To better serve American small businesses and their owners, the Paycheck Protection Program (PPP), which was launched in April 2020, has received additional funding with the passage of the Flexibility Act.
An additional $284 billion was added to the Paycheck Protection Program, and small business loan forgiveness was made easier by the December 27th, 2020, Coronavirus Relief Bill.
So that your company can make the most of PPP loan forgiveness, work closely and effectively with its PPP lender, and find the best financial landing spot for future growth, we’ve created this guide to help you navigate the PPP loan forgiveness process.
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The PPP in review
As part of the CARES Act, the Paycheck Protection Program was launched to provide financial assistance to businesses and employees affected by the COVID-19 outbreak in the United States.
The CARES Act stimulus package, which included loans, grants, and stimulus checks for citizens, contributed over $2 trillion to the U.S. economy.
As a result of this legislation, the Paycheck Protection Program was created, which provides qualifying businesses with payroll funding for 2.5 months.
Loan forgiveness is the most popular benefit of the Paycheck Protection Program. As a result of COVID-19, SBA loans have low interest rates, but the ability to have your entire loan forgiven is enticing to business owners who have suffered economic losses as a result of COVID-19.
A PPP loan forgiveness agreement must meet certain conditions.
Both the first and second draw of a PPP loan have the same forgiveness requirements.
Maintaining staff and compensation levels during the covered period is a requirement for receiving full loan forgiveness.
There are additional requirements for using money from a PPP loan, including that it must be used for eligible expenses (see below).
A minimum of 60% of your loan must be spent on payroll costs in order to be completely forgiven.
Most loans issued in 2020 will be covered for 24 weeks after the loan is disbursed, but borrowers with loans issued before June 5, 2020, can choose the original eight-week period.
From eight to 24 weeks, business owners who receive a first or second-draw loan in 2021 will be able to select a period of coverage.
How to apply for PPP loan forgiveness
When you’re ready to ask for forgiveness, get in touch with your PPP lender. They’ll be able to point you in the right direction for completing a loan forgiveness form.
There are a few things you’ll need to do before this. It will be much easier to ask for forgiveness if you keep track of everything you do.
See the list of possible documents you’ll be asked to provide below.
Borrowers with a first-draw loan of less than $150,000 can use a simplified form and do not have to provide additional supporting documentation.
For second-draw loans, the borrower must show the required revenue losses prior to the loan being forgiven.
What is the SBA’s PPP loan forgiveness process?
What can you expect from the loan forgiveness process once you have received and used your PPP funds in accordance with the above requirements?
The Small Business Administration wants to make loan forgiveness as simple and generous as possible in order to help American small businesses thrive.
However, in order for the incentives to work, they must be fulfilled. In order to receive a PPP loan, you must demonstrate that you meet all of the terms and conditions.
Your SBA loan forgiveness will be handled by your SBA-preferred lender, not the SBA itself. The lender that is disbursing your PPP funds will receive your PPP forgiveness application.
A loan forgiveness statement will be sent to the borrower within 60 days, detailing the amount of loan forgiveness and the terms for repaying any funds that are not eligible for forgiveness.
Before the Flexibility Act went into effect on June 5, PPP loans had a two-year term; loans made after that date will have a five-year term.
Related Question And Answer
What are the new rules for PPP loan forgiveness?
There is still a “60/40 split” in place: a borrower must spend at least 60% of their loan on eligible payroll costs and no more than 40% on eligible non-payroll costs to receive maximum loan forgiveness. According to an interim final rule from the SBA, payroll costs must account for at least 60% of the PPP loan proceeds.
Will PPP loans be fully forgiven?
If you have a PPP loan, you have the option of getting all of the money back. However, you’ll have to adhere to the SBA’s regulations: Eligible expenses must be spent in accordance with the 60/40 rule and must be repaid in full.
Do I have to wait 24 weeks to apply for PPP loan forgiveness?
Any time before the loan’s maturity date, which is two or five years after the loan’s origination, a borrower may submit a loan forgiveness application.
Can you go to jail for 20 000 PPP loan?
You can be charged with bank fraud under Title 18 U.S.C. 1344 if the lie on your PPP loan is considered to be deceiving a financial institution for profit. Typically, a misdemeanor bank fraud conviction carries a maximum sentence of one year in prison and a maximum fine of $4,000.
Are PPP loans forgivable for self employed?
You can get eight weeks of your loan proceeds automatically forgiven as salary replacement for independent contractors, sole proprietors, and other self-employed workers. If you took the maximum amount of your PPP loan when you applied, this should amount to 75% of that.
What is a 100% forgivable loan?
A forgivable loan, also known as a “soft second”, is a type of loan in which the lender can forgive or defer repayment for a period of time if certain conditions are met. If the conditions are not met, the loan must be repaid, typically with interest.
Is the second round of PPP forgivable?
Whether you take out your first or second PPP loan, the terms will be the same as the first. This means that, like the first round of PPP loans, the second round of PPP loans will be fully forgivable if the forgiveness guidelines are followed.
Can I use 100% of my PPP loan for payroll?
According to the 60/40 rule, 60 percent of your PPP loan must be used for payroll costs, while the remaining 40 percent can be used for other eligible expenses (rent, mortgage interest, utilities, etc.). As a self-employed worker, however, you can claim the entire amount of your PPP loan as payroll under compensation replacement.
