What Are Benefits Of The Ppp Loan
Here are some benefits of getting a PPP loan:
- Unlike many traditional business loans, PPP loans are 100% guaranteed, even without collateral or a personal guarantee. This means that the business owner doesnt need to assume the debt obligation if they default on the loan.
- The interest rate for PPP loans is fixed at 1% with a five-year maturity date. Most Small Business Administration loans have an interest rate of between 2.25% and 8%, on top of the prime.
- All payments are deferred for ten months, after the end of the eight to 24-week covered period, but interest will continue to accrue throughout the deferment period.
- The balance of PPP loans may be forgivable, meaning the entirety is forgiven or deferred for a period of time by the lender when certain conditions are met.
Loans Made To Other Entities
On April 23, the Small Business Administration released guidance stating that it is unlikely that a publicly traded business with substantial and access to capital markets would be eligible for a PPP loan. Such a business would not be able to certify in good faith that the PPP loan is necessary to support its ongoing operations because of the current economic uncertainty. While a lender does not need to require a business to demonstrate the basis in its certification, the Small Business Administration may do so. The Small Business Administration said it would not pursue action against any such business that applied for a PPP loan prior to April 23 and repays the loan proceeds by May 7, later extended to May 14 and then extended again to May 18. On April 28, the guidance was extended to businesses owned by private companies with similar situations.
On April 28, Treasury SecretarySteven Mnuchin said that the Small Business Administration would do a “full review” of each PPP loan exceeding $2 million.Treasury SecretarySteven Mnuchin warned that businesses would held be “criminally liable” if they receive a loan exceeding $2 million and do not follow the rules.
Although Uncertainty And Confusion Have Surrounded The Paycheck Protection Program Since Its Launch That Shouldn’t Stop Small Business Owners From Participating In The Loan Program Which Was Just Extended To May 31
COVID-related shutdowns and restrictions have hit small businesses particularly hard. Many of them have closed permanently, while others are hanging on by their fingernails. Fortunately, there is some help available through the Paycheck Protection Program , which was first introduced in March 2020 as part of the Coronavirus Aid, Relief, and Economic Security Act. Under the PPP, small businesses can get up to 24 weeks of cash flow assistance through federally guaranteed loans. Plus, the loans can be forgiven to the extent the proceeds are used for payroll and certain other expenses during the COVID-19 pandemic. Borrowers can apply for a PPP loan through any existing Small Business Administration 7 lender or through any federally insured bank, credit union, eligible nonbank lender, or Farm Credit System institution that is participating in the program.
As it stands right now, the PPP will run until May 31, 2021, or until funds are exhausted, whichever occurs first. So, there’s still time to tap into this form of assistance. Although uncertainty and confusion have surrounded the PPP since its launch, that shouldn’t stop small business owners from participating in the program. Yes, there are a lot of rules and procedures you need to follow. But getting familiar with the PPP basics is a good place to start. That’s what the following overview is designed to do.
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Drawbacks Of Purchasing Power Parity
Since 1986, The Economist has playfully tracked the price of McDonald’s Corp.s Big Mac hamburger across many countries. Their study results in the famed “Big Mac Index”. In “Burgernomics”a prominent 2003 paper that explores the Big Mac Index and PPPauthors Michael R. Pakko and Patricia S. Pollard cited the following factors to explain why the purchasing power parity theory is not a good reflection of reality.
Are Ppp Loans Taxable
It depends. At the federal level, theyre not. The CARES Act specified that PPP loan funds themselves would not be counted as taxable income .
Initially, there was uncertainty as to whether a business or nonprofit could deduct expenses paid for with PPP loan funds. The Economic Aid Act has clarified that these expenses are now tax-deductible. More guidance from the IRS is needed on just how this process will work.
However, some states are currently taxing these funds, so you should check with your local accountant about how your state is handling this issue.
For more details on how to approach your taxes and potential deductions in relation to PPP, you can consult our post, Are Business Expenses Paid With PPP Loans Deductible?
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How Much Can A Company Receive
UPDATE JANUARY 14: In the latest round of PPP funding, loans are limited to $2 million, down from $10 million in the original round of funding. Maximum loan amounts remain set at 2.5x an employers average monthly payroll cost in 2019 or 2020, but increase to 350% for hotels and restaurants .
There will be no loan fees charged by the federal government or lenders.
How The Ppp Loan Works For Self
The new round of PPP loan funding opened the door for self-employed business owners, sole proprietors and independent contractors to apply.
The way it works for self-employed business owners doesnt stray too far from the standard procedure. By providing proof of income under normal conditions, you can qualify for a PPP loan. In short, you can use the PPP loan to give yourself a salary based on your normal income.
For freelancers, this might mean submitting one or several 1099 forms.
