PPP Loan Forgiveness
Update: 12/28/20
GET READY TO APPLY FOR PPP SECOND DRAW LOANS:
The President has signed the Consolidated Appropriations Act of 2021 (H.R. 133), which, among other things, authorizes a new round of Paycheck Protection Program (PPP) loans called second draw loans. This allows some borrowers to request supplemental funding on their original PPP loans.
Second draw loans
Second draw loans are only available to businesses that employ 300 or fewer employees (part-time and seasonal count), and have at least a 25% reduction in gross receipts.
It is unclear whether applicants must have already received a loan under the first round of available PPP loans in order to qualify for the new second draw loans (we are awaiting guidance from the SBA on this). However, it is clear that if they have received a prior PPP loan they must have used, or will use, the first loan prior to the disbursement of a second draw loan.
Supplemental funding
Borrowers can also submit supplemental PPP loan requests in all cases where their original PPP loan amount would have changed due to new rules that have been released. This applies to partnerships where the original loan did not include the self-employment earnings of the partners. But it also applies to borrowers who returned their original loans, or took reduced loans to qualify for other benefits that are no longer limited for PPP recipients, such as the Employee Retention Credit.
Borrowers must request this additional funding before forgiveness is granted on their original PPP loan.
Deductions allowed
H.R. 133 also clarifies that borrowers who have loans forgiven may claim deductions for expenses even if expense were paid with loan amounts that were forgiven. This applies to all PPP loans.
California does not conform to this federal law, which is amended as part of the stimulus package. Taxpayers will still be required to reduce their deductions on the California return because California enacted AB 1577 (Ch. 20-39), which specifically prohibits taxpayers from claiming any deductions or credits for expenses that are paid with forgiven PPP loan amounts.
Update: 12/28/20
The California Small Business COVID-19 Relief Grant Program has announced that it will take applications from California small businesses impacted by COVID-19 for grants of between $5,000 and $25,000. The application period begins at 8 a.m. on December 30, 2020, and continues until 11:59 p.m. on January 8, 2021.
Eligible businesses are those with between $1,000 and $2.5 million in annual gross revenues based on their most recently filed tax return, and include sole proprietorships and nonprofits.
The grant amount that will be awarded is:
$5,000 for businesses with annual revenue of $1,000 to $100,000;
$15,000 for businesses with annual revenue greater than $100,000 up to $1 million; and
$25,000 for businesses with annual revenue greater than $1 million up to $2.5 million.
Grants will be awarded based on the following prioritization:
Geographic distributions based on COVID-19 health and safety restrictions;
Industry sectors most impacted by the pandemic; and
Underserved small business groups (e.g., veterans, low-income or rural communities, and women or minority owned businesses).
Grant awards will be announced beginning the week of January 13, 2021.
Details about the program and how to apply are available at:
Businesses that received a Paycheck Protection Program (PPP) loan need to complete a PPP Loan Forgiveness Application Request Form through the bank or financial institution that processed their original loan application.
On October 8, 2020, the SBA released a simpler form, the Form 3508S, for borrowers who received a PPP loan of $50,000 or less, and together with its affiliates, did not receive PPP loans totaling $2MM or more.
Borrowers who qualify to use Form 3508S may make fewer calculations and be exempt from reductions in Loan Forgiveness Amounts based on reduction in full-time equivalent employees or salary/hourly wages.
If you qualify to use the Form 3508S, then we encourage you to wait until the form becomes available from your lender.
If you request Loan Forgiveness within ten (10) months after the end of your Covered Period, then you do not have to make a payment until the SBA makes a decision on your Loan Forgiveness amount.
If you do not request Loan Forgiveness within 10 months after the end of your Covered Period, then you will need to start making payments after your deferral period ends.
Available Forms and Instructions:
How to decide which form to use:
Use - Form 3508S if you:
Received a PPP loan of $50,000 or less, AND
Together with your affiliates, did not receive PPP loans totaling $2MM or more
Use - Form 3508EZ if you:
Are self-employed and have no employees; or
Did not reduce the salaries or wages of your employees by more than 25%, and did not reduce the number or hours of your employees; or
Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of your employees by more than 25%
Otherwise, you may have to use Form 3508
Before you request Loan Forgiveness, make sure you have:
Spent all of your PPP funds on eligible costs
Choose the correct SBA form to use and review the instructions
Select your Covered Period
Calculate your eligible payroll costs
Calculate your eligible non-payroll costs