If you’re on it, surprise! There are possibly more twists & turns ahead! If you’ve yet to board the ride, there’s still time to hop on! In this blog post, we’re going to dive headfirst into the world of PPP Loans, their evolutions since inception, and a few more changes that are possibly on the horizon!
For starters, let’s review the PPP Loan “cliff notes”:
- The Paycheck Protection Program is a $699-billion loan proLLogram created by the U.S. Federal government to assist small businesses in response to the COVID-19 crisis. Depending on your company’s individual situation, you may qualify for up to 100% forgiveness.
- PPP Loans are available to most small businesses, sole proprietors, and self-employed persons (click here for more details).
- PPP Loans have an interest rate of just 1%.
- Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years. However, if your loan was issued prior to June 5th, contact your lender to request a possible extension to the 5-year term.
- Loan payments will be deferred for six months.
- No collateral or personal guarantees are required.
- Neither the government nor lenders will charge small businesses any fees.
- Generally speaking, forgiveness is determined by the SBA and is based on the employer maintaining or quickly rehiring employees & maintaining salary levels (more information can be found here).
The PPP Loans were created in April of this year, however as of June 5th, the government passed the PPP Flex Act, which broadened the parameters of required criteria needed for forgiveness, allowing more businesses to qualify. Here’s the recap:
- If your loan was funded before June 5th, forgiveness is calculated on either an 8-week or 24-week utilization of funds, whichever best suits your situation.
- If your loan was funded after June 5th, forgiveness is calculated solely on a 24-week utilization of funds, aka more time to spend funds on areas that are eligible for forgiveness.
- The required “total spend” of your loan amount on payroll costs was initially 75%, but was reduced to the 60% with the PPP Flex Act – this applies to all PPP Loans, regardless of the time your loan was funded.
- The PPP Flex Act allows employers to defer the employer paid portion of social security taxes (as set forth by the CARES Act) through the end of 2020. Tax payments will be deferred such that 50% is due on 12/31/2021 and 50% is due on 12/31/2022.
- Language was also introduced with the PPP Flex Act to incorporate that there will be additional exemptions made to businesses that are unable to return to the same level of business activity due to Government requirements or guidance related to sanitation standards, social distancing, or other requirements related to COVID-19.
As you can see, the changes to the PPP Loans via the PPP Flex Act were wide ranging and, more importantly, very beneficial to loan recipients… and as we hear it, the government’s not done yet with making more changes. Here are two [exciting] rumors we’ve been hearing about what’s to come that may make you rethink applying for a PPP Loan if you have not already…
The negotiations on Phase 4 of the Stimulus Package includes the proposal of automatic forgiveness for all PPP loans under a certain dollar amount, both $150k and $250k have been mentioned as possibilities. Read that again: AUTOMATIC. FORGIVENESS.
Because PPP loans don’t count as taxable income, an Internal Revenue Service ruling prevents businesses from being able to deduct traditional business expenses paid for by loan funds if forgiven. That means that any payroll and fixed costs that your PPP loan was used for cannot be deducted as an expense on your tax return. However, this too has been a rumored upcoming change, which equals more possible tax breaks for small businesses.
So, if you are currently on the rollercoaster, keep your eyes peeled for the next turn of events. If you haven’t joined the ride, as we mentioned, there’s still FUN-ding to be had! The SBA is accepting applications through Saturday, August 8th!
*Disclaimer: Please refer to the SBA’s website for specific loan information and requirements regarding eligibility and forgiveness. This post is meant to serve as a high-level, informative article, and should not be used to calculate loan forgiveness or determine loan eligibility.