To learn more about whether your business qualifies, and the documentation you may need, be sure to reach out to your SBA accredited lender.
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Can I Apply To The Ppp Through More Than One Lender
Yes! There is no harm in applying through more than one lender. Whoever processes your application first will receive an SBA approval number for your business . This number is called a PLP. The SBA will only issue one PLP for each Tax ID, meaning there is no chance you will accidentally get approved for two PPP loans.
If you are approved for a PPP loan, your application with the other lenders will eventually be rejected, so itâs best to withdraw your application from the other lenders once youâve been approved.
So far, there has been no guidance issued by the Treasury or SBA stating that you can only apply through one lender at a time. In fact, lenders are encouraging businesses to apply through multiple lenders, to increase their chances of getting processed in time.
Using Your Payroll Provider
Some payroll providers, such as Gusto, offer PPP Loan Forgiveness reports. Login to your payroll account to see if your provider offers this. A loan forgiveness report should show your FTE numbers as well as your average payroll expenses, which youâll need to apply for the PPP.
This video explains the payroll report in more detail :
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Reduction Exemptions For Those Who Borrowed $50000 Or Less
On October 8, 2020, the SBA released a revised and simplified PPP Loan Forgiveness Application Form 3508S, including detailed instructions on how to complete the application. In parallel, the SBA and Treasury issued an Interim Final Rule on Additional Revisions to Loan Forgiveness and Loan Review Procedures Interim Final Rules.
Any borrower of a PPP loan of $50,000 or less, other than any borrower that together with its affiliates received loans totaling $2 million or greater, may use SBA Form 3508S to apply for loan forgiveness.
A borrower that uses SBA Form 3508S is exempt from any reductions in the borrowers loan forgiveness amount based on reductions in full-time equivalent employees or reductions in employee salary or wages that would otherwise apply.
When a borrower submits SBA Form 3508S or lenders equivalent form, the lender shall confirm receipt of the borrower certifications contained in the SBA Form 3508S or lenders equivalent form, and confirm receipt of the documentation the borrower must submit to aid in verifying payroll and nonpayroll costs, as specified in the instructions to the SBA Form 3508S or lenders equivalent form.
Providing an accurate calculation of the loan forgiveness amount is the responsibility of the borrower, and the borrower attests to the accuracy of its reported information and calculations on the Loan Forgiveness Application. The borrower will not receive forgiveness without submitting all required documentation to the lender.
Is A Ppp Loan Right For Your Business
You may be reading about large chunks of money being awarded to small businesses and think well, thats not for me.
But maybe youre a sole proprietor or contractor, or one of those smaller small businesses. And youve heard the loan applications process is involved. And youre not seeking a huge amount of money.
These arent good reasons for not applying. The money is there. The loan applications arent difficult. In fact, the SBA and lenders will greatly assist you. And if you follow the guidelines set by the SBA, you wont have to pay back the money.
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Ppp Extension Act Of 2021
On March 11, 2021, the bill, H.R. 1799 PPP Extension Act of 2021, was introduced in House of Representatives during the 117th Congress. The bill extends the covered period of the Paycheck Protection Program from March 31, 2021, to June 30, 2021, by amending the Small Business Act and CARES Act. It passed the House on March 16, 2021, in a bipartisan vote . It passed the Senate on March 25, 2021, in an also bipartisan vote . The following day on March 26, it was signed into law by President Joe Biden.
What Is The Deadline For Applying For Forgiveness
Principal and interest payments on PPP loans are deferred until forgiveness applications are processed by SBA.
- Borrowers must work with their lenders and submit their PPP forgiveness applications within 10 months after the end of the covered period .
- SBA will make a determination within 60 days of receiving the PPP forgiveness application and borrowers have 30 days to appeal SBAs decision. Appeals can take up to 120 days and principal and interest payments are deferred during that time
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Need Help With Small Business Taxes
Uncertainty seems to be the norm during these challenging times. However, your small business tax and accounting needs shouldnt be a point of stress.
Rely on our team of Block Advisors small business certified tax pros to get your taxes right and keep your business on track. Connect with us.
Looking for updates about the latest small business stimulus relief? Check out our Guide to 2020 small business tax and stimulus relief for details.
What The Ppp Loan Can Be Used For: Payroll Operating Costs & More
The SBA requires small businesses only spend their PPP funds on certain categories in order to qualify for loan forgiveness. The first round of PPP funding came with very strict spending guidelines. The second round of funding has been expanded to include more of the costs businesses are struggling with, including:
- Protection equipment
- Certain operational expenses
The SBA also provided additional guidance for specific costs that fall under the umbrella of payroll:
- Leave expenses
- Severance payments
- Payments for group health care benefits, including insurance premiums
- Payments for employee retirement benefits
- Both state and federal taxes based on compensation
However, the PPP loan covers individual employee salaries up to $100K. This means that if individual employees are earning over $100,000, their full salaries will not be covered.
