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Applying for PPP Loans? Learn All Facts Behind them & The Truth about Loan Forgiveness

What Do You Know about PPP Loans?

Running a business is a demanding task, but the status quo almost doubles up the challenge for a small business owner. You have to make critical decisions that will influence your today and tomorrow, and almost all of them revolve around money. Since the Federal government passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act and news of “a $350 billion small business relief fund” went viral, almost all microbusinesses want a slice of the cake. But before we hurry to fill loan application forms, do we understand what they are? Loan forgiveness, in particular, is a bone of contention because no one wants to be subjected to repayment—yet these funds were meant to help us live through covid-19. The CARES Act provides funding through the Paycheck Protection program (PPP), Economic Injury & Disaster Loans (EIDL) and SBA Express Loans. PPP loans, which we will focus on offers funding up to $10 million with possible loan leniency. But that’s just a drop in the bucket. Here are 5 key things you should know about PPP coronavirus loans. 1.

What are PPP loans?

The Paycheck Protection Program mainly offers incentives for firms to keep their staff on payroll amid COVID-19. Loan clemency is possible if a borrower uses the funding to cover only eligible costs, mainly payroll, utilities, rent and mortgage, among others. PPP loans allow a business to borrow up to 2.5 times its per-month payroll expenses, without exceeding the $10 million cap. The loans are available through all US Small Business Association certified banks and credit unions. You can also source your PPP cares act loan from the Small Business Administration (SBA). 2.

What are the Requirements?

PPP loans are collateral-free. Also, they do not require a personal guarantee. However, a borrowing company must confirm that: 1. The funding will be used (a) to endure the present economic status and (b) to keep the business operational. 2. The lump sum is meant to help it maintain its employees and clear payroll, or sort out utility bills, and payments like mortgage or rent. 3. It hasn’t received and isn’t seeking out similar loans for similar uses and amounts. The borrowing company must also confirm that it will try “to the extent possible” to stick to US products and equipment. 3.

Who Qualifies?

According to the CARES Act, any micro-business that employs US citizens and need to maintain payroll can seek out the Paycheck Protection Program loans. • All businesses with 500 or fewer staff or workers. These include; a) Sole Proprietorships, b) Nonprofit firms, c) Veterans Organizations, d) Tribal business concerns, e) Self-employed persons, f) Independent Contractors. • Companies with over 500 workers from certain sectors can also seek out PPP loans if they meet federal size standards, as highlighted in this page. • Accommodations & Food Services (with NAICS Codes preceded with 72) and run more than one location, but have less than 500 workers per store. Finally, lenders will check whether the borrowing firm was actively operational before Feb. 15, 2020, and whether it had cleared payroll. 4.

Which Payroll Expenses are catered for by PPP?

Employers can add payroll expenses like wage, commission, salary, money tips, and so on depending on their business. Applicants must NOT include 1099 payments when seeking out Paycheck Proctection loans. Sole proprietorships, Independent Contractors, and the self-employed can also add the total payments for any payment, income, wage, commission, or net paychecks not more than $100,000/year. 5.

Who Gets Loan Forgiveness?

For any loan, the borrowing company qualifies for forgiveness on the lump sum spent on eligible expenses over the 8-week span, from the disbursement of the loan. Eligible expenses include; US employee Payroll, rent, utility bills, mortgage, among other related expenses. Also, to enjoy leniency, the borrowing firm must keep all records of the claimed expenses. Note: The amount eligible for leniency goes down if the employers cut salaries by over 25 percent or choose to lay off some workers.

6 Important Facts about PPP Loan Forgiveness.

Microbusinesses are obviously struggling to survive the status quo no wonder all eyes have been on the Paycheck Protection Program (PPP) fund, which Congressed passed through the Coronavirus Aid, Relief, and Economic Security Act, aka the CARES Act. But it’s important that small businesses tread with caution because missing on a few details may mean trouble in the future. For instance, many small merchants only know that—if you take out a PPP loan— forgiveness or clemency is possible. But only a handful know what could compromise your chances of qualifying for leniency? First, if you already have such a loan, you have up to 8 weeks to max out the finances on eligible expenses to qualify for loan clemency or repay the loan. Secondly, we’ve seen several amendments in PPP loan program policies since the CARES Act swung to effect— and we may witness more changes—so you want to keep track. PPP loans were passed for two main reasons; (1) to give microbusinesses the finances they need to live through theCOVID-19lockdown (approximated to last 2 months). (2) To help businesses retain employees and control job losses. But whileCARES Act loans were meant to help businesses survive COVID-19, failure to understand a few details could mean problems in future. That said, let’s dig deeper into these loans and how forgiveness is possible. 1.

Cares Act Loans have an unclear “good faith” policy.

Loan leniency is possible but only if you’ve been found to have acted in good faith at the time of application. A business owner must confirm that they are seeking relief funding— in good faith— to support their business,and that they are not able to access funding from other sources. Your finance provider determines whether you acted in good faith or not. This unclear good faith policy could be the reason you face repayment, instead of enjoying loan forgiveness. 2.

You have to put the Funds to use immediately. You can’t save it for later!

According to the CARES Act, you must max out the funding in 8 weeks from the time of disbursement. This 8-weeks order is a concern because some businesses have no choice but to shut down operations. Yet the loan terms requires you to keep employees on payroll—even if they are not working. That being said, businesses must consider their position before taking out a PPP loan. 3.

Spend 75 percent to Pay workers or pay back the loan.

Some PPP loan conditions may be unclear but terms are very clear when it comes to what you can use it for; 75 percent MUST go to payroll while the other 25 percent may be spent on rents, mortgages and utilities. These spending restriction limits the loans flexibility which explains why small business unions have been teaming up to push for the payroll allocation to 50 percent. 4.

What if you suspended some workers?

If you suspended some employees, you can choose to rehire or not. Your bank will only check the amount spent on payroll to see it matches the average amount for last year. 5.

What kind of documentation do you need to enjoy forgiveness?

To avoid the hassle of keeping complex records separate PPP funds from other funds. Use a payroll service provider to keep records of every cent you spent the money to pay workers. On top of that, document any spending that goes in utilities, rent payments, mortgage, and interest payments. 6.

When do you start seeking loan leniency?

Many lenders will start looking into your forgiveness request 7 weeks from the time of the funding—so some business are already facing judgment.

Final Words

Remember, your lender decides whether you qualify for PPP loan forgiveness or not. For that reason, it is a good idea to work side by side with your loan provider. Still, it helps to note there have been lots of controversy surrounding the disbursement of PPP loansand you can’t count on them. So the best you can do is to apply while considering other alternative sources of which are actively financing businesses even amid a pandemic. These alternative sources include merchant cash advances, business credit cards, business lines of credit, pals and siblings, invoice financing and so on. In essence, you need to think about your business post-coronavirus and consider relief sources as the last resort. After all, rules governing the disbursement of these loans makes them more of a liability than an asset. It gets worse if in the end you face repayment. There’s much more to learn about PPP loans. Be sure to dig into the details with your finance provider before you take out the relief funding.

Contributor: admin
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