The year-end stimulus package included significant changes to how the PPP loan forgiveness program works. PPP loan forgiveness is determined based on how the small-business client spent the loan proceeds. Importantly, at least 60% of the loan must be used for payroll costs (note that thisthreshold was reduced from 75% under the CARES Act by the Paycheck Protection Program Flexibility Act (PPPFA), passed in early June 2020).
The Small Business Administration has also released a form version of the loan forgiveness application, but that form was released before enactment of the PPPFA. Every PPP lender can use its own version of the SBA form application.
At the most basic level, after the small-business owner completes the application for loan forgiveness, the lender has 60 days to decide whether the borrower qualifies. The SBA then has an additional 90 days to provide funding for the lender.
Importantly, the original SBA loan forgiveness application mentions the original eight-week period, which has now been extended. Presumably, the application will be updated to reflect this change.
The loan application also now requires employers to certify whether they received loans in excess of $2 million (also considering loans by affiliates). Generally, if the loan amount was $2 million or less, the government will presume that it was made in good faith — i.e., that the borrower did not have a viable alternate liquidity source. The provisions in the Consolidated Appropriations Act of 2021 — the broader spending bill that included $900 billion in virus relief — imposed a firm $2 million cap on the amount of any PPP loan.
Employers must certify that loan amounts were used to cover eligible expenses and that the borrower has accurately confirmed payments made for both payroll costs and non-payroll costs.
The application itself contains a worksheet to help small-business clients calculate their loan forgiveness amount, as well as any reductions that may be necessary because the employer reduced its workforce or employee salaries. The document also provides a cure provision for employers who impermissibly reduced workforce (and may wish to bring employees back to work) or salary levels.