When to Apply for PPP Loan Forgiveness in 2021 – You May Want to WAIT
Now that most lenders are out of PPP funds, you need to know when to apply for PPP loan forgiveness. Depending on your business structure, you may want to apply for PPP forgiveness now, or you might want to WAIT to do your PPP loan forgiveness application in 2021.
This video is intended for educational purposes and should not be taken as legal or tax advice. You should consult with your financial professionals about your unique financial situation before acting on anything discussed in these videos. Freedomtax Accounting and Multiservices Inc. is providing educational content to help small business owners become more aware of certain issues and topics, but we cannot give blanket advice to a broad audience. Freedomtax Accounting and Multiservices Inc. or its members cannot be held liable for any use or misuse of this content.
Now that PPP is over for almost every lender, one of the most common questions we get here in our office is, “Okay so if I got the PPP now when do I apply for forgiveness?” That’s what we’re going to talk about in this video. Hello from Freedom Tax Accounting we’re an accounting firm, where we have been providing quality tax and accounting services now for over 20 years, we are recording this video on may 18, 2021. And we always emphasize the date of the recording on any video related to the PPP program because even though it appears that this program is over, you never know this program has been surprising us for a year now. So, there may be things that we discussed in this video that can change as soon as tomorrow, so that’s the importance of subscribing to our channel that way you’re always up to date with the most current and correct information regarding the SBA loans.
So, let’s go into the news:
Basically, as you know PPP is almost over for every lender. And I have to say almost because certain community financial institutions still have access to SBA funding. So, if you haven’t received a PPP loan yet the only way you can get it is to find a local community development financial institution. Now how do you find those? You have to go to the SBA website, click on the PPP logo and see here where it says “find an eligible lender”, you click these links and you search your zip code and it gives you a list of available lenders that may still have PPP funds. I emphasize the word, “They may have” because in most financial institutions they’re already telling clients that they have no more funding available. Apparently, there’s not going to be any more funding approved by congress, so most likely this PPP program is over okay now if you got PPP and now that it appears that this program is over. One of the most common questions we get here in our office is, “When and how do I apply for forgiveness?” And the answer is it depends on the type of structure you have and when you got the PPP loan so let’s go into the contact.
So, in this video we are going to show you how and when to apply for PPP forgiveness if you are self-employed independent contractor sole proprietor basically anyone who got a PPP under a schedule C; how to apply for forgiveness if you have a partnership meaning that you file form 1065, if you have an s corp or a c corp meaning that you file form 1120 or 1120s; and we’re going to tell you what we are recommending our clients okay.
So, basically, the first thing you need to know is that if that you have a lot of time to apply for forgiveness. Remember that when you got a PPP you have a loan with a bank, so the bank may start sending you emails about the interest rates and about the payments; don’t let that scare you okay. Yes, you have a loan with a bank that now you have to apply for forgiveness okay and if you do things correctly, then you’re going to get your loan a hundred percent forgiven okay.
Now, why do I say that you have a lot of time? Because based on SBA rules and this is very important you to know these are rules directly from the SBA because apparently there are certain banks that don’t know SBA rules; and some banks are telling people that if they don’t start paying their loan now that they’re going to get like penalties and that’s basically not true. You have to tell your bank what I’m going to tell you now.
This is what the SBA says:
This is the timeline for the PPP forgiveness. There’s a disbursement date. This is the date the funds were deposited into your account, okay, so the date you got the funds in your account you have 24 weeks okay; so, the 24 weeks is the end of your covered period okay. So, after 24 weeks, you still have 10 more months to apply for forgiveness before the bank starts telling you to pay the loan. So, from the time you get the funds all the way to when the bank officially can tell you that you have to start making payments, it’s almost 16 months. So, you have a lot of time.
Now even though you have a lot of time you may just want to get rid of your forgiveness as soon as possible okay. So, once again you have a lot of time to apply for forgiveness. From the date you got the funds you have which is the covert period, and then you have 10 more months to apply for forgiveness. If you get to this point of 10 months after the covered period, and you have not applied for forgiveness, the bank has the right to tell you that you have to start paying your monthly payments on your PPP loan okay.