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Application Dates For A Round 3 Ppp Loan
As noted above, applications for Round 3 first draw PPP loans from approved community financial institutions started on Mon., Jan. 11, 2021. Second draw applications began on Wed., Jan. 13, followed by first- and second-draw loans from small lenders with less than $1 billion in assets on Fri., Jan. 15, 2021. All SBA 7 lenders were approved to accept first and second draw applications starting on Tues., Jan. 19, 2021.
Beware of scammers. Just as with the first two rounds, if you are a small business owner you can anticipate hearing from scammers promising to help you obtain a PPP loan. Only go through approved lenders or the SBA.
The Ppp Loan Is Structured With The Following Terms:
- An interest rate of 1%
- Loans issued before June 5, 2020 have a maturity of 2 years, while loans issued after June 5, 2020 have a maturity of 5 years
- Full or partial loan forgiveness
- No personal guarantees or collateral required
- Payments deferred for the first 10 months
- No minimum credit score required
- No fees
Does The Lender Actually Underwrite Each File
Yes. The lender will review each application and the necessary payroll documents to make sure that the loan amount is calculated correctly. They will also validate that the business has fewer than 500 employees and was in business prior to February 15, 2020. If the lender believes that the loan amount calculation was incorrect or doesnt have proper documentation, they will reach out to you for additional information.
Who Doesnt Qualify For The Paycheck Protection Program
Businesses in certain industries cant apply for a PPP loan. These include:
- Multi-level marketers
- Businesses who lend, invest or speculate
- Political and policy lobbyists
- Passive businesses
- Businesses who promote religion
- Those which restrict patronage
- Gambling and marijuana businesses
- Household employers
- Businesses dealing in prurient sexual material
Businesses are also ineligible for a PPP loan if any owner is not US citizen or a Lawful Permanent Resident, has been convicted of a felony in the past 5 years or is presently indicted on formal criminal charges.
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Are Borrowers Required To Calculate Payroll Costs For Partial Pay Periods
If the borrower uses a biweekly or more frequent payroll cycle, the borrower may elect to calculate eligible payroll costs using the eight-week or 24-week period that begins on the first day of the first payroll cycle following the PPP Loan Disbursement Date . However, if a borrower pays twice a month or less frequently, it will need to calculate payroll costs for partial pay periods. The Covered Period or Alternative Covered Period for any borrower will end no later than December 31, 2020. Example: A borrower uses a biweekly payroll cycle. The borrowers 24-week Covered Period begins on Monday, June 1 and ends on Sunday, November 15. The first day of the borrowers first payroll cycle that starts in the Covered Period is June 7. The borrower may elect an Alternative Payroll Covered Period that starts on June 7 and ends on November 21 . Payroll costs incurred during this Alternative Payroll Covered Period are eligible for loan forgiveness if the last payment is made on or before the first regular payroll date after November 21.
How Much Ppp Funding Can I Receive
The maximum amount you can receive from your SBA-approved lender is your monthly average payroll cost in 2019, 2020, or the one year period before the application. Multiply it by 2.5, up to a maximum of $2 million.
For businesses in the food and accommodation industries, you are eligible for 3.5 times your average payroll costs, also with a maximum of $2 million.
If you are a seasonal employer, the monthly average payroll cost will be calculated differently. You can use any 12-week period between February 15, 2019 and February 15, 2020.
Hereâs a full rundown on how to calculate your PPP loan amount.
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You May Lose Employees Anyway
The primary purpose of PPP is to help employers keep employees on their payroll so they can be ready to return to work when business resumes. But some employers are finding that difficult to achieve, due to financial concerns, health concerns or both.
Traci shared her dilemma in response to a Nav article about PPP loans:
My employees are all part time and with the PUA and unemployment, they are making double being on this assistance. I was just approved for a PPP loan and no one wants to come back to work. What do I do? HELP!
Some employers have reported their employees stand to make more through Pandemic Unemployment Assistance than they would if hired back and paid using PPP funds. Other employees are afraid to come back into a workplace where they may be exposed to coronavirus.
And of course some workplaces are closed, or business is so slow that employers cant find meaningful work for their employees to do anyway. Its confusing and frustrating to employers to pay their workers not to work, or to try to find something for them to do.
If you offer employees their job back but they dont accept the offer to come back to work, they may lose unemployment benefits. Even if you do bring them back and they are making less money than they would have on unemployment, they may be resentful enough to look for another job in the future. Its a tough decision many employers are facing especially those with lower-wage employees.