A Few Key Facts About Paycheck Protection Program (PPP) Loan Forgiveness
When global economic disasters like the recession of 2008 and the Coronavirus pandemic hit, they disrupt businesses and ruin careers. To overcome the after-effects of such scenarios, governments come forward to devise strategies that can help rebuild the broken economy and lend a helping hand to entrepreneurs.
The Paycheck Protection Program (PPP) is one such strategy coined by the US Federal government’s Coronavirus Aid, Relief, and Economic Security Act (CARES Act).
PPP was created in March 2020 to offer loans to small-scale businesses at only 1% interest to ensure that their expenses can be well managed. Though it sounds beneficial, several businesses find it difficult to apply for it since they have limited funds in hand.
If you too, are facing a similar issue or wish to apply for benefits under this program, do have a look at the information compiled below for full disclosure beforehand.
When is PPP required?
Once you’ve exhausted the funds of your PPP loan, you can apply for forgiveness either immediately or at your loan maturity date.
PPP loan payments can be delayed for 10 months, but after this date, if you apply for loan forgiveness, you’ll have to start making the payments. If you apply for forgiveness after their loan matures, you won’t be qualified for forgiveness.
How can one apply for it?
To apply for PPP loan forgiveness, you should get in touch with your lender as they’ll guide you to the correct application form for it. Along with the application, you’ll need to give in the paperwork describing the expenses where you spent the funds from the loan.
What are the requirements?
The requirements for loan forgiveness are identical for both first and second draw loans:
- Maintenance of compensation and staffing levels
- 60% of the loan should have covered payroll
- Money spent from PPL loan must be legit and eligible (check below)
What are the eligible expenses?
The eligible costs to be mentioned in the paperwork are payroll costs like wages, tips, commissions, benefits/bonus to the staff; operating costs like services, rent, mortgages interests paid, and book-keeping services; supplier costs like business goods bought during the covered period; damage costs (if any); staff personal costs like health and safety needs that were aided with company’s money.
A company can also use this loan to clear other debts that were incurred before opting for PPP. Thus, this expense is also eligible.
What documents are needed?
The main documents that you need to submit as proof include:
- Third-party salary reports
- Bank statements
- State and local quarterly monetary information
- State redundancy insurance report
- Tax statements
- Payment receipts
- Statements of monetary benefits provided to staff
- Amenity/utility invoices
- Purchase orders’ receipts
- Canceled cheques reports
Note: For certain businesses, all these documents aren’t necessary. Moreover, some lenders might need other documents as well. Conduct thorough research on what documents are mandatory to avoid scams.
We hope we’ve covered the basic areas regarding PPP loan forgiveness, and if needed, you can take action appropriately. If your business has been impacted due to COVID-19, PPP loans can prove to be the pillar using which you can restructure your finances.
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