Published on: August 18, 2020

PPP Loan Forgiveness 101: How to Apply

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    Servicing a loan is one of the craziest undertakings that most borrowers have to contend with. Who survives without a loan anyway? You apply for a loan, it gets approved, and you smile to the bank. What next after this? Loan repayment may not be smooth as some would think. 

    America’s Paycheck Protection Loan program is one of the most ideal financial instruments rolled out by the government to cushion individuals, businesses, and various entities from tough economic times. 

    Though a number of borrowers qualify to get the funds, the huddle of repayment can be a nightmare for many. Payment forgiveness is one critical aspect that can save you from the worry of loan repayment.

    What Is PPP Loan Forgiveness?

    Paycheck Protection Program, commonly referred to as PPP, is an American loan program designed to provide direct incentives to small businesses in order to discourage layoffs. 

    Ideally, the loan targets to protect America’s labor force during hard economic times.

    Employers in this case are required to meet stipulated guidelines set by America’s Small Business Administration SBA regarding employee retention.

    small business administration representative giving loan.

    Loans are fully forgiven in cases where the funds are strictly channeled towards employee salaries. Employers in this case are entitled to the loan if they prove to carry on with the hiring process without affecting the salary scale of employees. 

    Reduction in the number of full-time employees or decreasing the amount paid in salaries results in a reduction of the amount offered to cushion your company from firing staff.

    To emphasize, the PPP loan forgiveness strictly focuses on ensuring employees retain their jobs despite prevailing harsh economic times. It is against this backdrop that SBA insists on directing the amount offered through the program to paying wages.

    Who Qualifies to Apply for PPP Loan Forgiveness?

     The following entities qualify for PPP loan forgiveness in the United States.

    • Sole proprietors
    • Self-employed individuals
    • Small business concerns that meet SBA size standards
    • All business entities that have NAICS code that begins with 72. These are accommodation and foodservice businesses
    • This kind of business must have more than one physical location where every location has a total of 500 employees. However, these businesses must have 500 employees and meets SBA industry size standards of 500 employees.

    Any business entity as defined in section:

    • 501(c) 3 nonprofit organization 
    • 501(c) 19 veteran organization
    • Tribal business concern (sec.31,(b)(2)(C) of small business act.

    To apply for paycheck protection program loan visit US small business administration website https://www.sba.gov/.

    • Step 1. Access PPP application
    • Step 2. Enter business information
    • Step 3.  Add new requirements for business information 
    • Step 4. Confirm ownership

    Changes Made on the PPP Application Process

    The US government has introduced various changes to the PPP loan forgiveness application process.

    The US President Donald Trump signed into law new legislation that introduced a raft of measures geared towards cushioning the law force. The move is a relief for the US labor force that has been grappling with the economic effects of COVID-19. Some changes include;

    • Changes on the threshold of the amount of funds that PPP should spend on payroll-related costs to 60% of the loan amount. 
    • Current PPP lenders can opt to extend the 8-week repayment period to 24 weeks. Alternatively, they can decide to retain the 8 weeks.
    • New borrowers have a flexible repayment period that can extend up to December 31st, 2020. Flexibility in the duration is meant to help borrowers realize full forgiveness.
    • Expenses on payroll have been dropped from 75% to 60% though in this case, borrowers are required to spend up to 60% of the money entirely on forgiveness loan or else they won’t be forgiven.
    • Borrowers in this case, are supposed to utilize the 24-week period to reclaim their full workforce levels in line with the pandemic requirements in order to get full forgiveness. The move should be implemented by December 31st a change from the earlier deadline of June 30th.
    • The law further allows businesses that had borrowed the PPP loan to delay paying payroll taxes, a move that was not allowed in the CARES act.
    • New borrowers have up to 5 years to repay their loans as opposed to 2 years in the earlier regulation. 
    • Further, existing PPP loans can be repaid for up to 5 years should the lenders and borrowers agree on the terms. In this case, the interest rates remain 1%.
    Filling out a PPP forgiveness application.

    Other aspects of the new law indicate that borrowers can get full forgiveness even in cases where they fail to restore their workforce fully. 

    The US government through congress is banking on the relief fund to cushion small businesses from harsh prevailing harsh economic times that has taken a toll on most businesses.

    Borrowers who qualify to get the funds are entitled to up to $10 million to spend on payroll, rent, utilities and mortgage.

    Ideally, paycheck protection program PPP is made available for small businesses in operation since February 15th with a total of 500 employees or fewer employees. 

    Another target group for funding includes self-employed personnel, veteran organizations, solar proprietors, independent contractors, and tribal concerns. Under various circumstances, businesses with more than 500 employees are considered to benefit from the program.

    Are Funds Released Under the Paycheck Protection Program Taxed?

    The answer is no. 

    America’s Internal Revenue Service IRS released a directive that disallows taxation of PPP funds. In this regard, businesses can not claim any deduction for expenses inquired under the PPP program. 

    Under the Cares Act, the forgiven loan doesn’t incur any taxable income to the business. The Cares Act indicates that proceeds or expenses incurred from a paycheck protection program cannot be subjected to any deductions. In simple terms, funds released under the US paycheck protection program are not subjected to taxation.

    Contact the Professionals

    If you are looking for help about how part or whole of your PPP loan can be forgiven, then contact Silver Tax group for quick assistance.

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