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The CARES Act’s Paycheck Protection Program was designed as an economic life-raft for countless individuals and business during these unprecedented times. Surely, the relief provided by the PPP is the only reason that many entities are surviving the economic blow caused by the COVID-19 pandemic, at all.

Thus, it would seem completely illogical and counterproductive for the federal government to issue PPP funds, only to turn around require PPP loan recipients to repay the loan, even with a low interest rate (1%) as the economy continues to barely keep its head above water.

Of course, this is not the case, as demanding immediate, or even slightly deferred repayment of PPP loan funds would not make sense and doing so would only further harm small businesses and the economy overall.

Instead, 100% of the PPP loan may be forgiven – if you meet certain criteria and if the PPP funds are used for the four designated purposes: payroll, mortgage interest, rent/lease, and utilities. Importantly, at least 60% of the PPP funds must have been used for payroll expenses, to qualify for complete loan forgiveness.

Importantly, these four approved categories of expenses for which recipients can use their PPP funds, are not merely suggestions. Not only has the SBA and IRS issued guidance on what expenses are, and are not, specifically included among these four approved categories, but also, the federal government has increased enforcement measures to prevent abuse and to ensure that PPP funds are used for these approved purposes.

Accordingly, “no,” you cannot use any extra PPP funds to buy that Corvette that you always wanted. Not only will you be ineligible for PPP loan forgiveness, but also, if you stray outside the intended guidelines (payroll, utilities, rent, and mortgage interest), you could be criminally prosecuted for fraud.

Applying for PPP Loan Forgiveness

Now that you have received the PPP loan from the federal government, what steps do you need to take to qualify for loan forgiveness?

First, you will need to fill out a PPP forgiveness application form, which is available through the Small Business Administration’s website at sba.gov. Next, you will need to attach a number of supporting documents to your application, including but not limited to payroll reports, receipts, bank statements, accounting records, invoices and any other documents reflecting all of the applicable expenses for which the PPP funds were used.

Of course, individuals and businesses seeking loan forgiveness should consult the Small Business Administration’s loan forgiveness application form and their specific lender, for more specific documents and information required to be submitted with the Loan Forgiveness Application. Once completed, submit your loan forgiveness application to your lender who will review the application and, within 60 days, issue a decision to you and the SBA regarding the amount of loan forgiveness.

If part or all of your loan isn’t forgiven, you can appeal the lender’s decision, by requesting SBA review of the decision, within 30 days. However, if the appeal is denied, the PPP funds must be repaid.

Loans issued prior to June 5, have a maturity of two years and loans issued after June 5, 2020 have a maturity of five years. Further, the PPP loans must be repaid at an interest rate of 1% accruing immediately, however there is a six-month payment deferral from the date of loan disbursement and there is no prepayment penalty, if you want to pay off the loan balance early.

While the PPP has surely provided much needed relief for many businesses during these trying times, receiving the relief funds was only the first step in the process. To prevent this relief from unintentionally adding to your economic woes, it is essential to ensure that you appropriately use the funds, follow the instructions and fill out the SBA loan forgiveness application correctly, the first time, to maximize the amount of your PPP loan forgiveness.


Larry W. Zukerman is the managing partner of Zukerman, Lear & Murray, Co., LPA in Cleveland and Adam M. Brown is an associate attorney.

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