How should PPP borrowers document or determine they meet the forgiveness criteria?
Borrowers with loans under $150,000 must certify they spent at least 60% on payroll and the remaining 40% on eligible expenses between 8 and 24 weeks after receiving the proceeds from their PPP loan.
Borrowers with loans under $150,000 are not required to provide payroll-related documentation; however, since any business that receives a PPP loan may be audited by the SBA, it is recommended that borrowers keep the following payroll-related documents:
- Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees;
- Federal Tax return for the business (or equivalent third-party payroll service provider reports);
- Payroll tax filings reported, or to be reported, to the IRS (typically Form 941);
- State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or to be reported; and
- Payment receipts, cancelled checks, or account statements documenting employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount.
Non-payroll expense documentation borrowers should maintain includes but is not limited to:
- A copy of business mortgage amortization schedule and receipts verifying payments, or lender account statements;
- Copy of current lease agreement and receipts or cancelled checks verifying eligible payments;
- Copies of invoices and receipts, cancelled checks or account statements for business utilities.
How and when do businesses apply for PPP loan forgiveness?
Borrowers can apply for forgiveness as soon as all loan proceeds for which forgiveness is being requested have been used. As noted above, these funds must be used for eligible expenses during the “covered period” of between 8 and 24 weeks after receiving the loan proceeds. Borrowers have until 10 months after the covered period to apply for forgiveness; otherwise, payments must begin on the loan.
Pathway Lending will contact borrowers when it’s time to apply for loan forgiveness. Borrowers will complete an online forgiveness application that will be provided by Pathway in an email.
We will provide further instructions on how to complete and submit the forgiveness application at that time. Please note that applications for PPP loan forgiveness at Pathway must be submitted digitally through our online PPP loan forgiveness application portal. We will not accept paper loan forgiveness applications.
Can borrowers request forgiveness directly with the SBA?
No. Businesses that received a PPP loan need to request forgiveness through the lender that processed their loan.
When will borrowers be required to begin making payments on the loan if forgiveness has not been granted?
Borrowers have plenty of time to request forgiveness.
- As long as the forgiveness request is submitted within 10 months after the end of the covered period, borrowers don’t have to make a payment until the SBA makes its decision.
- Borrowers who don’t submit a complete forgiveness request within 10 months after the end of the covered period will need to start making payments. Most covered periods will be for a period of 24 weeks; therefore, this date would be 10 months plus 24 weeks following the loan disbursement date. For example, for a borrower who received funds from a PPP loan on March 1, 2021, a 24-week covered period would end on August 16, 2021. The borrower would still have until June 16, 2022, before payments would need to begin if the forgiveness request has not been approved.
How long will the forgiveness process take?
After a borrower submits a completed forgiveness application to Pathway, it may take up to 10 days for us to review it. Once reviewed, it will be sent back out to the borrower for their signature. Pathway will then submit the signed forgiveness application to the SBA which has up to 90 days to review and approve. Actual times will vary.
How will borrowers know if the SBA has made a decision on the loan forgiveness request?
Pathway will notify borrowers via email as soon as we hear back from the SBA on a decision regarding forgiveness.
What can we expect in the way of assistance to cover rent, expenses, and materials to keep our business going at this slow time?
Under SBA guidelines, borrowers can use PPP loan funds to cover payroll costs (including benefits like health insurance), mortgage interest, rent, utilities, worker protection costs related to COVID-19, certain supplier costs and expenses for operations, other interest on loans (entered before 2/15/2020), software and cloud computing, personal protective equipment, as well as uninsured property damage costs caused by looting or vandalism in 2020.
First Draw PPP Loans qualify for full loan forgiveness provided the business meets the following criteria during the “covered period” following loan disbursement:
- The borrower maintains employee headcount and compensation;
- The First Draw PPP Loan proceeds go to payroll costs and other eligible expenses; and
- The borrower spends at least 60 percent of the First Draw PPP Loan proceeds on payroll costs.
Borrowers can choose a “covered period” of 8 weeks or 24 weeks after disbursement of funds.
How can I verify employee earnings paid in cash?
Employees who are paid cash wages will receive a W-2 at the end of the year with total wages paid to them, and wages will also be included on the Federal Quarterly payroll tax form (941). Use the Quarterly 941s along with state unemployment wage reports to calculate the eligible payroll expense.
Workers paid cash wages that are not reported through the 941 are considered independent contractors and should not be included in the calculation for eligible loan amount.
Independent contractors are eligible to apply for a PPP loan directly. Their earnings are reported on a 1099 which can be used to complete a Schedule C tax form they can use to complete their own PPP application.