Editor’s note: Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.
Through the Paycheck Protection Program (PPP), small business owners and other eligible organizations can apply for loans approximately 2.5x their average qualified monthly payroll expenses, up to $10 million. Borrowers can use these loans to cover eligible payroll costs, and other eligible non-payroll costs, including rent, mortgage interest, and utilities. PPP loans may be forgivable, in whole or in part, if borrowers meet certain requirements.
In order to maximize the potential for loan forgiveness, business owners should adhere to the following requirements, among others:
- Maintain the average number of full time employees on the payroll.
- Maintain employee salaries and wages.
- Spend at least 60% of the loan on eligible payroll costs and no more than 40% on additional eligible non-payroll costs within the loan forgiveness covered period.
Reducing employee headcount or wages by more than 25% during the eight weeks after you received your PPP loan proceeds from your lender may reduce your chances of loan forgiveness.
For more information about loan forgiveness, please refer to the loan forgiveness application.
What is the loan forgiveness covered period?
Each borrower has a “loan forgiveness covered period,” which is the period of time during which you’ll need to use your loan funds if you’re hoping to maximize your forgiveness amount.
For loans made on or after June 5, 2020, your loan forgiveness covered period is 24 weeks. For loans made before June 5, 2020, you can choose to use either an 8-week or 24-week loan forgiveness covered period. Loans are considered to be “made” on the date the SBA assigned a loan number to your PPP Loan. Your lender can provide you with this information.
Your loan forgiveness covered period generally begins on the date you received your PPP funds (or if you received them on more than one date, the first date you received PPP funds), and must end no later than December 31, 2020. You don’t have to use all your loan proceeds during the loan forgiveness covered period, but only eligible costs paid during that period (and certain eligible costs incurred but not paid during that period) are eligible for forgiveness. Costs incurred after the loan forgiveness covered period won’t be forgiven.
What is the alternative payroll covered period?
Solely for the purpose of calculating payroll (and certain required reductions), if you are a borrower with a biweekly or more frequent payroll schedule, you may choose an “alternative payroll covered period” that aligns with your payroll cycle.
The alternative payroll covered period begins on the first day of the first pay period following receipt of your PPP funds. For example, if you received your PPP funds on Monday, April 20, and the first day of your first pay period following receipt of your PPP funds is Sunday, April 26, the first day of the alternative payroll covered period is April 26. If you choose to use this alternative period, it applies only to payroll costs and certain required reductions.
What happens after the loan forgiveness covered period?
Borrowers who use PPP funds on eligible expenses within the loan forgiveness covered period may apply to have that portion of their loans forgiven. Amounts spent after the covered period are not eligible for forgiveness.
At the end of the covered period, business owners can begin applying for loan forgiveness with their lender. Eligible business owners have up to six months to apply for forgiveness. Lenders have up to 60 days from the time they receive the loan forgiveness application to make a decision.
Leftover PPP funds not spent within the covered period are not eligible for forgiveness. Borrowers will have to repay remaining funds to their lenders at 1% interest with a 2-year term. Loan payments will be deferred for six months, but will start incurring interest immediately. PPP loans have no fees and no prepayment penalties.
The resources described above are made available to businesses within the United States of America.
Given the large demand for additional authorized Paycheck Protection Program funds, not every qualified Paycheck Protection Program applicant will receive a loan.
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