PPP loans also known as Paycheck Protection Program Loans became extremely popular when they were opened from April 3rd to April 16th. PPP loans were introduced to facilitate businesses amid the coronavirus pandemic. We all know that businesses suffered a significant loss during the COVID-19 related shutdowns. Analyzing the fact that several businesses today rely on physical stores to conduct day-to-day business was forced to shut down which is why their sales, revenue, and growth were compromised.
However, with PPP loans, businesses got an opportunity to revitalize their presence in the competitive market and to regain what was lost during the crisis. PPP loans are aimed towards giving businesses aid and relief. They were launched to give the economy a boost.
However, there are PPP loan requirements that businesses have to abide by in order to gain a PPP loan from the government. Today in this blog, we are going to explore different PPP loan rules, how you can be eligible as per PPP requirements, and how you can easily stack the cards in your favor by applying for PPP loan forgiveness.
Why Were PPP Loans Introduced?
One of the core reasons why PPP loans were introduced was to facilitate the entrepreneurs. Businesses suffered a lot during the pandemic and some were damaged to an extent where they could not recover all by themselves.
To minimize such losses and the damage caused to the economy, the government introduced PPP loans. PPC loans were designed back in March 2020 and since their inception – they have been modified numerous times to facilitate business owners and to provide maximum feasibility to them. The government wanted businesses to participate in the program which is why they improvised on PPP forgiveness rules.
What Made PPP Loans So Popular?
PPP loan forgiveness rules and their feasible/flexible requirements made the program highly appealing among business owners. There were several business owners who were interested in PPC loans however, there was a specific set of instructions that needed to be fulfilled so that one’s loan could be forgiven.
Certain PPP loan forgiveness guidelines were introduced and businesses had to abide by the important details in order to get their PPP loans forgiven.
You can read the PPP forgiveness requirements here.
How PPP Loans Worked?
The PPP program was designed to provide maximum relief and aid to businesses and to minimize the unemployment ratio of citizens by helping businesses to keep their employees on payroll amid the pandemic.
The loans were aimed towards helping businesses recover and they were introduced on generous terms by keeping leniency intact while recovering the loan given to businesses. All of the PPP loans given had an interest rate of 1%. However, there was a policy that PPP loans that are issued after June 5th, 2020 are to be paid back in five years.
There were no requirements for personal references, guarantees, and no collaterals were required. Even the banks or credit unions that were given authority to provide loans to businesses were not charging fees or service charges. The maximum limit of the loan size that was to be allotted was $10 million. The loan terms all over were centered around leniency and generosity and the best part was that they were to be easily forgiven.
The treasury department has announced that it will be auditing all the PPP loans passed that were larger than $2 million. Smaller loans were not likely to be audited but they could be evaluated or random checks would’ve occurred.
Requirements For PPP Loan Forgiveness
SBA has set up certain requirements that must be fulfilled to qualify for the PPP loan forgiveness. Employers who kept or rehired employees maintaining the general salary levels from before the pandemic can avail PPP forgiveness. In case an employer fails to meet all the requirements set by the SBA, they could still avail of partial loan forgiveness. These unfulfilled requirements could be decreased salaries or full-time headcount declining.
- Funds are allowed to be used on rent, utilities, interest on mortgages, and payroll costs.
- Employers must maintain the same level of employment and payrolls that they had before the pandemic in good faith while the loan is being utilized.
- Payrolls must utilize at least 60% of the total amount of loans.
How to Apply for Loan Forgiveness
Contact The PPP Lender And Complete The Form
The form provided by the lender could be either one from SBA Form 3508, SBA Form 5308S, and SBA Form 3508EZ. The Form could also be a lender equivalent of these.
The SBA Form 3508S and SBA Form 3508EZ are the concise versions of the application for the borrowers meeting particular requirements. Also, you can get further guidance from the lender on how to submit the application.
Collate Your Documentation
Payroll: You have to deliver all the documents for payroll periods which converging with the covered period or the substitute payroll covered period.
- Your bank account statements or the reports of third-party payroll service provider documenting the cash compensation paid to employees.
- Reported payroll tax filings, or the ones to be reported to the IRS.
- Tax forms or equivalent third-party payroll service provider reports that converges with the covered period.
- Quarterly business reporting, individual employee wage reporting, and reported unemployment insurance tax filings to the admissible state.
- Canceled checks, payment receipts, or account statements that document any amount of employer’s contributions for health insurance or retirement plans of the employees included by the borrower in the forgiveness amount.
Non-Payroll: You have to deliver all the documents reporting expenses incurred during the covered period. Also, these documents should show the obligations and services before February 15
- Mortgage interest payments: Copies of the amortization schedule, receipts that verify the payments that were made during the incurred period, or the account statements of the lender.
- Lease payments or Business Rent: Receipts or canceled checks that verify the eligible payments and copy of the current lease agreement.
- Utility payments: Invoice copies, Receipts verifying payments, canceled checks, or account statements.
This list of documents required to be submitted to the Lender is not all-inclusive.
Submit The Documents and Form To The PPP Lender
After completing the loan forgiveness form, you can submit the form along with the requested documents to your PPP lender. Also, consult your PPP lender for any additional guidance.
Communicate With The Lender Thoroughly Throughout The Process
Once the SBA undertakes a review of your loan, you’ll be notified of the review and the decision of SBA by your PPP lender. Also, you have complete rights to appeal to SBA loan review decisions. Your PPP lender would also remind you of the forgiveness amount paid by SBA.
How PPP Loan Forgiveness Will Impact Your Business Taxes
Once Your PPP loan is forgiven, you must prepare to face its effects in your annual business taxes. This means that getting your loan forgiven will reduce how much you can write off in your business taxes. Your expenses like rent, payroll, and utilities that you can normally deduct from your taxable income, would not be deducted this year. Due to this reason, your business might owe more taxes than normal.
In case your PPP loan forgiveness application is not approved, your lender might ask you to deliver some additional documents and get your application reconsidered. If that’s not the case, the outstanding balance will continue to accrue at 1% for two years period. Also, since there is no prepayment penalty, you can pay off the outstanding balance anytime you want.