Now let’s start with the partnerships. Partnerships are businesses that file the 1065 form okay. When should you apply for forgiveness? At least we are recommending to our clients that you should apply for forgiveness as soon as possible okay. And once again this is not financial advice, this is for educational purposes, you need to seek guidance with your CPA or with your accountant, or with your financial advisor. What we are telling our clients it’s that if you have a partnership with a 1065 filer and you got a PPP loan there’s no reason to wait to file for forgiveness.
Now the thing is every bank has a different forgiveness system. Remember that forgiveness is through the bank that gave you the loan. You do not apply for forgiveness with the SBA. You apply for forgiveness with the bank that gave you the loan and every bank has a different system. So, we recommend that you start getting in contact with your lender and telling them, and asking them how does your forgiveness process work, how and when can I start applying for forgiveness. Some banks tell you we’re going to send you a link via email, some banks tell you to go to this online portal, some banks may tell you to go to the actual bank and send the documentation. So, every bank and lender are going to have their own process. Usually, once you get the funds, we have seen that the bank’s weight from to 12 –8 weeks after you get the funds to send you the forgiveness link, if that’s the way they work for forgiveness; but get in contact with your lender and start asking how do I apply for forgiveness with your lender okay.
Now if you have an s corp or a c corp meaning that your business files taxes under the 1120s form or the s and c corps is the same recommendation, there’s no need to wait. You should apply for forgiveness as soon as possible and once again start calling your lender and see how your specific lender is going to handle forgiveness okay.
Now for the self-employed independent contractors, sole proprietors; basically, everyone who applied for the PPP with a schedule c, there are two different scenarios.
First one: that you got the PPP with line 31 of meaning their net profit. So, most likely this is people or self-employed independent contractors who got PPP in 2020 or at the beginning of 2021, or you may have received your PPP using line 7 which is gross income. If you got PPP with line 7 using your gross income, that means that risk you should have received your PPP recently because the change to use line 31 from line 7 occurred at the beginning of this year 2021 okay. So, there are two different scenarios, let’s look at the first one. So, if you got PPP recently meaning that you got PPP with your schedule c using line 7, meaning that your PPP was calculated using your gross income. We feel there’s no reason to wait. You should apply for forgiveness as soon as possible. And once again start communicating with the bank that gave you PPP to see how their forgiveness process works. Once again, every bank has a different forgiveness process.
So, here’s where things get a little bit interesting:
If you applied for a PPP and you got a PPP but it was based on line 31 that it was based on your net profit, meaning that you got the PPP in 2020 or early this year and you did not get a chance to get the higher amount of PPP with your gross income. At least we are suggesting that you wait. Wait to see if the SBA allows you to reapply using your line seven, using your gross income to get the difference and get a higher PPP loan amount. Now a lot of people are saying, but it isn’t PPP over. But even if PPP is over there is a president that this happened before. If you remember in 2020 this happened with the farmers. Farmers file a similar form that’s similar to schedule c, but they file a form called the schedule f okay. Back in the 2020 schedule f filers also their PPP was based on their net profit similar to the schedule c. And if you remember in 2020, the PPP was over in august of 2020. So, the PPP was over, the first round of PPP was over in august of 2020. But what happened in January of 2021 meaning January August September, October, November, December, January was over in January 2021, the SBA told schedule f filers that they can now reapply for PPP using their gross income. So, they can get the difference, but there was one condition; that the PPP loan could not have already been forgiven. So, this has happened before with the schedule f filers that they got the chance to reapply to get a higher PPP loan amount based on gross income, even after the PPP program was over.
So, once again this is our speculation. We are not saying that this is what’s going to happen. But if you got a PPP using line 31. If you file for forgiveness then you’re basically shutting yourself out you’re closing the door to the opportunity, in case the SBA decides to allow you to reapply. Because remember, you have a lot of time to apply for forgiveness. Remember from the time you get the funds, there’s then there are 10 months after that so you have almost 16 months from the time you got the funds to apply for forgiveness; at least that’s what we are recommending okay.
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