The economic pain caused by COVID-19 touched nearly all types of businesses around the world. Its impact shocked the foundations of small businesses who typically function without excess capital necessary to pay employees while closed for quarantine. The federal government stepped up in a historic way to help protect small businesses by offering loans to cover payroll, mortgage payments, rent, and/or utilities. The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) provided the funding and foundation for the Paycheck Protection Program (“PPP”) to offer low interest rate loans without any collateral or guarantee requirements to eligible small businesses. Current law required that the PPP close at the end of August 8, 2020. As such, SBA is no longer accepting PPP applications from participating lenders.
If your business experienced economic uncertainty because of the pandemic and are looking to retain your workers, business space, and credit, you may have been eligible for a forgivable loan to cover payroll costs, costs for continuation of group health care benefits, employee salaries, mortgage payments, rent, utilities, or other debt payments. As the country begins the phased reopening, many businesses are beginning to reopen and generate the revenue required to cover payroll costs once again. The PPP loans helped many businesses stay afloat during the shut-down, but now small businesses need to file applications for loan forgiveness. There are several requirements small businesses need to comply with in order to protect their loan and continue to be eligible for loan forgiveness.
What Records Should I be Keeping?
All businesses should be collecting documents to provide with the PPP forgiveness application. These documents will primarily be used to verify that you have followed the payroll guidelines and to ensure that the government’s money has not been abused. These documents include: payroll reports, payroll tax filings (Form 941), state filings, documents verifying any retirement or health insurance contributions, documents verifying that any rent or utilities payments predated the pandemic, and receipts verifying such payments. Record keeping is an essential piece of the forgiveness process and should be a priority of your business.
How Do I Apply for Loan Forgiveness?
It is essential to both promptly and accurately apply for PPP loan forgiveness. The Small Business Administration (SBA), the federally appointed guarantor under the PPP, has provided some guidance for those who are looking at ensuring the forgiveness of their loans. This guidance comes in the form of two applications 1) the PPP Forgiveness Application and 2) the “EZ” Loan Forgiveness Application.
Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels, with potential reduced forgiveness based if full-time headcount declines, or if salaries and wages decrease. The loan forgiveness form and instructions include several measures to reduce compliance burdens and simplify the process for borrowers. Both forms requires initialed statements certifying that the borrower used the loan in an eligible way (i.e. payroll costs to retain employees; business mortgage interest payments; business rent or lease payments; or business utility payments), applied all applicable deductions, that payroll makes up the required percentage of the forgiveness amount, and other provisions.
Such certifications are made under risk of federal civil and criminal fraud charges; heightening the importance of all small businesses double-checking that the sums provided are accurate to the penny. While this form is the version provided by SBA, not all financial entities are required to use the draft form but may use it as a guide. It is essential to check with your lending organization to ensure that you have the correct form and to determine if they have modified any language.
What Happens if Forgiveness is Denied?
The discretion provided to lending entities may result in some PPP loans moving forward without forgiveness. You do not want this to happen to your business. If you have received a denial notice, you have a 30-day period to request review by SBA. SBA has the ability to overturn the decision of the loaning entity, but it is best to avoid using the administrative review if at all possible. Focus on preparing a packet with clear evidence of your businesses spending and take ample time to fill out the appropriate form. In order to ensure that your records are compliant with the requirements under the CARES Act and your lending entity, the best course of action is to have your packets reviewed and/or prepared by your attorney.
The information herein is not legal advice and does not create an attorney/client relationship. The information is in the form of legal education and is intended to provide general information about the matter. The above is not, nor is it intended to be, legal advice. Consult your attorney with questions.