It’s Time To Start Thinking About Applying For PPP Forgiveness – What Your Business Needs To Know

If your company or small business took out a PPP loan in 2020 and used the 24-week covered period following loan disbursement, the loan forgiveness application deadline is likely coming up in September. Within 10 months of the end of the covered period, PPP loans will automatically convert to a standard loan with 1% interest so it’s important to apply as soon as possible.  Reach out to your accountant now, and start getting ready! 

Here’s a reminder of important things to note as you move forward. 

In 2021, many companies applied for loans under the second round of PPP loans issued under the CARES Act.  It is now time to start submitting applications for loan forgiveness.  This provides an update for businesses on what to remember as the forgiveness process starts or continues for many businesses as we move into the third quarter of 2021.

WHAT can I use my funds for under the second round of PPP loans? 

The second round of PPP loans included additional categories where funds could be used, and was broader than the first round of PPP loans under the CARES Act.  Remember that under the second round of PPP loans, companies and businesses can use  use funds for:  

  • Personal protective equipment (PPE) for employees or other expenses related to government-imposed COVID-19 restrictions
  • Software or cloud computing services used for inventory, accounting, record keeping, HR, or supply tracking
  • Supplier costs necessary for the operations of your business
  • Damages related to riots or other civil unrest, not covered by property insurance or otherwise compensated

Can I Use PPP Funds To Pay Myself If I’m A Sole Proprietor?

Although the program is primarily intended to help small businesses make payroll and pay other expenses, there are specific provisions for single member LLCs, sole proprietors/freelancers, and other situations for single owner businesses that are the entirety of their company and do not pay themselves through payroll.

The Owner Compensation Replacement provision in the Act allows you to use the loan of 2.5x your monthly net profit entirely to pay yourself as the owner. In addition, you’ll be able to use the shortened 3508EZ forgiveness application discussed later in this post if you are the sole employee of your company.

What Are The Requirements For Loan Forgiveness?

To receive the maximum forgiveness amount for your second draw PPP loan, the qualifications are largely the same as the first round:

  • You must maintain employee and compensation levels
  • Loan proceeds must be spent on payroll costs and other eligible expenses, such as 
  • At least 60% of the loan amount must be used on payroll costs

How Do I Apply For Loan Forgiveness?

You can apply for loan forgiveness once you’ve used all the funds you are going to request forgiveness on, which can be all or just a portion of your loan, depending on how you’ve used them.

To receive full forgiveness, you must spend your loan on qualifying expenses, with at least 60% of those funds going towards payroll. You must also maintain your employee headcount and not decrease any salaries or wages by more than 25%.

When you’re ready to request forgiveness, talk to your lender to receive the correct application – depending on the situation, you may be eligible to use a shortened form. You may also need to provide documentation supporting how you spend the funds from the loan, including bank account statements, tax forms, receipts, invoices, cancelled checks, and more, which would be submitted to your lender along with the forgiveness application.

If you haven’t applied for forgiveness yet, don’t worry! The only current requirement there is that you should submit your forgiveness application prior to the maturity date of your loan.

Do I Qualify For The Form 3508EZ Forgiveness Application?

For certain applicants, there is a shortened version of the standard Form 3508 forgiveness form, called the 3508EZ. You are eligible to use the 3508EZ form if you can satisfy at least one of the following requirements:

  • Are self-employed and have no employees
  • Did not reduce salaries or wages by more than 25%, and did not reduce the number of hours worked by your employees
  • Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce salaries or wages by more than 25%

Form 3508EZ also removes the requirement to complete Schedule A as well as the Schedule A worksheet to simplify the borrowing process for eligible parties.

Is PPP Forgiveness Automatic?

Not currently, but Congress is pushing for automatic forgiveness of smaller loans. The Small Business Administration has also simplified the loan forgiveness application for smaller loans to help those borrowers more easily request forgiveness.

Are There Special Tax Rules For PPP Funds?

Yes! Initially, expenses paid for with PPP funds could not be used as deductions on income tax returns, but Congress made a change in December 2020 that allows expenses paid from the first and second rounds of PPP funding to be deducted from a business tax return. For specific questions about your situation, we recommend you reach out to your CPA or tax professional.

Our Raleigh Employment Lawyers Can Help

Do you have HR questions about helping your employees during this time? Hammer Law PLLC is equipped and prepared to help you navigate your business’ obligations and opportunities with PPP, along with other employment law needs and requirements. If you have any questions or would like to discuss further, please contact firm founder, Holly Hammer, by phone at 919-727-1509 or by email at

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Hammer Law PLLC is not a litigation firm.  We do not handle lawsuits, cases, or claims against employers.  If you are seeking legal assistance in this area, we will be unable to assist you.