Documents Needed for PPP Loan Forgiveness

The Paycheck Protection Program offered small businesses a rare opportunity: access to SBA-backed loans that can be fully forgiven—if you meet certain criteria. Now that lenders are opening up for forgiveness applications, it's time to start collecting the documents you’ll need to qualify for PPP loan forgiveness.

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Here’s everything you need to provide with your forgiveness application.

Required documents for PPP loan forgiveness

The documents you are required to provide will depend on what expenses you covered with your PPP funds. However, there are some documents and information requirements that are universal:

• Bank account statements
• Photo ID (e.g. driver’s license, passport)
• Your SBA loan number (can be found on your Promissory Note)

Below is all the documentation you need to provide if you used the PPP to cover any of the following.

Owner compensation replacement

If you are self-employed (e.g. sole proprietors, independent contractors) and took owner compensation replacement, you can have your entire loan forgiven to cover your lost earnings.

Your bank account statements will be reviewed to confirm you have drawn your owner compensation replacement over the covered period.

You will also need to provide federal tax documentation showing owner compensation in the past. If you were in business prior to 2020, these will be your 2019 documents. However, if you started your business in 2020, you will need to prepare these documents for January to February 2020. These documents are the same as what was used to apply for the PPP loan.

To prove owner compensation replacement payments, you’ll need to provide:

• A 2019 Schedule C (or January to February 2020) for sole proprietors
• 2019 1099-MISC forms (or January to February 2020) for independent contractors
• A 2019 Schedule K-1 (or January to February 2020) for partnerships
• Check images, OR annotated bank statement

Payroll costs

For the payroll portion of your PPP loan, you will need to provide documents from your payroll provider and proof of paying employment taxes with IRS and state forms. Eligible payroll costs include salaries and wages, health benefits, and paid leave (i.e. vacation, parental, family, medical, or sick leave).

To prove payroll costs you’ll need to provide:

• Payroll service reports documenting wages paid to employee
• Federal payroll tax filings (IRS Form 941)
• Income, payroll, and unemployment insurance filings from your state
• Receipts for employer contributions to group benefit plans
• Receipts for any retirement plan contributions

Some payroll providers are supplying PPP loan forgiveness reports that can be used on the application. Check in with your provider first before manually calculating any payroll cost or headcount numbers.

Mortgage interest payments

If you made payments towards a mortgage that was in place prior to February 15, 2020, you can use the PPP to cover only the interest portion. Either an amortization table or mortgage account statements must be provided to verify the interest portion of the payments. Monthly statements should be available from your lender either by mail or via an online portal. Proof of payments must be provided as well which can be done with payment receipts or by indicating payments on your bank account statement.

To prove mortgage interest payments you’ll need to provide:

• Mortgage amortization table, or mortgage account statements
• Payment receipts, OR annotated bank statements

Rent/lease payments

If you have a business rent or lease that was in place prior to February 15, 2020, you can use the PPP to cover the entirety of the payment. A rent or lease agreement in the business name will need to be provided in addition to monthly payment statements and proof of payment (payment receipts or indicated on bank statements).

To prove rent/lease payments you’ll need to provide:

• Rent/lease agreement
• Monthly payment statements
• Payment receipts, OR annotated bank statements

Utility payments

Any utilities costs incurred by your business can be covered with the PPP. Eligible utility expenses include electric, gas, water, telephone, or internet costs. Any utility bills in the business name can be used as supporting documentation with your proof of payment (payment receipts or indicated on bank statements).

To prove utility payments you’ll need to provide:

• Monthly utility statements
• Payment receipts, OR annotated bank statements

Operation Expenditures

This includes payments for business software or cloud computing service that organizes business operations. Some examples include your payroll provider, an inventory software, or an accounting or bookkeeping solution (like Bench).

To prove operation expenditures you’ll need to provide:

• Copy of invoices, orders, or purchase orders paid during the Covered Period
• Receipts, cancelled checks, OR account statements verifying those eligible payments

Property Damage Costs

If your business faced any property damage or looting due to public disturbances occurring in 2020, you can use your PPP funds to cover any of these costs and have your loan forgiven. This will only apply to costs that were not covered by insurance or other compensation.

To prove property damage costs you’ll need to provide:

• Copy of invoices, orders, or purchase orders paid
• Receipts, cancelled checks, or account statements
• Documentation that the costs were related to property damage and vandalism or looting due to public disturbances that occurred during 2020 and were not covered by insurance. For example, correspondance with your insurance provider denying a claim should suffice.

