let you know if the SBA has undertaken a loan review and their ultimate decision. You have the right to appeal certain SBA loan review decisions. Be prepared to back up your appeal with documentation from your PPP file.

When are payments due if forgiveness is denied?

If your lender denies your application for forgiveness, you must begin paying back principal and interest. The PPP Flexibility Act, enacted on June 5, 2020, deferred all PPP loan payments until forgiveness is determined.

Your lender (not the SBA) will tell you when your loan will be paid in full, or the date payment will be due. Any balance unforgiven must be repaid before the loan matures.

As the process of PPP loan forgiveness from application to decision unfolds, check

SBA audits PPP forgiveness applications

The Economic Aid Act provided $50 million for mitigating misuse and outright fraud of the PPP.
How do you avoid or prepare for an audit?

Knowing what triggers an SBA audit is a great first step.

3 Reasons the SBA wants a closer look at your forgiveness application

When it’s time to apply for forgiveness, the SBA may require a closer look for a few reasons.

  1. To determine if you have used the funds properly.
  2. To ensure there was no alternative source of liquidity at your disposal when you applied for the PPP loan.
  3. To verify your eligibility for the PPP loan.

To conserve the SBA’s audit capacity, when you apply for a PPP, you make several representations, authorizations, and certifications to your eligibility, the loan’s necessity, and your understanding of the loan terms and conditions in good faith.

The SBA has sole discretion to audit a borrower to prevent misuse and fraud of a program meant to keep U.S. workers employed during the COVID-19 pandemic, which has so far lasted nearly a year and continues to hurt the global economy in 2021.

Last year, $349 billion was allocated in a matter of days, and later many borrowers were discovered to be ineligible for PPP. It’s estimated that some 52,000 PPP borrowers have been asked to show that the PPP funds received were necessary.

Get your copy of PPP audit likelihood here.

Do borrowers of less than $150,000 need to worry about an SBA audit?

The SBA has sole discretion to probe into an application for forgiveness of $150,000 or less. As the infographic above states, the SBA will take a closer look at any business that received a loan of more than $2 million.

The $2 million (separately or with affiliates) threshold acts as a safe harbor. Safe Harbor assumes that borrowers of less than $2 million are less likely to have alternative sources of liquidity. The safe harbor also conserves the SBA’s resources to focus on reviews of larger loans.

In October 2020, the SBA released a Loan Necessity Questionnaire for borrowers who received more than $2 million (including affiliates totaling over $2 million) in PPP funds. The questionnaire follows after a lender’s decision on your forgiveness is submitted to the SBA.

For-profit borrowers will fill out the SBA Form 3509, and not-for-profits get Form 3510.

You have 10 days to complete the form (or lender equivalent) and submit it with supporting documentation to your lender.

Necessary Questions about the Loan Necessity Questionnaire

Be prepared for an audit by ensuring you have all the documentation needed to complete the Loan Necessity Questionnaire.

The SBA Form 3509 or 3510 for nonprofit organizations consists of two sections: Business Activity and Liquidity Assessment.

How painful will the business activity section of Form 3509 be for your company?

You’ll want to review Form 3509 (3510 for nonprofits) for yourself. The following chart provides you with a rundown of the information you need to complete the Business Activity Section of Form 3509.

Chart 3: Rundown of Business Activity Section of Form 3509

Business Activity Questions Examples of Supporting Documentation
1: Provide answers and supporting documents for a) gross revenue in Q2 2020; b) gross revenue in Q2 2019; or c) gross revenue in Q1 2020 if the business did not exist in Q2 2019. Profit and Loss statement

Bank Statement

2. Has the borrower been ordered to shut down due to COVID-19? If Yes, which state or local authority and on what dates (start, end, or “present” if current). Official shutdown order in writing
3. Has the borrower been ordered to alter its operations significantly due to COVID-19? If Yes, which state or local authority and dates (start, end, or “present” if current). If Yes, how were operations significantly altered? If Yes, what were the borrower’s additional cash outlays for these alterations? Official notice of alterations to business operations such as limitations to people allowed on the premises at one time, service restricted to outdoors, or employees’ workspace altered

Cash receipts for outlays due to alteration of operations to comply with state or local government orders

