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PPP loan forgiveness

The coronavirus pandemic forced many businesses to close their doors. Unfortunately, the lockdown has a disproportionate impact on smaller firms. Congress recently passed the Coronavirus Aid, Relief, and Economic Security or CARES Act to help the country survive the economic downturn that resulted from the nationwide lockdown. The CARES Act established several relief programs, including the Paycheck Protection Program (“PPP”). Qualifying business can avoid repaying this government-backed loan by applying for PPP loan forgiveness 

What Is the Paycheck Protection Program?

PPP is a $669 billion fund that provides forgivable loans to qualifying small businesses. Self-employed workers, sole proprietorships, and some non-profit organizations can also apply. The PPP’s primary purpose was to provide funding for businesses to maintain their payrolls. However, PPP recipients can also use the money for rent, mortgage interest, or utilities. Loans top out at $10 million or 2.5 times your average payroll, whichever is smaller. The Small Business Association (“SBA”) oversees the program, but banks administer the lending process. 

PPP Loan Qualifications 

Small businesses must have fewer than 500 employees to qualify for PPP funding. Loans are also available for self-employed workers like freelancers and other independent contractors. 501(c)(3) non-profit organizations and 501(c)(19) veterans groups are also eligible.  

How to Apply for a PPP Loan

SBA lending affiliates are responsible for issuing PPP loans. Participating lenders include banks, credit unions, and farm credit institutions. There are currently 1,800 lenders approved to administer PPP loans, and the SBA is actively approving more on a daily basis. 

You can find the PPP loan application here

Click here to find a participating lender in your area.  

As of now, lenders will accept applications until August 8, 2020. Applicants need to prove that their business was operational before February 15, 2020, to qualify. All applications must also include proof of monthly payroll costs. 

Borrowers don’t have to make payments for at least six months, and the maturity date is two years. Applicants don’t have to provide collateral or personal guarantees. There are no fees to take out the loan, and the interest rate is 1%.  

Requirements for PPP Loan Forgiveness

PPP loans are forgivable for businesses that meet SBA stipulations. If you use the funds to maintain your workforce for a minimum of eight weeks, your loan may qualify for forgiveness. You also have to keep all full-time employees on the payroll or rehire them by June 30, 2020, to be eligible for forgiveness. You must spend at least 75% of your loan on payroll expenses, so only 25% can go toward non-payroll costs if you want to pursue loan forgiveness. 

Applying for PPP Loan Forgiveness

PPP loan forgiveness is not automatic. You can request PPP forgiveness through a written request to your lender. Your request must include proof that you’re paying your full-time employees. You also have to include documentation of all payroll and non-payroll expenses, including mortgage insurance and utilities. If you received an Economic Injury Disaster Loan  (“EIDL”) loan, you also have to provide information on that loan. 

You can access the PPP loan forgiveness application here.

New Changes to the Paycheck Protection Program

The SBA recently announced some changes to the PPP program, which could provide additional flexibility for small businesses. Under the new terms, businesses with less than $2 million in loans don’t need to provide proof of hardship to qualify for forgiveness. This change makes it a lot easier for smaller businesses. However, all applicants still need to account for how they spent the money. 

Another update allows partnerships and seasonal businesses to qualify for more money. Previously, the guidelines did not provide clear rules regarding loans for partnerships and seasonal businesses. However, the SBA recently issued additional guidance, and these businesses can now request additional funds. Seasonal companies can now base their loan requests on average monthly payroll for any consecutive 12-week period. 

The PPP program hasn’t exhausted its budget yet, so funds are still available. You still have time to apply if you need it. The deadline for applications is August 8, 2020. 

Learn More About the Paycheck Protection Program

If you’re still confused about the PPP program, we can help. Shared Economy Tax hosted a PPP webinar on May 27 which addressed all of your questions and concerns. Click here to learn more about the webinar. You can also schedule a free one-on-one strategy session with a Shared Economy Advisor to learn more about your options. Don’t forget to signup for our newsletter using the form below for more free tax tips.