Repayment of Paycheck Protection Program (PPP) loans will begin this month for early 2020 borrowers that have not yet applied for forgiveness. By submitting a forgiveness application, required principal and interest payments are forestalled until the Small Business Administration (SBA) decides on forgiveness of the loan. If you have not applied, you are not alone as approximately 71% of total PPP loan borrowers have yet to apply for forgiveness.
The earliest PPP loans were issued on April 3, 2020. If a borrower received its PPP loan funds on that date and chose the twenty-four-week covered period, the borrower’s first payment on the loan is due on or about July 17, 2021. A borrower must apply for forgiveness within ten months of the end of its covered period to avoid having to make principal and interest payments on the loan. In addition, if the SBA determines that the loan is not eligible for forgiveness (in whole or in part), the PPP loan is no longer deferred and the borrower must begin paying principal and interest. If this occurs, the lender must notify the borrower of the date the first payment is due.
However, not all is lost if a borrower cannot submit its forgiveness application before the due date of the first payment. While that payment still must be made, once the forgiveness application is submitted and ruled upon, the SBA will direct the lender to repay payments made by the borrower if the amount of the payments is part of the loan forgiveness.
There are three forgiveness applications: Form 3508S, Form 3508EZ, and Form 3508. Form 3508S is for loans of $150,000 or less. Form 3508EZ is for loans of more than $150,000 where the borrower (1) did not reduce the number of employees, or the average paid hours of employees between January 1, 2020 and the end of the covered period and did not reduce the annual salary or hourly wages of any employee (whose annualized salary was $100,000 or less) by more than 25% during the covered period, compared to the most recent full quarter preceding the covered period; or (2) was unable to operate during the covered period at the same level of business activity as before February 15, 2020 due to compliance with government health and safety requirements or guidance issued during specified timeframes. Borrowers unable to use either Form 3508S or Form 3508EZ must use the “long-form” Form 3508.
The Employee Retention Credit (ERC) and Shuttered Venue Operator Grants (SVOG)
Business owners should evaluate whether their business qualifies for the potentially lucrative employee retention credit (ERC). The ERC is a refundable payroll tax credit for eligible employers, calculated as a percentage of qualified wages paid to employees between March 13, 2020 and December 31, 2021. To be eligible, a business must meet one of two criteria during a calendar quarter:
- The operation of the business is fully or partially suspended due to orders from an appropriate governmental authority limiting commerce, travel, or group meetings because of COVID-19; or
- The employer experiences a significant decline in gross receipts.
To learn more about the ERC, click the button below to access A Guide to the Employee Retention Credit.
A Guide to the Employee Retention Credit
Former President Trump signed the Consolidated Appropriations Act (Act) in late December 2020. The Act authorized over $16 billion for Shuttered Venue Operator Grants (SVOG). SVOG funds are available to eligible entities including promoters and operators of live venues, talent representatives, museums, zoos, aquariums and motion picture theaters. The SVOG must be used for specified expenses, such as payroll costs, rent, utilities, personal protective equipment, insurance payments, and scheduled debt payments. As of June 28, 2021, it appears that approximately $4 billion in funds remained available. You can read more about SVOG here. Also, the SBA has issued detailed guidance on the program.