Reviewing PPP Loans: Eligibility, Forgiveness & More in 2023

What Are PPP Loans and How Did They Work?

The Paycheck Protection Program (PPP) was a government-backed initiative designed to help small businesses in the United States maintain their workforce during the COVID-19 pandemic.

PPP loans help eligible businesses cover some operating costs, including payroll, rent, utilities, and other essential expenses. It was signed into law in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act.

PPP Loans Lenders

To obtain a PPP loan, applicants need to contact a qualified government-authorized lender. Common private lenders include a federally insured bank, a federally insured credit union, a Farm Credit System institution, a Small Business Administration-approved lender, and so on.

The program's primary goal was to incentivize businesses to retain their employees and maintain payroll, even during challenging economic times. If borrowers used the funds according to the program's guidelines, the loans were forgivable, turning them into grants.

Are PPP Loans Still Available in 2023?

No. The Paycheck Protection Program (PPP) ended on May 31, 2021. Existing borrowers may be eligible for PPP loan forgiveness. And Congress is unlikely to pass another round of PPP funding this year.

Changes to the PPP Program Announced by the Biden Administration

• In February 2021, the Biden Administration introduced several modifications to the Paycheck Protection Program (PPP). 
• These changes were in effect for a limited period, with one change lasting for two weeks and the others until the end of March 2021.
• From February 24 to March 9, 2021, businesses with fewer than 20 employees had exclusive access to apply for PPP funding. The PPP loan calculation formula was also revised to offer more support to sole proprietors, independent contractors, and self-employed individuals. An additional $1 billion was designated for those in low-and moderate-income (LMI) areas.
• Small business owners are also eligible to apply. As long as two conditions are met:
1. not guilty of a fraud-related felony;
2. not imprisoned during the application process.
• Additionally, business owners with delinquent federal student loans became eligible for PPP loans.
• Finally, non-citizen lawful U.S. residents were granted eligibility for PPP funding, with the option to use their Individual Taxpayer Identification Numbers (ITINs) when applying.

The Three Funding Categories of the Final PPP Loan Rollout

During the third and final round of the Paycheck Protection Program (PPP) loan rollout, there were three main funding categories:

First-Draw Loans

First Draw loans are available to businesses that did not receive funding during the first two rounds of the PPP. Whether these businesses are ineligible or have never submitted an application, they can apply for a First Draw loan up to a maximum loan of $10 million. The maximum loan amount for First Draw Loans is no more than $10 million.

Second-Draw Loans

The Second Draw PPP Loan program was designed to provide further financial assistance to small businesses that had already received and utilized their initial PPP loan, but still needed additional support due to the ongoing COVID-19 pandemic.

Most funding has concentrated on First-Draw loans. Generally, the maximum amount of funds applicants can get from Second-Draw loans is $2 million, guaranteeing they can have a second chance to apply for the money.

Second-Draw loan details included the following:

Loan amount: Up to 2.5x a business's average monthly payroll costs, with a maximum of $2 million. Accommodation and food services businesses (NAICS codes starting with 72) could borrow up to 3.5x.

Interest rate: 1%, fixed

Term: 5 years; payments were not required until loan forgiveness was determined

Fees: None

Loan forgiveness: Complying with forgiveness rules could result in full or partial loan forgiveness

Collateral: Not required

Special Cases

Who it's for:

Businesses that returned their first PPP loan or did not receive the due amount.

The Special Cases category is designed to help deal with certain special circumstances and provide necessary financial support.

PPP Loan Amounts for First-Time and Second-Draw Borrowers

According to these businesses' average monthly wage level, The Paycheck Protection Program (PPP) determines the maximum amount of financial support available for borrowing. The calculation varied depending on whether the business was a first-time borrower or applying for a second-draw loan.

First-Draw Borrowers:

Businesses applying for a PPP loan for the first time could request a maximum amount of 2.5 times their average monthly payroll costs for 2019, including insurance costs.

Second-Draw Borrowers:

Businesses applying for a second-draw PPP loan could request a maximum loan amount of 2.5 times their average monthly payroll costs, either for 2019 or 2020, up to $2 million.

Tip: If you want to know the PPP loan amount for different businesses, visit the official website of the Small Business Administration (SBA) for specific guidance.

Terms & Conditions of the PPP Loan

The terms and conditions of PPP loans were designed to provide businesses with favorable conditions to support their financial needs during the COVID-19 pandemic. Some key terms and conditions include

Interest Rate: All PPP loans had a fixed 1% interest rate, providing businesses with a low-cost borrowing option.

Loan Maturity: If the loan was disbursed before June 5, 2020, it had a maturity of 2 years. For loans disbursed on or after June 5, 2020, the maturity was 5 years.

Collateral and Personal Guarantees: No Collateral and Personal Guarantees is required to make the loan more secure. 

Loan Forgiveness: Loans could be fully or partially forgiven if borrowers used the funds according to the program's guidelines, such as maintaining payroll and covering eligible expenses.

No Fees:

No Fees: Government and lender fees are not allowed during application. This is to ensure easier access to financial support.

By offering these favorable terms, the PPP aimed to help businesses stay afloat during the challenging economic conditions brought on by the pandemic.

Eligibility Criteria for PPP Loans

To qualify for a Paycheck Protection Program (PPP) loan, businesses needed to meet specific eligibility criteria. The primary requirements for businesses applying for a PPP loan included:

Operational History

The business must have been in operation before February 15th, 2020.

