# SBA Loan Forgiveness: Expert Tips and Strategies for Success SBA loan forgiveness belonged to the Paycheck Protection Program, which has ended, and its window to apply for forgiveness has closed. Other SBA loans, including EIDL loans, have no forgiveness program and must be repaid. Borrowers who struggle to repay an SBA loan today can ask their lender or the SBA about hardship options or an offer in compromise. By [Capital Gurus Editorial Team](https://capitalgurus.com/editorial-policy/) · [SBA Loans](https://capitalgurus.com/blog/category/sba-loans/) · Published July 13, 2023 · Updated July 18, 2023 [See your financing options](https://capitalgurus.com/apply/) — soft credit pull only, no obligation ## Key Takeaways: - The program behind SBA loan forgiveness was the Paycheck Protection Program (PPP), which ended on May 31, 2021. Regular 7(a), 504 and EIDL loans have no forgiveness program and must be repaid. - Forgiveness depended on using the funds for approved expenses and keeping employee headcount and pay. - Borrowers had to apply before the loan matured, at most five years after the SBA issued the loan number, so that window closed by mid-2026. - Borrowers who did not apply within 10 months after the covered period saw their loan payments resume. - If you cannot repay an SBA loan today, the options are hardship programs and an offer in compromise, not forgiveness. ## 1. Process for applying for SBA loan forgiveness Applying for PPP loan forgiveness involved several steps and careful documentation. Here is an overview of how the process worked: 1. Gather all necessary documentation: Borrowers gathered documents that proved how they used the loan funds, such as payroll records, utility bills, rent or mortgage statements, and invoices. 2. Complete the forgiveness application: Borrowers filled out the SBA forgiveness form that matched their loan: Form 3508S for loans of $150,000 or less, or Form 3508 or 3508EZ for larger loans. 3. Submit the application: Borrowers submitted the application to their lender or, from March 2024, through the SBA's direct forgiveness portal, whatever the loan size. 4. Review and decision: The lender reviewed the application, could request additional documentation, and sent its decision to the SBA. 5. Notification of forgiveness amount: The borrower was told the forgiven amount. Any portion that was not forgiven had to be repaid under the loan's terms. ### Required Documentation: Documentation varied with the loan size: Form 3508S did not require supporting documents at submission, while Forms 3508 and 3508EZ did. The documents generally included: - Payroll records, including tax forms (e.g., Form W-2) and bank statements - Invoices and receipts for eligible non-payroll expenses (e.g., rent, utilities) - Proof of full-time equivalent (FTE) employee numbers and pay rates - Copies of lease agreements or mortgage statements - Bank account statements showing loan fund disbursement and use #### Tips That Helped Applications Go Smoothly: - Keep detailed records: Organized records of expenses made the forgiveness application much easier. - Double-check calculations: Mistakes or inconsistencies could delay the decision. - Communicate with your lender: Borrowers who stayed in touch with their lender got answers on requirements faster. ## 2. Eligibility criteria for SBA loan forgiveness explained ### Eligibility Requirements To be eligible for PPP loan forgiveness, borrowers had to use the loan funds for eligible expenses, which included payroll costs, rent or mortgage interest payments, utilities, and certain other operational expenses. Borrowers also had to maintain their employee headcount and salary levels during the covered period, or see the forgiven amount reduced. ### Documentation Required To prove eligibility, borrowers provided documentation such as payroll records, tax forms, lease agreements, and utility bills, showing that the funds were used for approved purposes and that headcount and salaries were maintained. ## 3. Waiting period before applying for SBA loan forgiveness ### Covered Period The period before applying for PPP forgiveness was known as the covered period. It began on the date the borrower received their PPP funds and lasted between 8 and 24 weeks, depending on the timeframe the borrower chose. ### Timing of Forgiveness Application Borrowers could apply once they had used all of their PPP funds or reached the end of their covered period. If they did not apply within 10 months after the covered period ended, loan payments resumed. The final deadline was the loan's maturity, at most five years after the SBA issued the loan number. ## 4. Required documentation for SBA loan forgiveness application ### Payroll Documentation A key requirement for PPP forgiveness was documentation of