Start planning to get your loan forgiven!
If your small business has received a PPP loan, there are specific requirements you’ll need to meet in order to get your loan forgiven. We will update this page with the latest information from the SBA, and provide helpful resources for beginning your loan forgiveness process. Please check back frequently to stay informed and prepare for this next phase of the PPP loan.
Key changes to PPP and loan forgiveness
In June 2020, several significant changes were made to the SBA’s Paycheck Protection Program (PPP). Here are the key changes we wanted you to know about:
Paducah Bank, along with other PPP lenders, is awaiting further guidance from the SBA and the U.S. Department of the Treasury on the manner in which these changes will be implemented. In order to take full advantage of these new provisions, we suggest you wait to submit requests for forgiveness until the SBA provides more guidance, while continuing to gather documentation in support of any forgiveness request.
- Your business now has 24 weeks to spend PPP loan funds (up from the original 8 week period). Importantly, you are still allowed to use the original 8-week period if you prefer for your forgiveness application.
- Your business now must use at least 60% of PPP loan funds on payroll (down from the original 75% requirement for payroll). The remaining 40% has to be spent on approved non-payroll expenses.
- The deferral period for payments of principal, interest, and fees on PPP loans has been deferred to the date on which the SBA remits the loan forgiveness amount to the lender, or, if you do not apply for loan forgiveness, 10 months after the end of your loan forgiveness covered period.
- You now have until December 31 to fill positions if you’ve had layoffs. The prior timeframe was June 30 to rehire or fill vacant roles created due to layoffs.
- Additionally, there are new exceptions to the program’s rehiring requirements. If your business is unable to fill vacant positions, you can still qualify for forgiveness on payroll amounts if you are able to document one of the following:
- An inability to rehire any individual who was your employee on or before February 15, 2020, and an inability to hire a similarly qualified employee for each such unfilled position on or before December 31, 2020; or
- Your business has been unable to return to your pre-February 15, 2020 level of business activity due to compliance with certain government requirements for sanitation, social distancing, or any other worker or customer safety requirement related to COVID-19.
- If any portion of your loan is not forgiven, it will convert into a term loan and your business must pay principal and interest. Under the recent Flexibility Act, if your loan was approved by the SBA on or after June 5, the term of your loan will be 5 years on the unforgiven amount; if your loan was approved by the SBA prior to June 5, the term of your loan is 2 years on the unforgiven amount, but can be extended to 5 years at your request.
- The SBA rolled-out new forgiveness applications incorporating recent amendments made by the SBA, including, the introduction of an EZ application. Borrowers can use the EZ application if they meet one the following requirements:
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of their employees by more than 25%, and did not reduce the number or hours of their employees; OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of their employees by more than 25%.
While specific guidance has not been given by the SBA or Treasury, you will likely have to provide proof of qualifying expenses, so make sure to keep very good payroll and expense records. Some small businesses may want to consider working with a tax professional or a CPA for help with recordkeeping.
The following actions may increase your likelihood of forgiveness after the eight-week period:
- Keep the PPP funds separate: Consider putting the loan into its own designated account to better keep track of the funds.
- Keep disciplined records: Create account codes or sub-codes so there’s a paper trail for qualified expenses.
- Keep supporting documents: Stay organized with your documentation of PPP fund usage - especially for payroll, interest, rent, and utilities payments.
- Payroll: Retain payroll registers and proof of ACH transfers. If you outsource to a professional employer organization (PEO), save your payroll invoice that shows payroll costs and employee benefits.
- Utilities: Keep invoices and statements for electric, phone, internet, gas and heating providers.
- Rent and mortgage interest: Keep proof of payments.
If you have questions regarding the forgiveness process, talk with your lender. Each bank may have its own forgiveness application process.
Please keep in mind, these are just a few of the things your small businesses may want to consider, but they are by no means all the factors you may need to take into account to qualify for PPP loan forgiveness. Finally, as a PPP lender, Paducah Bank can’t offer an opinion on whether the loan of any particular borrower qualifies for forgiveness.
Gathering your documents for loan forgiveness
To apply for the Paycheck Protection Program (PPP) loan forgiveness, you’ll need to provide documents to substantiate how your loan proceeds were used by your business. Many payroll providers are creating custom reports for this purpose, so you may want to check in with yours to see what’s available. If you plan to start gathering documentation on your own, here’s what you’ll need.
- Payroll Documents
- Full-time Equivalent (FTE) Documents
- Nonpayroll documents
This list applies to the majority of businesses, but your situation may be unique, especially if you are a self-employed. The Paycheck Protection Program Forgiveness Applications (SBA Form 3508 or 3508EZ) covers many special circumstances, provides information on selection of the Covered Period (or Alternative Payroll Covered Period) for payroll, and addresses how to treat FTE Reduction. The SBA also continues to provide updates on forgiveness documentation requirements at SBA.gov.
Organize all the documents you gather and put them in a safe place; the SBA requires you to retain them for six years after your loan is fully forgiven and/or repaid, and to have them available for review in the future if requested.
Committed to Communication
Please visit our website, paducahbank.com, for updates and additional information as it becomes available. Also monitor our Facebook page for up-to-the-minute changes or notifications. When in doubt, always feel free to contact your relationship manager or our Client Services department at 270.575.5700 (Paducah) or 502.690.8969 (Louisville). We appreciate your relationship and value the trust you place in our company.