Understanding PPP Loans & Loan Forgiveness
Written by Bobby Almeida
The COVID-19 pandemic challenged businesses of every size and sector, providing new challenges but also opportunities for growth. The wealth of restrictions and new programs on both the federal and state levels made it difficult for businesses owners to charter the right course through these chaotic times. The Small Business Administration’s Paycheck Protection Program (PPP) was formed as a part of the larger Coronavirus Aid, Relief, and Economic Security (CARES) Act. As the pandemic continued, new legislation bolstered the PPP providing hundreds of billions of dollars in additional funding.
Eligibility for PPP loans for the first round of PPP loans was quite flexible. Small businesses, independent contractors, and self-employed individuals were all eligible for PPP loans if they could provide the relevant documentation and financials. In 2021, a new qualification was added in for ‘second draw PPP loans, a revenue reduction of 25%.
But what could business owners use this new influx of capital for? The main stipulation was that a minimum of 60% of the loan should be used to cover payroll and employee benefits. This was designed to provide an incentive for companies to retain their employees despite turbulent economic conditions. Example of this type of costs includes employee salaries and wages, paid vacation, and bonuses. The remainder of the money could be spent on costs such as utilities, rent, and mortgage payments, supplies and equipment, operations costs, and workplace safety and COVID compliance costs. Operations costs can include software and accounting expenditures as well.
With COVID restrictions largely lifted nationwide, the funds for Paycheck Protection Program have been almost entirely dispensed. Despite all of the media coverage over big loans given to large corporations, only 0.4% of PPP loans were for over 1 million dollars. Over 85% of PPP loans were under $50,000, underscoring the utility of the program for small businesses.
Now that many small businesses have already received one or two PPP loans over the last year and a half, many responsible business owners are wondering what they can do to ensure they qualify for loan forgiveness.
You can find the exact forms and criteria provided by the SBA on this page here.
Essentially, you must have spent at least 60% of the loans on payroll and employee-related expenses and have sufficient documentation of doing so. Additionally, the amount forgiven depends on changes to employee compensation or employees’ employment status during the loan period.
Deadlines for PPP loan forgiveness are rapidly approaching for borrowers from early 2020. Business owners should make sure they keep on top of the relevant deadlines and track new legislation and policy that may affect the forgiveness process. One additional tool business owners should be aware of is the employee retention credit (ERC). Before the Consolidated Appropriations Act (CAA), businesses were ineligible for the ERC if they had already received a PPP loan. Now, eligibility has been expanded and businesses owners can obtain an employee retention tax credit retroactively as well as for the rest of 2021. It is vital for business owners to use every tool available since it frees up funds to be channeled into new opportunities for growth.
As the country reopens and federal assistance dwindles, the future for many small businesses remains uncertain. Financial planning and optimization are more important than ever before. It can be challenging to remain on top of new developments and ensure you are benefitting from the policies that your tax dollars are paying for. Experts at Peach State Solutions can help provide clarity on PPP loan forgiveness and other topical areas while simultaneously improving your business’ access to capital over both the short and long term. With another wave of PPP loans unlikely, business owners have to look for alternative solutions to improve their cash flow and access to capital. Our financial solutions can help fill the void left by temporary federal assistance programs, opening the door to equipment financing and lines of credit that provide your business with the capital it needs to continue to grow and thrive in the post-pandemic economy.
Published by Peach State Solutions, LLC, Re-Distributed by Funds 4 Less, LLC
At Funds 4 Less it's our mission to help small to large business owners obtain the financing they need to grow. We aim to provide fast transparent service delivering the funding needed when its needed most. Allow us to fund your business with our solutions driven approach.
Call us today at (800)-316-9590 for more informations about the PPP loan forgiveness program
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