payroll costs incurred during the covered period. This included payroll tax filings, bank statements, and payment receipts, and could include evidence of employee benefits and retirement contributions. ### Non-Payroll Documentation Borrowers also documented non-payroll expenses such as rent or mortgage interest payments, utility bills, and lease agreements, showing the amounts paid and the dates of payment. #### Tips for Organizing Documentation Borrowers who organized documents by expense category, labeled them with dates and descriptions, and kept a spreadsheet of expenses for the covered period found the application simpler. Note: The information provided here is based on general guidelines and regulations. It is important to consult with an accountant or financial advisor about your own loan. ## 5. Specific requirements and restrictions on using forgiven funds ### Eligible Expenses The SBA set specific rules on which expenses counted toward forgiveness. They included payroll costs, rent or mortgage payments, utilities, and certain operational expenses such as software subscriptions or supplier costs. #### Restrictions At least 60% of the forgiven amount had to go to payroll costs for full forgiveness. Amounts spent on ineligible expenses were not forgiven and had to be repaid by the borrower. ## 6. Deadline for submitting an application for SBA loan forgiveness ### Timeline Borrowers could apply for forgiveness up to the loan's maturity date, at most five years after the SBA issued the loan number. With the last PPP loans made before the program ended in May 2021, that window closed by mid-2026. #### What Happened Without an Application A borrower who did not apply within 10 months after the covered period had to start making loan payments. A borrower who neither applied for forgiveness nor repaid was in default and could be referred to the U.S. Treasury for collection. ## 7. Examples of expenses that qualify for SBA loan forgiveness ### Potential Eligible Expenses The SBA gave examples of expenses that qualified for PPP forgiveness. These included payroll costs, such as salaries, wages, and tips, up to a certain limit per employee. Rent or mortgage payments for business premises were also eligible, as were utilities like electricity, gas, water, transportation costs, and internet services. #### Operational Expenses Certain operational expenses incurred during the covered period could also qualify, including software subscriptions essential to business operations and supplier costs essential to maintaining current operations. ## 8. Circumstances where full loan forgiveness may not be eligible ### Reduction in Employee Headcount Full forgiveness could be reduced if employee headcount fell during the covered period compared to pre-pandemic levels. Borrowers had to maintain headcount or show efforts to rehire employees to maximize forgiveness. #### Salary Reductions If an employee's salary was reduced by more than 25% during the covered period, the forgivable amount could be reduced. ## 9. Impact of Paycheck Protection Program (PPP) on SBA loan forgiveness ### Integration with PPP The Paycheck Protection Program (PPP) was the SBA's loan forgiveness program. PPP loans were designed to help small businesses keep their workforce employed during the COVID-19 pandemic and could be fully forgiven if used for eligible expenses within the specified timeframe. #### Other SBA Loans Outside the PPP, SBA loans are not forgiven. A 7(a), 504 or EIDL loan must be repaid under its terms. ## 10. Key differences between PPP and Economic Injury Disaster Loan (EIDL) regarding loan forgiveness ### Loan Purpose Both the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) helped small businesses during the pandemic, but they differed on forgiveness. PPP loans were primarily intended for payroll expenses, while EIDL loans could be used for a wider range of business expenses. #### Forgiveness Process PPP loans could be forgiven through an application. EIDL loans have no forgiveness provision: borrowers must repay them under the terms agreed with the SBA. Only the EIDL Advance grants did not have to be repaid. ## 11. Tax implications associated with receiving SBA loan forgiveness ### Taxability of Forgiven Amounts Under normal circumstances, forgiven debt is considered taxable income. In response to COVID-19, however, Congress exempted forgiven PPP loans from federal income tax. #### Deductibility of Expenses Under the Consolidated Appropriations Act, 2021, business expenses paid with forgiven PPP funds remain deductible at the federal level. ## 12. Eligibility for multiple rounds of SBA loans and forgiveness ### Second Round Eligibility While the PPP was open, a business that had received a first PPP loan could apply for a second-draw PPP loan if