Congress just passed the Paycheck Protection Flexibility Act of 2020 and improved the Paycheck Protection Program (PPPP) for small-business loans. The bill enhances the PPP by increasing the time small businesses can use funds and receive forgiveness from eight weeks to twenty-four weeks and by reducing the payroll cost rule from 75 percent to 60 percent. The President is expected to sign the bill immediately, and the SBA and Treasury will be tasked to update their regulations, guidance and forgiveness application.
SBA Releases PPP Forgiveness Application and Makes Critical Clarifications and Documentation Requirements
The SBA released its Paycheck Protection Program (PPP) Loan Forgiveness Application and clarified a few critical definitions and documentation requirements in their instructions. The forgiveness application is completed by the small-business borrower and is submitted to their bank or lender whom they received their PPP loan from. The application consists of 11 lines that when calculated results in the amount of forgiveness a small-business owner will be eligible for. The forgiveness component of PPP is what attracted small-business owners to take out PPP loans in droves, as the program promised forgiveness of amounts loaned so long as the small business used the funds for payroll, business mortgage interest, rent and utilities. For a summary on forgiveness rules please refer to my prior article here.
PPP Loan Developments: Only $120 Billion Left, Favorable Forgiveness Guidance from SBA and IRS Tax Pitfall
The SBA Paycheck Protection Program (PPP) is the most significant small-business relief effort in modern history. A key component of the $600 billion-plus (and counting) stimulus rollout is that beneficiaries can have their loans forgiven so long as they use the funds for qualifying expenses, which can include payroll, rent, mortgage interest and utility payments.
The program was extremely popular in round one, and the initial $350 billion in funding was claimed in only 13 days. The SBA began approving an additional $310 billion from the second round on April 27, but as of May 10, only $120 billion in funding remained. (A good chunk of which is owed to dozens of publicly traded companies having returned multi-million-dollar loans.)
Many small business owners who have been approved for Paycheck Protection Program loans (“PPP”) are realizing that the loan isn’t as forgivable as they’d hoped.
The amount a small business can qualify to have forgiven must primarily be payroll costs. The SBA’s rulemaking has stated that at least 75% of the forgiveness request must be payroll costs but can also contain up to 25% of other approved expenses under the law such as rent, mortgage interest and utilities. That rule seems to be widely understood and so long as small business owners are spending 75% of their PPP funds on payroll this rule won’t frustrate small business owners when it comes time to forgiveness.
For details on the PPP loan program in general, please refer to my prior article here.
Many small-business owners are completing their Paycheck Protection Program (PPP) loan applications and are running into common questions and roadblocks. The immediate question right now revolves around two issues: First, how do I work with my bank or find a bank to get it submitted? And second, how do I properly calculate the loan amount on the application? Read the article on Entrepreneur here.