Published on: August 25, 2020

Everything to Know About the Terms of PPP Loans

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    Have you ever imagined what you would do with paycheck protection program (PPP) loans? Though the loan is earmarked for use by employers to cushion employees from being fired due to harsh economic times, the loan can be used for various purposes.

    Have you received or plan to apply for a paycheck protection program loan and wonder what course you can direct the money?

    Remember the course you intend to direct the PPP funds to must comply with the terms and conditions set up by the Internal Revenue Service IRS. 

    This article offers insight into various aspects you can utilize PPP loans without violating IRS regulations.

    Before applying for a paycheck protection program loan, ask yourself whether you meet the following criteria:

    • Small businesses with less than 500 employees
    • Sole proprietors
    • Tribal and veteran groups
    • Private non-profit organizations
    • Hospitality and restaurants were meeting the 500 member threshold
    • Independent contractors 
    • Limited liability companies
    • S corporations meet the threshold of being taxed by internal revenue service
    • The business must be based in the United States of America

    Terms for a PPP Loan

    • The paycheck protection program loan attracts an interest of 1%
    • Two to five years repayment period. This is determined by the time the amount was disbursed.
    • Neither collateral nor guarantor is required to qualify for the loan. 
    • No penalty for prepayment
    • Payment can be deferred until SBA remits forgiveness amount to the lender
    • Loan forgiveness should be applied ten months after expiring of the repayment period, failure to which interest applies from the date of disbursement.

    Where to Apply for a PPP Loan

    Various financial institutions are approved to issue PPP loans to borrowers in the United States of America. Any federal insured depository firm and any credit institution that has signed an agreement with SBA to approve forgiveness loans to borrowers. 

    Alternatively, you can consult with your lender on which they have signed an agreement with SBA to offer forgiveness loans. This will help you liaise with the right financial institution in the application process. You can visit the SBA platform to access the list of approved PPP lenders.

    Costs Covered by PPP Loans

    Have you received the PPP loan and are wondering how to spend it without infringing on the regulations set up by the Internal Revenue Service (IRS)? Silver Tax Group will guide you through on what your PPP loan can cover.

    Payroll Costs

    The paycheck protection program was designed by the American government to offer incentives to small scale business enterprises.

    Ideally, the loan focuses on protecting the labor force from the effects of economic meltdown. 

    payroll expenses calculation to follow terms of ppp loan

    IRS regulation requires an employer offered the loan to utilize at least 60% of the amount given in funding payroll expenses. The rest can be directed to other expenses that are not related to financing the cost inquired in paying employees. 

    Staff Rehiring

    Employees laid off during harsh economic times can be rehired using the PPP funds. The main intention of PPP funds is to protect the labor force during harsh economic times.

    In this regard, employees who had lost jobs can be rehired using the funds. In other words, you qualify for full forgiveness of the loan should you use the funds to rehire laid-off employees by December 31st, failure to which you will be required to pay back a portion of the funds inquired in payroll expenses.

    Payment of Insurance Premiums

    Individuals and entities who qualify for PPP loans can use the proceeds from the loan to pay insurance premiums. The cares act stipulates that PPP loans can be used for Healthcare benefits which are not limited to insurance premiums, medication and sick leave.

    Though the regulation doesn’t mention the cost of insurance, the proceeds can be used to fund health-related programs.

    Payment of Rent 

    Under the new changes made on legislation regulating the use of PPP funds, borrowers can still get forgiveness even if they utilized the funds to pay rent. In this case, entrepreneurs are allowed to use 60% of the funds on payroll costs, while the rest can be used to meet other expenses.

    Business owners can now meet other business-related costs from the remaining amount to keep their business afloat. 

    rent due soon ppp loans money

    Opposed to earlier where the regulation required employers to spend up to 75 % of the PPP proceeds on funding payroll expenses, the reduction offers room for more funds to be channeled to other needs.

    Ideally, even though the funds target to protect employees from losing their jobs, employers have extra expenses they need to incur in business operations. 

    Mortgage Expenses

    The amount offered in the paycheck protection program PPP can be used to fund mortgage costs. IRS set regulations governing this criterion indicating that part of the loan can be directed to offset mortgage repayment expenses. 

    Under this criterion, the IRS regulations indicate that proceeds from the PPP load should only fund interest accrued in mortgage repayment but not mortgage prepayments. 

    Mortgage prepayments here refer to inquiring extra costs than the initial agreement in the signed contract.

    Payment of Utilities

    The ripple effect brought about by COVID-19 has paralyzed business operations in most countries.

    Though PPP focuses on funding employees’ salaries, businesses have other extra costs that need to be met.

    paying utility bill to follow ppp loan terms.

    Ideally, changes done on the law regulating how PPP funds should be spent is a relief to most employers since they can redirect the remaining funds to cater for other expenses.

    Financing an SBA EIDL Loan

    Economic injury disaster loans are grants given to small businesses by the US government to cushion them from harsh economic times. Proceeds from the PPP loan can be used to finance EIDL loans borrowed between January 31st and April 3rd, 2020.

    Paycheck protection program is a great program targeting US employees to cushion them from the prevailing harsh economic times caused by the riffle effect of COVID-19. Though applying for the loan might not be difficult, you need help to increase your approval. 

    Maximizing Value of PPP Loans

    PPP loans can be a great opportunity to help your business survive harsh economic times. Prior knowledge about how to spend proceeds from the funds prudently is key in maximizing the value of the loan. If you need help with PPP loan allocation or forgiveness, contact Silver Tax Group today for quick assistance.

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