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.
The Paycheck Protection Program
The Paycheck Protection Program (PPP) is part of the larger government stimulus package, the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Paycheck Protection Program loans are meant to minimize the number of unemployed persons by helping small business owners make payroll. PPP loans are designed to help small business owners stay in business during this time of economic uncertainty.
The hope is that if businesses can keep employees on the payroll now, they’ll be in a better position to recover fully. And as a result, fewer people will be jobless and in need of additional federal aid. And if they meet certain criteria, borrowers can request loan forgiveness.
How to help qualify for Paycheck Protection Program loan forgiveness
To improve your chances of having your PPP loan forgiven, you’ll need to meet some requirements.
1. Keep your workers on the payroll
You should have the same number of employees on the payroll as you did between February 15, 2019 and June 30, 2019. If your business wasn’t open then, maintain the number of employees you had between January 1 and February 15, 2020. If you’ve had to lay some employees off, that’s OK. You’ll just need to hire them back either before the date you submit your application for loan forgiveness or before December 31, 2020.
2. Maintain employee salaries and wages
Keep employees’ salaries and wages as they are. Loans cover annual payroll costs, up to $100,000 per worker. Reducing employee pay by 25% or more reduces your chances of having your loan forgiven. If you’ve already reduced salaries and wages, restore each worker’s normal salary and wages either before the date you submit your application for loan forgiveness or before December 31, 2020.
3. Record all payroll costs and how you’ve spent your loan
Keep an accurate record of employee payroll costs and how you’re spending your loan. Stay organized and track spending on things like employee benefits and healthcare premiums. You’ll need to prove how you’ve spent the loan if you want to request forgiveness.
Additional qualifying expenses under the Paycheck Protection Program
Paycheck Protection Program loans are intended primarily for payroll costs. So when it comes to whether a loan is forgivable, no more than 40% of the forgiven amount may be for eligible non-payroll costs. But borrowers can still spend funds on other forgivable expenses.
Additional forgivable expenses include:
Employee expenses related to payroll
- Vacation, parental, family, medical, or sick pay
- Allowance for dismissal or separation
- Health insurance premiums and group healthcare benefits
- Retirement benefits
- State or local taxes related to employee compensation
- Cash tips or equivalent for tipped workers
- Business utilities (electricity, gas, and water)
- Communication (phone or internet access)
- Rent or mortgage provided the lease or owner agreement was signed before February 15, 2020
Loan forgiveness for self-employed
Borrowers who are self-employed may be eligible for loan forgiveness, as well. Determining loan forgiveness will be based on the borrower’s eligible paid expenses. However, many self-employed people often have lower overhead costs. Additionally, payroll expenses for single-member businesses are often the equivalent of their business’ profits. As a result, the SBA has released an Interim Final Rule on April 20, 2020, that further outlines self-employed borrower’s eligibility for PPP loans and loan forgiveness.
For Schedule C tax filers (sole proprietors or single-member LLCs) the loan amount forgiven may be limited to the total of net profits earned during the same or a similar eight-week period in 2019. Additionally, 60% of the loan amount must be used for qualifying payroll expenses to be eligible for loan forgiveness.
When will I find out about my loan forgiveness?
Once loan funds have been exhausted, borrowers can submit the necessary paperwork to their lender to determine if they are eligible for loan forgiveness. Lenders may take a minimum of 60 days to determine if a borrower is eligible for forgiveness. The SBA is expected to release more information on loan forgiveness in the coming months.
What if I’m not approved for loan forgiveness?
Some businesses may not be eligible for complete or partial loan forgiveness due to how they used their loan funds. In those cases, businesses that are not eligible for loan forgiveness will be directed by the SBA to repay the unforgiven amount of their loan to their lender. Payments will not have to be made until after six months have passed since disbursement of the loan. Loan payments may be deferred for up to one year.
Even if you aren’t able to get your loan forgiven, it may help to know that loan terms are generous. And if your non-payroll costs exceed your payroll costs, the Small Business Administration has other loan programs that may provide relief.
The resources described above are made available to businesses within the United States of America.
Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly, and the information contained herein may be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules and how they apply to your particular situation.
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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