it met the eligibility criteria, and that second loan could also be forgiven. #### Meeting Eligibility Criteria Second-draw loans required meeting specific SBA requirements, including showing a reduction in revenue. ## 13. Appeal process if application for SBA loan forgiveness is denied ### Reasons for Denial Forgiveness was denied for reasons such as failing to meet eligibility criteria, insufficient documentation, or discrepancies in reported expenses. #### Appeal Process The SBA set rules for borrowers to appeal its final loan review decisions on PPP loans. A borrower who received a denial should follow the instructions in the SBA's decision letter. In conclusion, SBA loan forgiveness belonged to the PPP, which has ended. For any other SBA loan, the path forward is repayment, and if that becomes hard, talking to your lender or the SBA about hardship options or an offer in compromise. Capital Gurus is not an SBA lender; SBA loans are made by SBA-participating lenders. Example: Say a restaurant used its PPP loan mostly on rent and utilities and only a small share on payroll. Because full forgiveness required a set minimum share to go to payroll, that owner would not have received full forgiveness, and the part spent on ineligible costs had to be repaid. Example: Picture a salon that cut staff and reduced a stylist's pay during its covered period. The forgivable amount could shrink for both changes unless the owner restored headcount or showed efforts to rehire, and any part not forgiven was repaid under the loan's terms. Decisions from some providers the same day, depending on the provider. [Get my options](https://capitalgurus.com/apply/) · [Call (725) 425-4307](tel:+17254254307) ## Frequently asked questions ### Is there a way to get your SBA loan forgiven? Only PPP loans could be forgiven. The PPP ended on May 31, 2021, and borrowers had to apply before the loan matured, at most five years after the SBA issued the loan number. Regular 7(a), 504 and EIDL loans are not forgiven and must be repaid. ### How do I not pay back my SBA loan? If your business has failed to repay an SBA loan, there are options available to you. One such option is the offer in compromise, which allows you to settle the debt by offering a partial payment if you cannot afford to pay the full amount. ### How long does it take for SBA loan to be forgiven? For PPP loans, the lender had 60 days from receiving a complete forgiveness application to decide and notify the Small Business Administration (SBA). The SBA then had up to 90 days to review the decision and pay the forgiven amount, and the borrower was told how much was forgiven. ### What happens if you can’t pay an SBA loan? The lender collects first, including by selling any collateral, and can call on the SBA's guarantee for the guaranteed share of what is left. On most 7(a) loans the SBA guarantees up to 85% of loans of $150,000 or less and up to 75% of larger loans (50% on SBA Express). The guarantee protects the lender, not the borrower: you and any guarantors still owe the debt, and the SBA can pursue it. ### How do I settle my SBA debt? When you submit an offer in compromise, you are making an agreement to settle your debt. This can be done through a lump sum payment or a payment plan that you create and are willing to follow. If your offer is accepted, your lender and the SBA will work to resolve your debt, even if it is for less than the total amount you owe. ## Related reading - [How to Use an SBA Loan to Refinance Your Business Debt](https://capitalgurus.com/blog/sba-loan-refinance-business-debt/) - [SBA Loans: Demystifying the Process and Revealing How Accessible They Truly Are](https://capitalgurus.com/blog/are-sba-loans-easy-to-get/) - [Are SBA Loans Guaranteed?](https://capitalgurus.com/blog/are-sba-loans-guaranteed/) - [SBA loan rates](https://capitalgurus.com/guides/sba-loan-rates/) ## Next steps - [See your financing options](https://capitalgurus.com/apply/) — One application, soft pull only - [Business loan calculator](https://capitalgurus.com/calculators/business-loan-calculator/) — Estimate a payment - [Talk to a funding advisor](https://capitalgurus.com/contacts/) — Questions first? Or call a funding advisor at [(725) 425-4307](tel:+17254254307) ## One application. Every funding option. Skip the lender-by-lender chase. One application, three months of bank statements, and a dedicated advisor who brings the offers back to you side by side — terms set by the provider, disclosed before you sign. - [Apply now](https://capitalgurus.com/apply/) - [Call (725) 425-4307](tel:+17254254307) About 5 minutes, soft credit pull only · [talk to a funding advisor](https://capitalgurus.com/contacts/) --- Source: https://capitalgurus.com/blog/sba-loan-forgiveness/ · Capital Gurus is not a lender.