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7 Tips for Getting Your PPP Loan Forgiven

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Did your law firm receive a Paycheck Protection Program loan to cushion the financial blow of COVID?

If so, make sure you follow all the steps required to have your loan fully forgiven.

The Paycheck Protection Program, administered by the U.S. Small Business Administration, was a key component of the COVID-relief CARES Act that provided a direct incentive for law firms and other small businesses to keep their businesses viable and their workers on the payroll.

Loans will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities,” according to the SBA. “Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time headcount declines, or if salaries and wages decrease.”

Read more about PPP loan forgiveness here and here.

Click here for a comprehensive FAQ web page on PPP loan forgiveness. You’ll find answers to questions about what types of compensation count as payroll costs, what costs are eligible for forgiveness, and how to calculate your forgiveness amount.

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The Paycheck Protection Program was a massive relief effort created by Congress in March 2020. It was implemented through the SBA, banks and lending institutions. The program was modified several times. The final PPP deadline was August 8, 2020.

An estimated 5.2 million loans – worth more than $525 billion – were made through the PPP.

Borrowers can have their loans forgiven, effectively turning them into grants. But certain criteria must be met and specific steps must be followed. Go to the SBA links referenced above – or contact your lender – to learn more and to make sure you’re doing it right.

7 Pointers for Getting Your Loan Forgiven

  1. Know how PPP loans work. PPP loans were issued with generous terms. The interest rate was 1 percent. Loans issued prior to June 5 matured after two years and loans issued after June 5 matured after five years. No collateral or personal guarantees were required. The maximum allowed or any one loan was $10 million. No fees were charged by the banks or credit unions authorizing the loans. Over and above these generous terms, the best aspect was that the loan could be fully forgiven.
  2. Be aware of possible audits. The U.S. Treasury Department says it will automatically audit all PPP loans larger than $2 million. Smaller loans probably won’t be targeted for audit, but some spot audits may occur. Also, some banks (including JPMorgan Chase & Co, the single largest lender of PPP loans) plan to investigate potential misuse of PPP funds.
  3. Know the requirements for loan forgiveness. “Effectively, forgiveness is granted to employers that kept or rehired employees while also maintaining general salary levels from before the pandemic,” according to the U.S. Chamber of Commerce. “Employers can still be eligible for partial forgiveness if they don’t meet all of these criteria, such as if full-time headcount declined or salaries decreased somewhat. Requirements include: funds are allowed to be used for payroll costs, rent, utilities and interest on mortgages; at least 60 percent of loan must be used for payroll costs; while the loan is being used, employers must attempt in good faith to maintain similar levels of employment and pay that they had prior to the pandemic.”
  4. Apply within 10 months. If you submit a loan forgiveness application within 10 months of your loan being used, you aren’t required to make any payments on the loan, according to the U.S. Chamber of Commerce and the SBA.
  5. Complete the application. Law firms and small businesses with employees should fill out the standard PPP forgiveness application. Sole proprietors, independent contractors and self-employed people who have no employees should fill out the EZ version of the application. The applications ask for details on payroll and nonpayroll costs, adjustments for wage reductions and potential forgiveness amounts. “Additionally, you’ll use the application to certify that the loan funds were used as intended, that you verified payments to employees and generally that the forms and information submitted to the SBA are true,” writes Sean Ludwig for the U.S. Chamber of Commerce.
  6. Wait for a response. If your loan is fully forgiven, you don’t need to make any payments at all. If the loan is only partially forgiven or not forgiven at all, it loan must be paid off before its maturity date, writes Ludwig.
  7. Contact your accountant or financial advisor. Have them review your PPP forgiveness application and all supporting documentation before submitting the application.

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