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By Sanjeev Kumar
Founding Attorney

During the Covid-19 pandemic, there were several programs available through the Small Business Administration to help businesses that were struggling. One such program was the Paycheck Protection Program (PPP). Now, some of those loans may be coming due and you may be wondering whether you can apply for PPP loan forgiveness and how you can do so. One of the main attractions of the PPP loan is, after all, that it may be forgiven in full. Once forgiven, the loan becomes a kind of grant as opposed to a loan that needs to be repaid.

How Do You Apply for Paycheck Protection Program (PPP) Loan Forgiveness?

The terms of PPP loan forgiveness will vary slightly depending on whether you are dealing with a first draw or second draw PPP loan. For first draw PPP loans, eligible borrowers can qualify for full loan forgiveness if, during 8 to 24 weeks following the disbursement of the loan:

  • The business maintained the same employee and compensation levels.
  • Proceeds from the loan were spent on payroll costs and other qualifying expenses.
  • A minimum of 60% of the loan proceeds were spent to cover payroll costs.

For second draw PPP loams, eligible borrowers can qualify for full loan forgiveness if, during the 8 to 24 weeks following the disbursement of the loan:

  • The business maintained the same employee and compensation levels as was required of the first draw PPP loans.
  • Proceeds from the loan were spent on payroll costs and other eligible expenses.
  • A minimum of 60% if the loan proceeds were spent to cover payroll costs.

Once a PPP loan borrower has used all of the loan proceeds, he or she may apply for forgiveness and can do so at any time up to the loan’s date of maturity. Should a borrower fail to apply for forgiveness within 10 months of the last day of the covered period, then the borrower will need to begin making payments to the PPP lender on the loan.

To apply for loan forgiveness, you must submit the required form to your PPP lender. Along with the form, you will need to compile and submit a number of documents. Documentation will include payroll documentation for the covered period. Payroll documentation may include bank account statements, tax forms, and payment receipts as well as canceled checks or account statements that document an employer’s contributions to employee health insurance and retirement plans. Documentation will also likely include non-payroll documents that show expenses incurred during the covered period. Documentation may include those showing business mortgage interest payments, business rent payments, or business utility payments.

Once the appropriate form has been completed and the necessary documentation has been gathered, it should be submitted to your PPP lender. Your lender may require that you submit additional documentation. You can and should be in communication with your lender throughout the loan forgiveness process. Should you receive an unfavorable decision on your application for loan forgiveness, you may be able to appeal the decision with the SBA.

Business Law Attorney

For assistance with PPP loan forgiveness and other business law matters, please reach out to the Kumar Law Firm for assistance. Contact us today.

About the Author
Sanjeev Kumar is the founder and principal at the Kumar Law Firm, which provides a wide range of legal services to entrepreneurs and business owners in the area of business & corporate law and intellectual property along with related areas of interest to clients such as business succession planning, wealth preservation through estate planning, and alternate dispute resolution.