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The Paycheck Protection Program (PPP) — the U.S. government’s lifeline for small businesses during the Covid-19 pandemic — sent out a total of nearly $800 billion to help companies keep staff on their payrolls in 2020 and 2021. PPP loan applications officially closed on May 31 after the available funds were exhausted sooner than analysts originally predicted.
The loans are still a source of confusion. However, the term “loan” is not accurate in its own right. The required follow-up “forgiveness” application makes the loan an actual grant, provided certain conditions are met.
Forgiveness is not an automatic right or something that can be guaranteed, contrary to popular belief. What is the reason? Congress was determined to assist small business through the crisis when the pandemic started. Although the U.S. Small Business Administration was not equipped to grant those loans, it could approve them. This process is slow and Congress needed to take action.
Similar: Three Lessons from Small-Business Owners on the PPP Loan Forgiveness
The process was executed as follows: Small businesses applied and were granted PPP loans. They used the loans for the required items during the coverage period. Now, they have to apply for forgiveness with their lenders and provide the required documentation in order to have the loans forgiven. These requests are subject to a 60-day response time from the lender.
According to the SBA, over 3.3 million loans have been forgiven so far, with a combined value of $279.4 trillion. This leaves close to $159.1 trillion in unpaid loans. However, the SBA advises that businesses who have these loans must first take action to apply.
Is your PPP loan forgiven?
In general, your business can expect loan forgiveness if you kept or rehired employees while still maintaining pre-pandemic salary levels, spent at least 60 percent of the loan on payroll and spent the other 40 percent on other qualified expenses. You might be eligible even if you don’t meet the criteria, such as if your staff or salary has decreased.
There are still a few misconceptions about loan forgiveness, and PPP in general. Many small-business owners mistakenly believe that the PPP only applies to large businesses. But as long as a company has fewer than 500 employees and was operating on Feb. 15, 2020, it is eligible. You may also be eligible to apply if you are a sole proprietor or an independent contractor.
Others assume that people who are receiving financial aid other than a PPP loan won’t be eligible for one. It is false. Many businesses have received both a PPP loan and other SBA financial aid, including the Economic Injury Disaster Loan(EIDL), 7(a) loans, etc. It is important to note that the EIDL and PPP loans cannot be used for the same payment.
Many business owners believe that the process of forgiveness is too complex and their company might not be eligible. It is impossible to be more wrong. Although forgiveness cannot be guaranteed, if the proceeds of the PPP are used according to rules, it is possible and well worth the effort. Even if forgiveness isn’t possible, the loan terms are generally much better than most — 1 percent annual percentage rate for 60 months with payments deferred up to 10 months after that.
How to prepare for the PPP Forgiveness Application Process
Don’t delay if you don’t have forgiveness yet. You may not be able to obtain financing from lenders if you have the PPP in your records. That said, here are three ways to prepare for applying:
1. Take a look at the timeline and create a plan
PPP loans are forgiven in stages. For loans that are due to be funded by February 28, 2021, applications can still be made. Over the coming weeks, this will open gradually. If you have used all proceeds, you can submit an application for loan forgiveness at any moment.
It’s likely that it is easier than you thought if you adhere to the instructions and submit your application on time. Jill Draper, a yarn shop owner in upstate New York, said she essentially had to fill in a few boxes on a mostly auto-filled form from her bank. She received confirmation email 10 days later that her loan had been forgiven.
2. To be eligible, ensure you are spending money in a responsible manner.
Keep in mind that at least 60% of the PPP loan must go to payroll and 40 percent to qualifying expenses. You’ll need to provide documentation on your loan forgiveness application, so it’s important you keep good records and can supply a breakdown of how you spent funds within each expense category.
Which items should you be careful not to spend your PPP loan money on? As 22 people who committed PPP fraud found out the hard way, jewelry, cars and other luxury personal items are off-limits.
3. Discuss the details with your lender
This is where your lender can help you. You can ask them for help in deciding between PPP1 or PPP2 loans. For the PPP1 loan, the process can be more complicated than for the latter. The lender can help you ensure that all protocols are followed for your particular situation.
The SBA just announced a consumer-facing online platform where businesses can apply for PPP loan forgiveness. Businesses can request forgiveness for loans less than $150,000, which accounts for 90% of all PPP loans still to be paid. Businesses with loans exceeding $150,000 must negotiate with their lenders. Keep your lender close by and rely on them to help you. Your lender can be your advocate and help you get the most out of your loan forgiveness. However, the SBA will make the final decision.
PPP loans are intended to be forgiven. However, small businesses must still apply to get that forgiveness. You will be able to help your company get the loan forgiveness in full by understanding its timeline and keeping accurate financial records. This will further benefit your business, and allow it to continue in a positive manner.
Publited Sat, 21 August 2021 at 12:12:04 +0000