The Paycheck Protection Program (PPP) was lifesaving for many Arizona businesses struggling to survive the COVID pandemic. Although called a loan, if recipients follow the correct requirements, one hundred percent of the PPP funds can be forgiven, essentially turning the loan into a business grant.
The government does not automatically forgive PPP loans in Arizona. Recipients must meet strict requirements and follow specific procedures. For many, the process of getting your loan forgiven can be confusing and overwhelming. Read below for Arizona PPP loan forgiveness details you should know about.
What are the Requirements for PPP Loan Forgiveness in Arizona?
There are two primary requirements that PPP loan recipients must meet to have their loan forgiven in Arizona.
- The business must have maintained staffing and compensation levels during the covered period. The covered period is from eight to 24 weeks depending on the terms of the loan. A business may still be able to qualify for forgiveness if it can prove that they’ve made every attempt to keep up similar levels of employment and compensation to what it had before the COVID-19 pandemic.
- The business must have spent the loan funds on eligible expenses. For the loan to be fully forgiven, at least 60% of the funds must have been spent on payroll costs. The remainder of the funds must have been spent on other eligible expenses. These expenses are outlined in greater detail below. A business may still receive partial forgiveness it does not spend 60% on the payroll. However, the amount that is forgiven will be reduced in proportion to the percentage spent on payroll.
Economic Injury Disaster Loans (EIDL) have no impact on PPP loan forgiveness in Arizona.
What Expenses Qualify for PPP Loan Forgiveness in Arizona?
PPP loans are not “free money.” Businesses must spend loan proceeds on specific types of expenses to receive loan forgiveness. There are five primary categories of eligible expenses.
- Payroll Costs. Payroll costs include wages, tips, commissions, bonuses, and employer-paid benefits (health insurance, retirement contributions, etc.). Compensation for employees earning more than $100,000 per year is not an eligible expense.
- Operating Costs. Operating costs include utilities (electricity, gas, water, telephone, and internet), business software, rent, accounting services, mortgage payments, and mortgage interest. Interest paid on unsecured credit is not eligible for loan forgiveness.
- Supplier Costs. Supplier costs include the cost of goods essential to operating your business if the purchase order or contract was in place before the covered period.
- Property Damage. Repair costs for damage or loss due to looting are considered eligible expenses. Repair costs covered by insurance are not eligible.
- Worker Protection. Costs for personal protective equipment and other expenses related to health and safety requirements like health screenings and the installation of barriers are considered eligible expenses.
When Should You Apply for PPP Loan Forgiveness in Arizona?
You can apply for loan forgiveness as soon as your business has spent the funds. The deadline for applying is when the loan matures. If the loan was originated before June 5, 2020, the maturity date is two years. If the loan was originated after June 5, 2020, the maturity date is five years.
There is a ten-month deferment for PPP loans. When the deferment period ends, you must begin payments if you have not applied for forgiveness. While you are awaiting a forgiveness decision, you are not required to make payments.
How Do You Apply for Arizona PPP Loan Forgiveness?
If you want to apply for PPP loan forgiveness in Arizona, you should contact your PPP lender. The lender will direct you to the correct loan forgiveness forms that you will need to complete. Each lender has its own forms. You will usually have to submit accompanying paperwork verifying that you used the funds as intended on eligible expenses. Examples of verifying documents include:
- Bank account statements,
- Tax documents,
- Business contracts,
- Purchase orders, and
If the PPP loan was under $150,000, there is a simplified one-page application form. The simplified application has fewer calculations and documentation requirements.
Your lender must respond with a forgiveness determination within 60 days of receiving your application. If the loan is forgiven, you won’t need to make any further payments.
Your Phoenix Business Attorney
If you have questions about PPP loan forgiveness, you should contact a local business attorney. Nicole Pavlik is an experienced business planning attorney based in Phoenix, Arizona. Call Nicole Pavlik Law Firm today at 602-635-6176 to schedule a free consultation and discuss your business planning needs.