Help is here! Congress has now approved the second round of Paycheck Protection Program (PPP) loans. About $284 billion has been set aside for these crucial loans, part of the $900 billion coronavirus relief package. That’s a lot of money, and it will provide a substantial boost to America’s businesses.
Like most financing, a PPP loan is acquired after you’ve submitted an application and been approved by a lender. But there’s an element that makes them extra special: up to 100% of the loan principal has the potential to be forgiven. As long as you spend the funds on eligible costs within the 24-week period that begins once the funds are disbursed, you can enjoy this incredible benefit (now, if you could only get your brother to forgive you for the time you accidentally spilled wine on his new sweater at the family holiday party).
To ensure compliance, you’ll need to carefully track all of your expenses throughout the covered period. Once you submit certification to the lender and it has been reviewed, the principal may be forgiven. Let’s take a look at the approved expenses, as well as the documentation that your lender will require.
Approved Uses for PPP Loans
As you might expect, the government is rather particular about how you spend their money—especially when there’s the opportunity for you to never need to pay it back. The Small Business Administration (SBA) has always been known for detailed instructions, and they once again delivered the goods with the Paycheck Protection Program.
Here are the costs and expenses eligible for loan forgiveness during the covered period.
- Payroll costs such as:
- Salaries, wages, commissions, or similar compensation up to $100,000
- Payment of cash tips or equivalent
- Payment for vacation, parental, family, medical, or sick leave
- Allowance for dismissal or separation
- Payment of retirement benefits
- Group vision, dental, disability, or life insurance
- Payment of state or local taxes assessed on the compensation of employees
- Healthcare costs related to the continuation of group healthcare benefits during periods of sick, medical, or family leave, as well as insurance premiums
- Mortgage interest payments (but not prepayment or payment of the mortgage principal)
- Interest on any other debt obligations incurred before February 15, 2020
- Refinancing an SBA EIDL received between January 31, 2020, and April 3, 2020
- Covered expenditures such as business software or cloud computing services that facilitate:
- business operations
- product or service delivery
- the processing, payment, or tracking of payroll expenses, human resources, sales, and billing functions
- accounting or tracking of supplies, inventory, records, or expenses
- Covered property damage costs
- Covered supplier costs
- Covered worker protection expenditures
As you can see, there’s a wide array of qualified uses for the funds. Payroll comes first on the list, and you must spend at least 60% of your PPP funds on payroll costs as preserving paychecks is the primary purpose of this program. Note that in addition to salaries, wages, and commissions, the payroll costs element of the loan can also include things such as vacation time, family leave, health benefits, and retirement benefits.
With small businesses taking such a brutal hit due to the pandemic, it’s also comforting to know that so many operating costs fall under the umbrella of eligible expenses. This means a PPP loan empowers you to take care of your employees, as well as many of your property needs and other operational obligations.
How to Get Your PPP Loan Forgiven
The SBA has streamlined the forgiveness application for businesses that receive PPP loans of $150,000 or less. This is incredible news, as it will save borrowers and lenders a significant amount of time and effort. Details are not known on what exactly is needed from the SBA, but we will provide an update when that information becomes more available.
What if your PPP loan is for an amount larger than $150,000? No problem. You’ll still be able to apply for loan forgiveness, though the paperwork will be more intense. Start by gathering the following details and documentation:
- Name of your business: business legal name, DBA, trade name (if applicable)
- Business Tax Identification Number (TIN): Social Security number (SSN) or Employer Identification Number (EIN)
- SBA loan number
- Your PPP loan amount
- EIDL advance amount (if you got one)
- EIDL application number (if you applied)
- Number of employees at the time of your PPP application
- Number of current employees
- PPP loan disbursement date
- Payroll schedule
- Cost of covered non-payroll expenses
- The 24-week covered period
You will also need to provide documentation verifying how the loan funds were spent and that employees were indeed retained. Requirements include:
- Copies of canceled checks
- Bank statements with ACH information
- Utility bills
- Mortgage statements
- Lease agreements
- List of all employees on your payroll during the covered period
- Evidence that your employees were kept on payroll or rehired upon receiving the loan
- Calculation of the average monthly number of full-time equivalent employees for the covered period
Finally, you are now required to have either yourself or an authorized representative of your business certify that the documentation provided is all true and that the amount of money you are seeking to have forgiven was used according to the guidelines set by the SBA.
What Happens After the Forgiveness Period?
Whether you did everything right and didn’t receive total loan forgiveness or something else happened and you still owe money on your PPP loan, you might be uncertain about what comes next. In the event your loan isn’t entirely forgiven, any remaining amount will continue to accrue interest at 1% for the duration of the loan term.
You have the option of either making regular payments until the loan term expires or simply repaying it early. There are no penalties or fees associated with early repayment, which is just 1 more way that PPP loans can make your life easier.