Paycheck Protection Program loan forgiveness

In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act provided several forms of relief to help the country address and recover from the COVID-19 pandemic. Many nonprofits applied for and received assistance from the Paycheck Protection Program (PPP) administered by the Small Business Administration (SBA).

For nonprofits with fewer than 500 employees, the program offered emergency loans to help pay for staff and operating expenses. Employers that maintained staffing levels for a covered period following loan origination, or returned to staffing levels at time of loan origination by the end of 2020, are eligible for partial or total forgiveness of the loan.

Recently, the SBA issued final rules and guidance for how recipients of PPP loans can apply for loan forgiveness.     

How to seek forgiveness for a PPP loan

The SBA advises the following steps in completing an application for loan forgiveness.

1. Contact your PPP Lender to obtain the correct forgiveness application. Some borrowers can file SBA Form 3508 EZ or 3508S, which are shorter applications than the Form 3508 that many borrowers will file.

• SBA Form 3508 EZ is for borrowers with loan of $50,000 or less. 
• Form 3508S is for borrowers under at least one of three conditions
  • Self-employed individuals, independent contractors, or sole proprietors with no employees; or
  • Borrowers who did not reduce the wages of any employee by more than 25% between January and April of 2020; and
    • Did not reduce the number of employees or average paid hours of any employees; or
    • Was unable to operate at the same level of business activity as before Feb 15, 2020 due to compliance with public health orders
• If the loan amount is more than $2 million, then nonprofit borrowers are required to also file Form 3510 to prove that the loan is necessary for the organization's continued existence.

2. Compile your documentation, which may include applicable bank statements or payroll service reports, employment tax filings, statements of contributions to health insurance and retirement plans, mortgage or rent payment receipts, and utility payments.     

3. Submit the forgiveness form and documentation to your PPP Lender. This includes providing supplemental documentation if requested by the lender.

4. Continue to communicate with your Lender throughout the process. Your lender will provide notice of the forgiveness amount and the due date of the first payment on the loan balance. Also, the lender will notify the borrower if the SBA conduct a loan review and how to appeal certain loan review decisions by the SBA.

Notes:

• SBA will deduct any Economic Injury Disaster Loan (EIDL) advance amounts from the forgiveness amount. 
• Borrowers are required to retain certain documents for six years after the date the loan is forgiven or repaid in full.
• Obtaining forgiveness may take up to 5 months. This includes up to 60 days for the lender to process and approve the forgiveness application and 90 days for the SBA to process the application. However, forgiveness may be approved sooner than 5 months especially for applications with lower amounts.
• August 31, 2021 is the last date to apply for loan forgiveness

The following links provide more information on the loan forgiveness process:

SBA fact sheets and sample forms

• SBA loan forgiveness fact sheet
• Sample loan forgiveness applications and instructions (click on the loan forgiveness hyperlink)

Resources for PPP loan management and forgiveness

• Nonprofit Quarterly article on PPP management and loan forgiveness
• Fiscal Management Associates webinar on navigating the forgiveness process

Will PPP loans be available again in 2021?

2020 year-end stimulus legislation includes continuation of the PPP program with some modifications. Check out our page on the year-end stimulus for a general summary of the bill.