How to prepare for PPP loan forgiveness ?
You could be eligible to have up to 100% of your loan forgiven—meaning you won’t have to repay the principal or any interest—if you follow the program guidelines and meet certain criteria. How to apply for loan forgiveness ?
How to apply for loan forgiveness ?
At the end of the 24-week period, you can begin to apply for loan forgiveness directly through your lender (Kabbage). You’ll need to provide:
- Details on how you used your PPP loan.
- Information on whether your payroll and number of employees stayed consistent throughout the 24-week period.
- Documentation verifying your responses on the above.
How the loan forgiveness amount is calculated ?
To calculate how much of your loan can be forgiven, your lender (Kabbage) will use the responses from your application to:
- Determine the maximum amount of possible loan forgiveness. This is based on how much you spent on payroll and other eligible expenses like rent and utilities during the 24-week period.
- Calculate the amount (if any) by which the maximum loan forgiveness will be reduced. If you reduced your number of employees or their wages during the period, your loan forgiveness amount will be reduced.
- Understand how much of your loan was used on eligible expenses. Only 40% of your PPP loan can be used for expenses _other than _payroll for certain business structures. If you used more than 40% on non-payroll expenses, your forgiveness amount will be reduced.
Once the amount is calculated, your lender (Kabbage) will submit the information to the SBA within 60 days. The SBA will provide a final decision within 90 days of receiving your application from your lender.
What do you need for your PPP Loan Forgiveness Application?
The PPP Loan Forgiveness Application is extensive and detailed, so make sure you have the following on hand:
- Your business’s legal name, DBA, trade name and business TIN (EIN, SSN)
- Your business’s address, phone, primary contact, or email address that matches the info on your loan application
- The SBA PPP loan number assigned by your lender
- The lender’s PPP loan number
- Your PPP loan amount
- The number of employees at the time of your loan application
- The number of employees at the time of your forgiveness application
- The date you received your PPP funds from your lender or the date you received your first PPP loan disbursement
- The EIDL advance amount if you received one
- The EIDL application number if you applied
- Your business’s payroll schedule
- Your covered period (either the 8-week or 24-week period after your loan was disbursed)
- Any alternative payroll covered period, if applicable
How to calculate PPP Loan Forgiveness
Before trying to estimate your potential forgiveness amount, make sure you have the dates right for your 24-week “alternative payroll covered period” during which you used these funds. Remember that it starts on the day of loan disbursement from your lender. Let’s say you received funds on April 30, 2020. Your 24-week covered period would end on October 15, 2020.
While lenders will work with their customers individually to calculate loan forgiveness, you can estimate the amount using a loan forgiveness calculator or estimator. Gather the following information from the 24-week coverage period:
- The loan amount
- Your eligible payroll costs
- Your mortgage, mortgage interest, rent, and utility costs
- Any adjustments for FTE, wage reductions, and EIDL
Even if you’re still in your covered period, you can estimate the upcoming eligible payroll costs to include in your loan forgiveness application.
Once you’ve gathered the numbers you need, start with the amount of PPP loan proceeds you borrowed and used for payroll expenses and other qualified expenses (mortgage, mortgage interest, rent, and utility costs). That’s the maximum you can be forgiven.
From there, subtract the percentage of reduced wages. Do the same for any reductions in the average full-time employees per month, and the average full-time employee percentage reduction. Finally, subtract any funds you received from the EIDL, and that’s your loan forgiveness amount.
Let’s say you have 10 full-time employees during normal business operations. You borrowed $1,000,000 in PPP funds but only used $500,000 to cover payroll and $250,000 to cover other qualified expenses. Your maximum eligible forgiveness amount would be $750,000 ($500,000 + $250,000).
You reduced employee wages by 30%, so your forgiveness amount is reduced by 30% ($225,000) to $525,000. The remaining $475,000 would convert into a 2-year loan with a fixed 1% interest rate.
For better forgiveness eligibility, consider rehiring and retaining your FTE employees. The PPP loan forgiveness eligibility is based on maintaining your current employees and their wages paid. The quicker you rehire and restore compensation, the higher your chances for loan forgiveness qualification will be. If you have some full-time employees who refuse to return, your loan forgiveness eligibility will not be penalized if you’re able to provide proof of a good faith, written offer of rehire and the employee’s rejection of that offer. However, if you restore full-time employees and wages by June 30, 2020, you may be exempt from certain wage reductions.
Before you begin applying for PPP loan forgiveness, make sure you have all the proper documentation and required SBA and lender information you need. Read the loan forgiveness requirements carefully so you can understand why you may or may not be eligible for PPP forgiveness.
All outstanding Kabbage Funding business loans were issued by Celtic Bank, a Utah-Chartered Indus