August 21, 2021
6 min read
Opinions expressed Entrepreneur the members are their own.
The Payroll Protection Program (PPP) – the US government’s line of survival for small businesses during the Covid-19 pandemic – sent out a total of nearly 800 billion dollars to help companies retain their workforce in 2020 and 2021. Formal applications for loans under PPP closed May 31 after the available funds were exhausted earlier than analysts initially predicted.
But there is confusion about loans. The term “loan” itself is not entirely accurate because the required subsequent statement of “forgiveness” actually turns the loan into a grant if certain requirements are met.
Contrary to what many might think, forgiveness is not given or guaranteed automatically. Why? When the pandemic hit, Congress wanted to help small businesses get out of the crisis. The US Small Business Administration (SBA) was not equipped to distribute these grants, but was equipped to approve loans. Revisiting this process takes time, and Congress must act.
In practice, the process proceeded as follows: small businesses applied for and received loans under PPP. During the period covered, they spent these loans on related items, primarily payroll. Now they must Apologize with your creditors and provide the necessary documentation for forgiving loans. Lenders have 60 days to respond to these requests.
Today, more than 3.3 million loans – for total cost $ 279.4 billion – have been forgiven, according to the SBA. Loans worth about $ 159.1 billion remain to be forgiven, but businesses that receive these loans must first take action and apply.
Will your PPP loan be forgiven?
In general, your business can expect a loan forgiveness if you retained or re-hired employees while maintaining the pre-pandemic salary level spent at least 60 percent payroll loan and spent the remaining 40 percent on other qualified expenses. Even if your company does not meet these criteria (for example, if your headcount or salary has decreased), you may still be eligible for partial forgiveness.
However, there are a number of misconceptions when it comes to loan forgiveness and the PPP process in general. Some small business owners mistakenly believe that PPPs are for large businesses only. But while the company less than 500 employees and worked on February 15, 2020, he is eligible. Some sole proprietors and independent contractors are even eligible to apply.
Other businesses believe that if they receive other forms of financial assistance, they are not eligible for a PPP loan. It is not true. In fact, many businesses have received PPP loans as well as other SBA financial assistance such as Economic Loss Loan (EIDL) and 7 (a) loans. However, it is worth noting that organizations cannot use their PPP funding and EIDL loan for the same payments.
Finally, many business owners feel that the forgiveness process is too complicated and that their business may not be up to par. This is far from the truth. Complete forgiveness is not guaranteed, but if you are using or have used PPP funds in accordance with the rules, forgiveness is likely and certainly worth it. Even if forgiveness is not possible, loan terms are generally much better than most – 1 percent per annum for 60 months, with payments deferred for up to 10 months thereafter.
Preparing for the PPP Forgiveness Application Process
If you haven’t asked for forgiveness, don’t wait any longer. Having PPPs on your books can hurt your ability to get financing from some lenders who want to pay off the loan first. However, here are three ways prepare to apply:
1. Review the timeline and make a plan
PPP loan forgiveness occurs in stages. Applications for loans financed before February 28, 2021 will open gradually over the next few weeks. You can apply for a loan forgiveness anytime before the due date of the loan if you have used all the proceeds.
The good news is that this process is likely to be much easier than you think if you follow the instructions and submit your application on time. Jill Draper, yarn shop ownerner in upstate New York, said that she essentially had to fill in a few fields on a form that is mostly auto-filled from her bank. Ten days later, she received an email confirming that her loan had been completely written off.
2. Make sure you spend your money right to qualify
Remember, at least 60 percent of your PPP loan must go to payroll and the remaining 40 percent to qualified expenses. You will need provide documentation on your loan forgiveness application, so it’s important to keep good records and provide a breakdown of how you spent under each expense category.
What should not be spent on PPP loan funds? As 22 people committed fraud in the field of PPP found out from their own experience, jewelry, cars and other luxury items are prohibited.
3. Check with your lender for details.
Your lender is your guide in this process. Ask them to help you distinguish between PPP1 and PPP2 loans. For the former, this process is more difficult than for the latter (one page versus 13 pages). Your lender will help make sure you follow all the proper protocols for your particular situation.
SBA just announced consumer-oriented online platform where businesses can apply for a PPP loan forgiveness. For loans of $ 150,000 or less, which account for 90 percent of PPP loans that have not yet been paid off, businesses can apply for forgiveness on their own. For businesses with loans above this $ 150,000 threshold, the SBA requires lenders to negotiate directly with them. It’s important to keep your lender in your corner and rely on him to get support. The SBA makes the final decision when it comes to loan forgiveness, but your lender will act as your advocate to try and give you the best chance of a successful and complete forgiveness.
PPP loans were meant to be forgiven, but small businesses still need to apply for forgiveness to make it a reality. By knowing the timing, keeping good financial records and working closely with the lender, you will set your business up for success in obtaining a full forgiveness loan, which will add added value to your business and allow it to move forward in a strong position.