Home Small business financing So, do you want your PPP loan forgiven? Make sure to...

So, do you want your PPP loan forgiven? Make sure to submit this request


The Paycheck Protection Program (PPP) – the U.S. government’s lifeline for small businesses during the Covid-19 pandemic – has sent a total of nearly 800 billion dollars to help companies keep their staff on their payroll in 2020 and 2021. PPP loan applications officially closed on May 31 after available funds were used up sooner than analysts initially expected.

But the confusion remains over loans. The term “loan” itself is not entirely accurate, as the required follow-up “forgiveness” request makes the loan a grant, provided certain conditions are met.

Contrary to what many might think, forgiveness is not automatically granted or guaranteed. Why? When the pandemic started, Congress wanted to help small businesses get through the crisis. The US Small Business Administration (SBA) was not equipped to distribute these grants, but was equipped to approve the loans. Redesigning this process takes time and Congress has had to act.

Related: 3 lessons on PPP loan forgiveness from small business owners

In execution, the process worked like this: Small businesses applied for and received PPP loans. During the period covered, they spent these loans on the appropriate items, mainly the payroll. Now they have to ask for forgiveness with their lenders and provide the required documentation in order to have the loans canceled. Lenders have 60 days to respond to these requests.

Nowadays, more than 3.3 million loans – with a total value of $ 279.4 billion – have been forgiven, according to the SBA. That leaves nearly $ 159.1 billion in loans to write off, but companies receiving those loans must first take action and apply.

Will your PPP loan be canceled?

In general, your business can expect a loan forgiveness if you have retained or rehired employees while maintaining pre-pandemic salary levels, spent at least 60 percent of the loan on the payroll and spent the remaining 40 percent on other eligible expenses. Even if your business does not meet these criteria (if your workforce or wages have declined, for example), you may still be eligible for a partial discount.

Related: Beginning of the closing of the PPP loan forgiveness period; Payments may be due

Yet, there are a number of misconceptions regarding loan cancellation and the PPP process in general. Some small business owners mistakenly assume that PPP is only for large businesses. But as long as a company has less than 500 employees and was operating on February 15, 2020, it is eligible. Some sole proprietors and independent contractors even qualify.

Other businesses assume that if they receive other forms of financial assistance, they are not eligible to receive a PPP loan as well. This is not true. In fact, many companies have received a PPP loan as well as other financial aid from the SBA, such as the Economic Disaster Loan (EIDL) and 7 (a) loans. However, it should be noted that organizations cannot use their PPP funding and EIDL loan for the same payments.

Finally, many business owners believe the forgiveness process is too complicated and their business might not qualify. It couldn’t be further from the truth. Full forgiveness is not guaranteed, but if you use or use the PPP product according to the rules, forgiveness is likely and is definitely worth pursuing. Even if forgiveness is not possible, the loan terms are generally much better than most – Annual percentage rate of 1% for 60 months with deferred payments up to 10 months after that.

Preparation of the PPP pardon application process

If you haven’t asked for forgiveness, don’t wait any longer. Having the PPP on your books could hinder your ability to obtain financing from some lenders who want the loan to be cleared first. That said, here are three ways to prepare to apply:

1. Go over the schedule and make a plan

The cancellation of the PPP loan is done in phases. Applications are open for loans funded until February 28, 2021. This will gradually open over the next few weeks. You can submit a loan forgiveness request at any time on or before the loan maturity date if you have used all of the proceeds.

Related: SBA issues new EZ PPP loan forgiveness request

The good news is, the process is probably a lot easier than you might think if you follow the instructions and apply on time. Jill Draper, a yarn store owner in upstate New York, said she basically had to fill in a few boxes on a mostly auto-filled form from her bank. Ten days later, she received an email confirming that her loan had been canceled in full.

2. Make sure you are spending your money the right way to qualify.

Remember: at least 60% of your P3 loan should go towards payroll, with the remaining 40% going to qualifying expenses. You should provide documents on your loan forgiveness application, therefore, it is important that you keep good records and that you can provide a breakdown of how you spent the funds in each expense category.

What should you avoid spending your P3 loan funds on? As 22 people who committed PPP fraud discovered the hard way, jewelry, cars and other luxury personal items are prohibited.

3. Work with your lender to dig into the details

Your lender is your guide in this process. Ask them to help you distinguish between a PPP1 and PPP2 loan. The process is more difficult for the former than for the latter (one page against 13 pages). Your lender will help you make sure you are following all of the protocols that are appropriate for your particular situation.

The SBA has just announced a online platform for consumers where businesses can apply for a PPP loan discount. For loans of $ 150,000 or less – which represent 90% of P3 loans yet to be repaid – companies can apply for a forgiveness themselves. For businesses with loans exceeding this $ 150,000 threshold, the SBA requires lenders to negotiate directly with them. It’s important to keep your lender in your corner and lean on them for support. The SBA is the final decision maker when it comes to loan cancellation, but your lender will act as your lawyer to try to give you the best chance for success and complete cancellation.

P3 loans were designed to be forgiven, but small businesses have yet to claim this forgiveness for it to become a reality. By knowing the deadlines, keeping good financial records, and working closely with your lender, you will prepare your business for success in getting this loan canceled completely, which will further benefit your business and keep it going. forward in a solid position.

Copyright 2021 Entrepreneur.com Inc., All rights reserved

This article originally appeared on entrepreneur.com

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