Everything farmers need to know about applying for PPP loan forgiveness

Grace Connatser
Wisconsin State Farmer
Everything you need to know about applying for PPP loan forgiveness

If you received a Paycheck Protection Program loan from the federal CARES Act to address the economic crisis of the pandemic, here's everything you need to know about applying for full or partial loan forgiveness with your lender.

Tammie Clendenning, the lead economic development specialist for the Small Business Administration, said at least 60% of the loan had to be spent on payroll expenses in order to qualify for the maximum forgiveness amount, and no more than 40% could be spent on non-payroll expenses, such as rent, mortgage interest and utilities, including internet, electric, water and heat.

You won't apply for forgiveness through the SBA, but through your own bank lender – then, Clendenning said, your lender will work with SBA on your behalf to determine the amount forgiven.

"It is important to remember that the PPP loans are going directly through lenders, not directly through the SBA," Clendenning said. "When you submit your application for forgiveness, that will go directly through the lender that you originally received the PPP loan through and then they will work with the SBA on the forgiveness process."

Other rules must be followed to qualify for maximum forgiveness as well, Clendenning said. That includes employee salary reductions of no more than 25% during the 24-week or 8-week period for which you received the loan, and maintaining the average number of full-time employees. 

Anyone who received a PPP loan is eligible to apply for forgiveness up to 10 months after the loan was disbursed. Payments on the loan will also be automatically deferred during this time, Clendenning added. However, she noted that the rules for this may change depending on what Congress and the Biden administration do in the beginning months of 2020, especially if Congress passes more PPP relief.

"Initially, some lenders were encouraging borrowers not to submit for forgiveness right away because there was possible legislation that might change things," Clendenning said. "We don't know if Congress will take additional action to change some of the forgiveness process or anything like that, so we would encourage, if you'd like, (to) go ahead and submit for forgiveness now."

Requirements for eligibility of expenses under PPP loan forgiveness.

Clendenning said lenders have up to 60 days to submit their own paperwork to the SBA, and then the SBA will take up to 90 days to issue a final determination on the loan forgiveness. She said it's important to stay engaged with your lender over phone or email in case they need to ask any additional questions to clarify your paperwork.

Lisa Taylor, outreach and marketing specialist for SBA, said there are three forms available for filing for loan forgiveness: Form 3508S, Form 3508EZ or Form 3508. Borrowers should choose which form to fill out based on certain criteria below.

  • Fill out Form 3508S if your loan was less than $50,000
  • Fill out Form 3508EZ if your loan was more than $50,000 and you are a sole proprietor, independent contractor or self-employed with no employees
  • Fill out Form 3508EZ if you had no reductions in full-time employment and wage reductions of no more than 25% for employees earning $100,000 or less and your business activity was reduced due to COVID-19 restrictions
  • Fill out Form 3508 if you are ineligible for Form 3508S and Form 3508EZ

All applications are also offered in 16 different languages, including Spanish, Chinese, Tagalog, French and Vietnamese.

"If your PPP loan was $50,000 or less, then you're going to automatically fill out the most streamlined form, which is the 3508S," Taylor said. "That's really the simplest (form), and the SBA does estimate that about 70% of all borrowers had a loan that was $50,000 or less."

Calculations for what you are forgiven and what you must pay back will not be done automatically on the sheet, Taylor said, so it's very important that you keep calculations in your files in case there is a discrepancy later. You will also not be required to provide those calculations with the form.

RELATED: Farmers eligible to apply for federal Paycheck Protection Program

But you will be required to include some proof of expense payments in the amount you borrowed, including proof of payments for payroll and non-payroll expenses, Taylor said. Examples include bank statements, third-party payroll service reports, tax forms and other receipts.

If you're filling out Form 3508EZ, you'll also need documentation for your full-time employees, and for Form 3508, you'll need documentation for both the PPP payment schedule and full-time employee information.

"For payroll, you're basically showing proof that you paid these payroll costs and that you are now requesting forgiveness on them," Taylor said. "You do have to keep (all documentation) for six years following the date that your PPP loan was either fully forgiven or fully paid off."

Payroll compensation limits for the business owner go up to either 2.5 months of 2019 pay or $20,833, whichever is lower, for the 24-week loan period. For the 8-week period, compensation limits cap at the lower end of either eight weeks of 2019 pay or $15,385.

If it sounds like you don't meet eligibility requirements based on maintaining full-time employment, don't worry – Taylor said the "safe harbor" provision of the PPP loan provides for business owners who are only ineligible due to a technicality or misunderstanding.

The SBA has a large resource network for anyone who needs help with their PPP loan forgiveness application.

The safe harbor provision will take effect for those who had to reduce full-time employment and are unable to return to the same level of business activity before the pandemic, or unable to rehire the average amount of full-time employees at the same rate of pay, due to compliance with COVID-19 restrictions between March and December 2020.

"These safe harbors are referring to the fact that you may have some reductions that would normally create a reduction in your PPP forgiveness amount," Taylor said. "But if you fit into the safe harbor, then you're going to be protected from reductions in your PPP forgiveness."

And if you requested an Economic Injury Disaster Loan (EIDL) advance, be sure not to deduct that amount from your payment documentation, because SBA will automatically deduct the amount before finalizing your forgiveness amount. If you deduct it on your end, it will be deducted twice, Taylor said.

RELATED: CARES programs help soften economic blow for farmers during COVID-19 pandemic

For tax considerations, Dunn County ag agent Katie Wantoch said PPP loans are not subject to Internal Revenue Service income rules, and will not affect your reported income. However, expenses deducted for PPP purposes cannot also be deducted on your tax returns unless you are denied forgiveness or you do not apply for it, she said.

"If your loan forgiveness application hasn't been done ... or the bank decides to deny your forgiveness application for whatever reason, then, and only then, are you able to deduct those expenses on your 2020 tax return," Wantoch said. "Should you receive a denial for your forgiveness from a bank in 2021, you can go back and amend your 2020 tax return and deduct it then, or you may opt to deduct those expenses on your 2021 tax return."

Wantoch said Congress is also considering a second round of PPP loans, which would allow for expenses to be deducted under normal tax conditions. Those loans may only be available to businesses that show a 30% or greater loss of revenue for any quarter of 2020. Wantoch suggested keeping a close eye on any IRS updates that would change how to file your taxes, or stay engaged with your tax preparer.

Compeer Financial has already launched the application for loan forgiveness, said Marissa Koller, an associate credit officer for Compeer. If Compeer is your lender, you should keep an eye on your email for a link to the application portal, she said, and even if Compeer is not your lender, they can help.

"Each lender has their own process," Koller said. "I encourage you, if your lender is not Compeer, to reach out to them if you have questions on specific process items."