PPP Loan Forgiveness

The Paycheck Protection Program (PPP), which is administered by the United States Small Business Administration (SBA), was created as a part of the Coronavirus Aid, Relief, and Economic Security Act (CARES) in early 2020.  The PPP provided loans to qualifying entities affected by the Coronavirus.  

Basics of the PPP

A qualifying entity could apply for a federally-funded loan through an SBA-approved lender.  The loans were to assist in paying payroll costs and other operating costs.  Either a portion of the total amount of the loan and its accrued interest are both eligible for loan forgiveness by the SBA if certain conditions have been met. The second round of PPP loans was issued in December 2020.

Loan Forgiveness Information

The SBA has recently issued interim guidance on the loan forgiveness requirements and the SBA review procedures.  The SBA has the right to audit any PPP loan through the document retention period.

• For a PPP loan over $150,000, the document retention period is six years from the date of the loan’s forgiveness or the date the loan was repaid in full if it was not forgiven.
• For a PPP loan of $150,000 or less, the document retention period is either three or four years, measured from the date that the borrower submitted its loan forgiveness application.

Any PPP loan can be selected for audit; the forgiveness of a loan does not ensure that the loan will not be audited by the SBA.  The following list includes the areas that are subject to audit by the SBA.

• Whether the borrower qualified for the loan
• Whether the PPP loan amount was properly calculated 
• Whether the proceeds were used for allowable purposes
• Whether the loan forgiveness amount was appropriately determined

Good-faith Loan Requests – First Round of PPP Loans

If an entity and its affiliates received less than $2,000,000 during the first round of the PPP, loans will be deemed to have made the required certification concerning the necessity of the loan request in good faith.  For entities and affiliates receiving $2,000,000 or more during the first round of PPP loans, they are subject to audit to determine whether they made the required certification concerning the necessity of the loan request in good faith.  There is additional guidance available for those self-employed individuals who report more than $150,000 in gross income on Schedule C of their Form 1040s.

Second-Round PPP Loans

Borrowers are deemed to have made the required certification concerning the necessity of the loan in good faith given that they must demonstrate that they have had a 25% reduction in gross revenues to obtain the loan.

It is imperative that all entities carefully consider the PPP requirements as well as the entity’s own facts and circumstances when determining (1) if it qualifies for a PPP loan and (2) if the necessary conditions have been met for loan forgiveness.  Fortunately, the SBA continues to issue updated information, including frequently-asked question reports, to assist entities in completing the PPP paperwork.  The SBA’s website is www.sba.gov.