Finances and Taxes

Maximize Your PPP Loan Forgiveness: When to Apply

Jamie Trull  
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So, you got your Paycheck Protection Program (PPP) loan and have used the all money on approved forgivable expenses, including payroll, business rent, business utilities, and/or business mortgage interest. Now, it’s time to turn your attention to:

  • How to apply for PPP loan forgiveness 
  • When to apply for PPP loan forgiveness 

In June, the Treasury released two PPP forgiveness applications, the EZ form (with related instructions here) and the full forgiveness form—get a step-by-step guide to filling the PPP forgiveness form here.  But, that still leaves the question: when is the best time to apply for forgiveness? Keep reading to find out. 

It may seem like a no-brainer to wait until your eight or 24-week covered period has elapsed, but it’s actually not that simple. Contrary to popular belief, you do not have to wait until your covered period is over to apply for PPP forgiveness—in fact, it’s critical that you are strategic about when you apply. Choosing the right time to submit your forgiveness application may actually determine how much of the loan gets forgiven. Let’s walk through the timing so you can assess when is best for you to apply for PPP forgiveness. 

The Benefits of Applying for PPP Forgiveness Before the Covered Period Has Lapsed 

If you plan to lay off or furlough workers and expect headcount to decrease between now and December 31, 2020.

If during your covered period, you are unable to maintain the average FTE (full-time-equivalent) employee headcount at the same level that you had employed on February 15, 2020, you may need to meet Safe Harbor in order to get full forgiveness of your loan.  

To meet  Safe Harbor—as it relates to FTE headcount—you will compare your pre-COVID FTE count (this is the number of FTEs you had as of the pay period that included February 15, 2020) with your FTE count on either:

  • the date your forgiveness application is submitted to your bank
  • Or, December 31, 2020  

whichever is earlier

If your FTE count as of the applicable date (again, either: date of application or December 31) is equal to or more than your pre-COVID FTE count, you can obtain FTE Safe Harbor and your forgiveness will not be reduced—even if you did not maintain your pre-COVID FTE levels throughout your covered period.

For example: 

If you apply for forgiveness after using all your PPP funds on September 15th, 2020 (whether your covered period is over or not), for the purpose of Safe Harbor, you will compare the number of FTEs you had on the most recent payroll to those you had on payroll on February 15, 2020. 

If you have the same number or more, Safe Harbor will apply.  

If you apply after December 31, 2020, you will use the FTE count as of December 31, 2020 as your comparison point instead of the actual date of the forgiveness application.  

If you anticipate reducing the annual salary or hourly wages more than 25% for employees who were employed as of February 15th, 2020 between now and the end of the year—and have no plan to restore salaries or wages.

Similar to the point about FTE count above, you want to apply for forgiveness when your employees’ salaries or hourly wages are at a high point compared to pre-COVID levels in order to minimize the potential reduction in forgiveness to meet Safe Harbor. 

Importantly, if you apply for forgiveness before the end of your covered period and your forgiveness calculation is impacted because wages were reduced, that reduction will be applied to the full covered period. 

For example:

You are using the 24 week covered period, but use all loan funds by week 16 and decide to apply for forgiveness once the funds were used. 

You reduced an employee’s weekly salary from $1,000 per week pre-COVID to $600 per week during the covered period. The first $250 (25 percent of $1,000) is exempted from the loan forgiveness reduction calculation. 

Even though the funds were used over 16 weeks, the additional $150 of reduction would be multiplied by the full 24 weeks to calculate the loan forgiveness reduction of $3,600 ($150 x 24 weeks). The calculation essentially assumes that the reduction in salary will stay in effect the rest of the covered period.

(Alternately: If you plan to restore salaries later and take advantage of the December 31st safe harbor date to restore wages, you may want to wait to apply for forgiveness until after that date.)

If you want the peace of mind of getting your PPP loan forgiven ASAP

There is value in knowing what to expect. As long as your PPP remains unforgiven, concern and uncertainty may remain in your mind. Going ahead and getting it over with is advised for those who strongly value certainty. Also, It  is very likely it will take time to get your loan forgiven, so the earlier you apply, the earlier you get in your bank’s queue for review. 

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The Benefits of Applying for PPP Forgiveness After the Covered Period Has Lapsed

If you have not gotten back to your pre-Covid FTE count but expect you will by the end of the year.