4. Has the borrower, at any time since March 13, 2020, voluntarily ceased or reduced its operations due to COVID-19? If Yes, on what dates (start, end, or “present” if current). Communications of decisions to voluntarily cease or reduce operations due to COVID-19 (i.e., employee contracting COVID-19 or disrupted supply chain)
5. Has the borrower, at any time since March 13, 2020, voluntarily altered operations (other than reducing or ceasing operation)? If Yes, on what dates (start, end, or “present” if current). Communications of decisions to voluntarily alter operations due to COVID-19 such as limitations to people allowed on the premises at one time, service restricted to outdoors, or employees’ workspace altered

Receipts for cash outlays due to alteration of operations

6. Between March 13, 2020, and the end of the loan forgiveness covered period of the PPP loan, did Borrower begin any new capital improvement projects, not due to COVID19? What were the capital outlays? What is the borrower’s primary NAICS code? Receipts of cash outlays

Help with your six-digit NAICS code

What you’ll need to disclose in the liquidity assessment section of Form 3509

The second section of the Loan Necessity Questionnaire focuses on your business’s access to cash.

Be ready to disclose any of the following ten signs of alternative liquidity:

  1. Any other funds from other CARES Act programs received;
  2. Your cash position as of the last day of the calendar quarter immediately preceding the date of your PPP loan application;
  3. Any dividends or other capital distributions (not counting estimated taxes) made to owners between March 13, 2020, and the PPP loan covered period.
  4. Early payments on debt between March 13, 2020, and the PPP loan covered period;
  5. Compensation (e.g., gross salary, wages, tips, commissions, and allowances for dismissal or separation) for any employee (including owners) over $250,000 made, the total number of employees, and the total compensation paid during your PPP loan covered period;
  6. Total market capitalization (for shares publicly traded on the U.S. or a foreign securities exchange) on the date of your PPP loan application;
  7. Your shareholder’s equity value as of the last day of the calendar quarter immediately preceding the date of your PPP loan application;
  8. Whether 20% or more of the borrower’s equity was owned by a publicly-traded company, hedge, private equity, or venture capital fund, if so, those companies and their market capitalization on the date of your PPP loan application need to be disclosed;
  9. Your subsidiary status and parent company information; and
  10. Your affiliation with a foreign, state-owned enterprise and information about the foreign state department, agency, or instrumentality.

Get answers to your PPP loan or forgiveness questions

As you work through your forgiveness application, you’ll no doubt have more specific questions. Here are some helpful links for you to read in your own time.

Just remember to blink those eyes and look away from your computer periodically as you check out these pages. Let’s take you to the source (i.e., the U.S. Treasury or the SBA), shall we?

You can always talk with an accounting or tax professional you trust about any head-scratchers.

Answers for you first-draw PPP loan applicants

The U.S. Treasury offers detailed information on all the programs under The CARES Act, including a list of helpful links for PPP borrowers and lenders here.

First-draw applicants determining your maximum loan amount should read this document.

Not to worry, second-draw applicants get one, too.

You can never have too many answers. Right? The SBA FAQ on the PPP is here.

Looking for answers to your questions about the latest round of PPP loan forgiveness?

Here you go! Frequently Asked Questions on PPP Loan Forgiveness in English and Spanish can be found here.

A shortlist of SBA PPP editable PDF forms

COVID-19 small business resources page

As if this post was not enough, access resources to help you with your PPP loan and other small businesses’ support during COVID-19 here. This page will take you to resources pages in languages other than English.

Your SBA PPP loan big takeaway

The Paycheck Protection Program is tricky but worth it. If you manage the loan, your chances of forgiveness for the whole loan are higher. So, plan, prepare, and document, document, document!

After learning the hard way, a former businessman reminds us of the purpose of the PPP:

“But simply put, SBA loans are meant to save your business, not your lifestyle. Discuss all your options with advisors and friends you trust — ones that will tell you the truth!”

We hope you feel a heckuva lot smarter after this read than before. If you’re still scratching your head, we can help. Our accounting experts at indinero can clear up your company’s financial picture. Schedule a call with us today.

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Quick Note: This article is provided for informational purposes only, and is not legal, financial, accounting, or tax advice. You should consult appropriate professionals for advice on your specific situation. indinero assumes no liability for actions taken in reliance upon the information contained herein.