At this phase of Covid-19 outbreak, the small businesses are largely affected in terms of the (Paycheck Protection Program) PPP. This has been a matter of frustration as well as a source of hope since the past few months.
The unclear guidelines, troubled rollout, unprecedented demand, and a vast array of apps snarling up an outdated system, resulted in disqualification of most business owners for a loan during the primary phase of funding via CARES Act. The reason behind an increased demand for PPP loans was owing to the fact that such loans are based on low-interest and also forgivable. Any business owner or entrepreneur in developed nations like the USA or others, would not mind grabbing this free money to keep their businesses going.
Now that these business leaders are taking loans and over millions will certainly follow the suit soon. Therefore, it is high time that you turn your focus on the details related to loan forgiveness.
The unforgiven PPP loan terms are still quite generous- that is, at 1% interest, that too to be repaid over 2 years, without any prepayment or borrower fees. But why would you pay an extra amount than what is needed? Well, we will get to the point later in this article.
Before that, let’s get on with how you should go with filling the PPP application form.
How to Apply for PPP Application Form?
Generally, it is expected for the lenders to start accepting PPP applications from small-scale businesses starting on Monday, 27th April 2020. The timeline to apply for PPP is on 30th June 2020. After this period, the PPP loan program will end.
For more details regarding the program, you simply have to go to the SBA website, and download and fill out the PPP application form properly. The loan application contains all the required instructions and is quite to the point.
Stay prepared to produce evidence showing that your business was running actively during 15th February 2020. Plus, you will have to produce details of the employees who were then employed along with their average monthly payroll expenses (as asked in the instructions on the PPP form).
Conditions of Paycheck Protection Program
The funds acquired from the PPP are applicable to be consumed on the following purposes:
- Mortgage interest— if the mortgage was signed prior to15th February 2020
- Payroll wages, salary, vacation, family, parental, medical, sick leave, or other health conveniences
- Rent— if the lease contract was active before 15th February 2020
- Utilities— if the service started before 15th February 2020
Any expense that comes under any of the above categories are qualified for PPP loan forgiveness.
Some added conditions which are also eligible for forgiveness:
Coverage of 8 weeks
Eligible costs are which can be sustained over 8 weeks, starting from the day when your lender has made the first payment. Note that this date won’t necessarily have to be the day when you signed the loan contract.
You may manage your payroll timing on the basis of your payroll schedule, in order to fit in as many payroll TAT (turnaround time) as possible.
For instance, if your bank account is credited with your PPP loan on 15th April, then you can make use of that fund on expenses that sustained within the 8 weeks coverage following 15th April.
You need to maintain a minimum 75% of the gross salary.
This condition will be assessed individually for each employee who did not get more than $100,000 annually in 2019.
If the weekly payroll of the employees is less (over the 8 weeks) than 75% of the amount received by them during the recent quarter of their joining, the qualifying amount for loan forgiveness will be decreased by the difference between 75% and their current payroll.
Requirements For Loan Forgiveness
Here are the required documents that you must collect and submit along with your PPP application form. Your lender may ask for additional documents or may not (depends upon the lender).
Documents will cross check the number of employees (full-time) on payroll along with their pay rates. It will also check if you complied with the pay and staffing requirements or not.
Documents for cross checking any health insurance or retirement contributions, your interest eligibility, utility payments (account statements, canceled cheques, rents, and more).
If you are a sole business holder, then you can have the loan forgiven for 8 weeks to compensate for the lost profit. However, you must produce documents for the 2 remaining weeks worth of cash flow, which will be evident that you consumed the fund on lease, mortgage interest, utility payment, or rent, etc.
Tips To Reduce Turnaround Time (TAT) for PPP
Consider Paying Employees – Despite Being Absent
The PPP has given up on certain proprietors who could neither reopen their storefronts nor employ staff to work remotely, scratching their heads thinking how to make use of the money.
The law lets the business holders wait till they could rehire staff within the end of the PPP program. Though it seems to be the correct choice to keep your business afloat, it could also be risky for you of not qualifying for the loan forgiveness (if the fund is not spent on payroll other than expenses).
Well, there are numerous companies out there which may be functionally closed, but are paying their employees despite them being at home. It may sound frivolous to many, yet it does give you the chance to rehire your staff and pay them, even though they are not working currently. Consider connecting with al, your previous employees, make them ready to start working again as soon as you are able to reopen your business.
Follow Your Specific Lender’s Guidelines
Lastly, remember that although the SBA (Small Business Administration) oversees the PPP, then finally approves the loan, the ultimate provider of your PPP loan is your lender. So, the lender can rightly ask for as much documentation as he/she wishes until it satisfies the lender’s guidelines.
So basically, you won’t find any universal “fit-for-all” type of guidelines here, other than what your lender sets to forgive your loan within a period of 2 months of receiving it.
Therefore, first ensure to understand the loan forgiveness rules set by your lender before taking out the loan. Also, comply with those rules throughout the process of your loan forgiveness.
During this pandemic situation, every penny counts. So, try to avoid even the simplest of the mistakes while applying for your PPP loan forgiveness. Do not let any misunderstanding come on your way of getting total loan forgiveness when it is time.