Business Type

• Small to medium-sized businesses with fewer than 500 employees
• Accommodation services with fewer than 500 employees, such as hotels
• Food services with fewer than 500 employees, including cafes and restaurants
• Gig workers
• Housing cooperatives with fewer than 300 employees
• Independent news organizations with fewer than 500 employees
• Sole proprietors of limited companies
• Independent franchises, not conglomerates
• Tax-exempt non-profit organizations
• Self-employed individuals or solopreneurs
• Independent contractors

Additional requirements For a second-draw PPP loan:

• No more than 300 employees of the business
• The business had at least one quarter in 2020 where revenue fell 25% from a year earlier

PPP Loan Forgiveness

Is there PPP Loan Forgiveness?

Yes and no. PPP loans were designed with the potential for forgiveness, provided that borrowers adhered to specific guidelines on using the funds. Therefore, businesses must prove that they are eligible for loan forgiveness by recording details of how they used the loan funds.

Requirements of First & Second Draw PPP Loan Forgiveness

When Can You Apply for Paycheck Protection Program Loan Forgiveness?

1. You can apply for loan forgiveness from your lender once you have used all the loan proceeds. 

2. After receiving the loan, you will have a "covered period" of 8-24 weeks. 

3. Loan forgiveness can be requested at any time prior to the loan maturity date, i.e., two or five years from the date of loan disbursement. Therefore, the time to apply for forgiveness varies for each business depending on when the loan was received.

• If you are a pre-June 5th applicant, the maturity date would be 2 years later.
• If you are a post-June 5th applicant, the maturity date is 5 years later.

4. Borrowers who do not apply for the loan forgiveness process within 10 months of the end of the covered period will be permanently ineligible. In addition, the borrower will have to start repaying the loan, at an interest rate of 1%.

5. You can negotiate loan payment terms with your lender.

Steps to Apply for PPP Loan Forgiveness

Step 1: Complete the form: Which one to fill out depends on whether your lender participates in direct forgiveness through the SBA

• If your lender is participating, use the SBA forgiveness portal to apply.
• If your lender is not participating, apply through your lender using SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a lender equivalent.

Step 2: Gather the Necessary Documentation

For SBA Form 3508S:

You are not required to provide the calculation to determine your loan forgiveness amount. But the SBA will review the correctness of this amount by verifying relevant information and documents as part of their audit process.

For Payroll：

• This includes documents for all payroll periods overlapping with the Covered Period.
• Bank account statements or third-party payroll service provider reports showing the cash compensation paid to employees.

Tax forms (or equivalent third-party payroll service provider reports) for the periods overlapping with the Covered Period, such as:

• 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 to the relevant state.

Business expenditures that can be included in the loan forgiveness account are

• payment receipts;
• canceled checks;
• or account statements showing employer contributions to employee health insurance and retirement plans.

Note: According to the SBA, specific qualified wages and non-payroll expenses may not be eligible for inclusion in the forgiveness calculations.

Step 3: Submit the Forgiveness Form and Documentation

• Complete your loan forgiveness application and submit it through either the SBA direct forgiveness portal or your lender, depending on your lender's participation status.
• Be prepared to provide any additional documentation requested by your lender.

Step 4: Monitor Your Forgiveness Application

• Keep an eye on your loan forgiveness application status.
• You have the right to appeal a loan review decision made by the SBA. In principle, every time the SBA reviews your loan, you can get a reminder of the review and the decision.
• SBA will notify your lender of the outcome. Your lender will let you know the forgiveness amount and when your first payment is due (if applicable).
• Borrowers can contact the SBA's dedicated forgiveness call center at 877-552-2692. It can help with direct forgiveness or consult frequently asked questions in the direct forgiveness knowledge base.

FAQs

What Is the Deadline for PPP Forgiveness?

The deadline to apply for PPP loan forgiveness depends on when the loan was granted and disbursed. 

A loan forgiveness application can be submitted after all loan funds have been used in eligible areas of expenditure. You have up to 10 months to apply for forgiveness after the coverage period, which lasts from 8 to 24 weeks. If you are unable to apply within the given time period, you will have to start repaying the loan to the lender instead of being deferred.

What Is the Deadline for PPP Forgiveness?

Yes. For borrowers applying for a PPP loan for the first time, you can route your request through multiple lenders. However, the loan is only available once and cannot be obtained repeatedly.

When you have already received a PPP loan, you can:

• apply to the same lender 
• choose a different participating lender.

When Was the Last Day to Apply for a Ppp Loan?

The PPP program concluded on May 31, 2021.

What Expenses Are Considered Payroll Costs?

Payroll costs for employees encompass

• Employee compensation, including salaries, wages, commissions, or similar payment types, cash tips or they're equivalent, but not exceeding $100,000 per employee on an annualized basis.
• Payments for vacation, parental, family, medical, or sick leave, with the exception of leave amounts credited under FFCRA Sections 7001 and 7003.
• Allowances for employee separation or dismissal.
• Employee benefit payments, such as group health care coverage, group life, disability, vision, dental insurance, and retirement benefits.
• State and local taxes assessed on employee compensation.
• Annual compensation capped at $100,000 for independent contractors or sole proprietors. Compensation here is for wages, commissions, income, or net income from self-employment.
• The annual cap on owner compensation for independent contractors or sole proprietors is $100,000. Compensation is primarily for wages, commissions, income, or net income from self-employment.

Are PPP Loan Forgiveness Amounts Taxed as Income?

Forgiven PPP loans are not deemed taxable income. However, the IRS clarifies that loans forgiven due to inaccuracies or misrepresentations in the application are taxable and should be reported as income.