Supplier Costs

Your PPP loan can cover costs related to the supply of goods so long as they meet the following conditions:

• The purchase is essential to the operations of the borrower at the time at which the expenditure is made; and
• The purchase is made pursuant to a contract, order, or purchase order:
• In effect at any time before the covered period; or
• With respect to perishable goods, in effect before or at any time during the covered period with respect to the applicable covered loan

To prove supplier cost you’ll need to provide:

• Copy of contracts, orders, or purchase orders in effect at any time previous to the loan cover period (except for perishable goods)
• Copy of invoices, orders, or purchase orders and receipts, cancelled checks, or account statements

Worker Protection Expenditures

If your business needed to purchase protective equipment or improve your business to remind COVID compliant, you can use your PPP loan to cover these costs. These purchases must be made to comply with requirements established by the Department of Health and Human Services or any requirements established by a State or local government, during the period beginning on March 1, 2020 and ending the date the national emergency (related to COVID-19) expires. Expenditures may include:

• The purchase, maintenance, or renovation of assets that create or expand (drive-through window; air pressure ventilation; physical barrier; health screening)
• The purchase of protection materials, facepiece respirators and other kinds of personal protective equipment

To prove worker protection expenditures you’ll need to provide:

• Copy of invoices, orders, or purchase orders
• Receipts, cancelled checks, or account statements verifying those eligible payments
• Documentation that the expenditures were used by the Borrower to comply with applicable COVID-19 guidance during the Covered Period

A refresher on PPP loan forgiveness rules

60/40 rule

For a PPP loan to be completely forgiven, the borrower will have had to use the funds on specific expenses. At least 60 percent of the loan must be used to fund payroll and employee benefit costs. The remaining 40 percent can be spent on the following non-payroll costs: mortgage interest payments, rent and lease payments, and utility payments.

Owner compensation replacement

For a sole proprietor, contractor, or self-employed individual, this is made much easier. You are entitled to owner compensation replacement. PPP loans have a covered period of 24 weeks. Over the 24 weeks, you can claim 2.5 months’ worth of your 2019 net profit, as reported on line 31 of your Schedule C. Assuming your PPP loan did not include other payroll expenses, this amount would be equal to your entire PPP loan. The maximum amount allowed is $20,833.

If you received a PPP loan prior to June 5, 2020, you can choose to use an 8-week covered period, and you can claim 8 weeks’ worth of 2019 net profit instead. The maximum amount allowed is $15,385.

Maintaining headcount

You must have maintained an average monthly number of full-time equivalent employees over the course of the covered period. You would have had to rehire any employees that were let go due to COVID.

You can test whether you met this criteria through a simple calculation.

First, determine the average number of full-time equivalent employees (review how to calculate an FTE value here) you had for:

• The 8-week to 24-week period following your initial loan disbursement, (A)
• February 15, 2019 to June 30, 2019, (B1)
• and January 1, 2020 to February 29, 2020. (B2)

Take A and divide that by B1. Do the same with B2. Take the largest number you obtain. If you’re a seasonal employer, you must divide by B1.

• If you get a number equal to or larger than 1, you successfully maintained your headcount and meet this requirement.
• If you get a number smaller than 1, you did not maintain your headcount and your forgivable expenses will be reduced proportionately.

Maintaining salary and wages

For each employee on payroll, their pay must have been at least 75% of what they received in the previous quarter. For salaried employees, their weekly salary over the covered period must have been 75% of what it was in the previous quarter. For waged employees, the same condition must be true for their hourly wage.

Safe harbors

There are safe harbors in place for rehiring employees. Review our blog post on these safe harbors to see if you’re eligible for an exemption on rehiring employees.

Choosing a PPP loan forgiveness application form

Now that you know what documents are needed for PPP loan forgiveness, we’ll cover the application forms. There are three forms to choose from when applying for forgiveness: forms 3508, 3508S, and 3508EZ.

Use our flow chart below to determine which form is right for you.

What comes next

Once you’ve gathered your documents and your lender has opened for forgiveness applications, you can start uploading your information into their portal. If your lender has not opened up for forgiveness applications yet, keep a look out for emails indicating when they’ve opened. You don’t need to wait until the end of the covered period to apply.

Your lender will have up to 60 days to review your forgiveness application. They will decide on your forgiveness amount which can be up to the full loan amount. Once they have reviewed your application and confirmed your forgiveness amount, they will send their decision to the SBA. The SBA then has 90 days to evaluate your application and may contact you directly for additional information.

Your lender will let you know the result of your forgiveness application. You may receive full forgiveness, partial forgiveness, or be denied altogether. You will be notified of any remaining balance and the monthly payments required to pay it off.

By having a PPP loan, both your lender and the SBA have the right to request and audit your business’s financial documents and records to review your eligibility and loan use. You must keep your supporting documents for six years after the loan is fully forgiven or fully repaid.

Additional resources

All things Paycheck Protection Program

• How Bench Tracks a PPP or EIDL (and You Should Too)
• Self-Employment, 1099s, and the Paycheck Protection Program
• PPP Flexibility Act: What You Need to Know
• Safe Harbor Rules for PPP Loan Forgiveness

All other things COVID relief

• How to Fill out Your SBA Disaster Loan Application
• SBA Loan Payment Coverage (During COVID-19)

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.