Similar to the point above, if during your covered period you are unable to maintain  the average FTE employee headcount at the pre-COVID level, you may need to meet Safe Harbor in order to get your loan completely forgiven. This means if you are under your February 15, 2020  FTE count, you may want to hold off applying for forgiveness until you can hire back to that same FTE level. As long as you are able to rehire back to pre-COVID FTE levels by no later than December 31st, you can still achieve FTE Safe Harbor—which means your loan forgiveness amount will not be reduced for this reason. Be sure to plan the timing of your forgiveness application to coincide with the time when you have the highest level of FTEs. 

Note: there are some acceptable reasons for having less FTEs at the time of application that will not impact your FTE count. These exceptions include:

  • If an employee rejects an offer for re-employment and you are unable to fill the position with a similarly qualified candidate)
  • If an employee was either fired for cause, voluntarily resigned, or voluntarily requested less hours during the covered period.  

If you have reduced base annual salary or hourly wages more than 25% for employees who were on payroll as of February 15, 2020 (excluding yourself) but expect you will restore these by the end of the year. 

In this case, you will want to restore base wages back to pre-COVID levels by the time you apply for forgiveness, or by December 31, 2020 at the latest. 

If you are certain a portion of your PPP loan will be unforgiven and want to conserve cash flow. 

Although your loan document may state that your first payments are due in  six months, the PPP Flexibility Act signed on June 5, 2020 revised the law so that payments are not due on your PPP loan until forgiveness has been determined.  

You are allowed to apply for forgiveness 10 months from the end of your eight or 24-week covered period. After that:

1.  The bank has 60 days to issue a decision 

2. Then, the SBA has 90 days to review the application (if needed); they will begin reviewing applications on August 10, 2020.

3. The first loan payments are due either six months from when you received the loan or when forgiveness is determined—whichever occurs later. This means if forgiveness is determined after the six-month window, first payments will be due immediately upon that determination being made.  

If you are worried about coming up with the cash flow to repay the unforgiven part of the loan and think you will be in a better cash position later, you can plan the timing of your forgiveness application to suit this and conserve cash in the short term.     

For example: 

You received your PPP loan on June 10, 2020. This means your 24-week period ends on November 24, 2020. You expect that a portion of the loan will remain unforgiven. 

If you wait until September of 2021 to apply for forgiveness with your bank (the full 10 months allowed). The bank may use the full 60 days to approve, and the SBA may take another 90 days to review the application (this is assuming both the bank and the SBA use the maximum allowable time).  

Your loan payments don’t begin until February 2022 (likely with a catch-up payment in which a larger amount would be due on the first payment to account for the missed payments). While the total amount you would pay to repay the PPP loan would not decrease, you can impact the timing of those cash flows by carefully planning your forgiveness application timing.   

Your loan is under $150,000 and you want to wait to see if Congress will pass a blanket forgiveness bill.  

Since the vast majority of PPP loans made are under $150,000, there are a number of big banks advocating for “blanket forgiveness” for these smaller loans in order to lessen the paperwork burden on their institutions and on the individual applicants. 

Congress is looking at this possibility, as well, but it remains unclear if new legislation will pass and what the final bill would look like if it did. If Congress were to pass blanket forgiveness of particular loans, it would mean that much less (or possibly no) paperwork would be required to obtain loan forgiveness (though it’s likely that some sort of representation from the borrower would still be necessary). If this legislation passed, going through the rigamarole of doing the migraine-inducing forgiveness calculations or paying an accountant to assist you with the process will be unnecessary.  

Consider Your Bank’s Process

Remember, lenders can start submitting forgiveness application to the SBA for review on August 10, 2020. Some banks will allow you to submit your forgiveness application to them before that so you can start the process early.

Banks are responsible for instituting their own forgiveness application process (using the Treasury forgiveness applications as guidelines for the information that must be gathered from applicants). 

Many banks are still working on setting up a process or online portal to take forgiveness applications, which presents challenges for people who are ready to apply right away. This is especially burdensome for those that may need to make staffing changes to their businesses but want to apply for PPP forgiveness first in order to maximize forgiveness. If you are ready to apply now, reach out to the bank that funded your PPP and ask them if they have a process for accepting applications yet, or when they plan to be able to do so.   

Your Big Takeaway

While there are a lot of factors to consider, remember that it is best to apply for PPP loan forgiveness when your FTE count and the salaries/wages of your employees is as high as possible. 

And remember: the decision on when to apply for forgiveness lies with you; as the business owner, you should take your unique situation into deliberate consideration. 

Jamie Trull
Jamie Trull Jamie Trull is a CPA, Financial Literacy Coach, and Profit Strategist who teaches self-employed individuals and small business owners how to take control of their finances so that they can MAKE and KEEP more money. She has helped thousands of business owners through her live teaching and online courses.

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