Currently, banks are in the early stages of accepting & preparing to accept PPP Loan Forgiveness applications. Bank of America sent emails recently saying that the Forgiveness Application is now available. America’s biggest bank, Chase, hasn’t begun yet with their website saying they are working continuously to “prepare to accept your Forgiveness requests.”
Banks opening up the process might be exciting news for those of you eager to get these loans over and done with. But just because banks are taking applications, does that mean you should apply? Some thoughts on proceeding with caution.
Your covered period matters
The covered period of your loan is vital because it affects when you are able to apply for forgiveness.
If you were funded before June 5, 2020, you got to choose between an 8-week covered period (which has passed) or the 24-week covered period- which for many who got approved & funded in April, that may be coming up. There is also the alternative covered period option, which starts the 1st day of the first pay period following the deposit of loan funds.
Now, if you were funded on or after June 5, 2020, you have to wait the entire covered period and you won’t be able to apply for forgiveness until November 20th at the earliest.
Selecting the right covered period doesn’t just influence the amount of time you have to spend the funds though. By selecting the longer pay period, you get even more time to spend the funds on payroll & non-payroll costs. Essentially, the more time you have to spend the money, the more will be eligible for forgiveness.
This is very important for the self-employed and owner-employees whose compensation was capped at 2.5 month’s of 2019 net profit. To receive your full amount forgiven, you have to take the entire 24 week covered period. If you apply early, you may not get the entire amount forgiven. Read the fine print and ask questions!
How to apply for PPP Forgiveness
Currently, there are two types for Forgiveness Applications-
The EZ version applies to borrowers that:
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%.
The application requires fewer calculations and less documentation for eligible borrowers. You can determine if you are able to use the EZ application by reviewing the Checklist for Using SBA Form 3508EZ (PDF) on the SBA’s website.
The advantages and disadvantages of applying now
The process varies slightly depending on your bank and their process, and like with the previous elements of the PPP program we’ve seen, the rules may change. In general, if you are eligible and can get your funds forgiven now, you may want to get started soon. With so much uncertainty surrounding the economy and the administration, locking in loan forgiveness is attractive, so be sure to speak with your banking representative about your options.
Remember, there’s still a lot we don’t know and you only get one shot at ppp forgiveness. If you’re not absolutely sure you qualify for the full amount of forgiveness, it may make sense to wait out the longest covered period and see where things are then. There’s no deadline for the forgiveness application itself (beyond applying before the loan matures).
Keep in mind that you must start making payments on the loan 10 months after the end of your covered period!
NOTE: Proforma Partners is not a bank or banking entity so we cannot help you fill out your applications for forgiveness.