By: First Union
Make Sure Your PPP Loan Gets Forgiven
The Paycheck Protection Program loans are seeing its second round of funding. It has been marketed as a “forgivable loan”, but what exactly does that mean? Your PPP loan may only be forgiven if you adhere to strict guidelines. You have to use the loan for its intended purposes and be vigilant. So follow these steps and make sure that your loan can be forgiven when the time comes.
Small business owners flocked to get in the virtual line when the SBA rolled out the PPP loan and were met with some disappointment. The Paycheck Protection Program is part of the CARES act aimed to relive small businesses during COVID-19 and hopefully keep some doors open. During the first round of funding, banks scrambled to meet the high demand and small business owners suffered while huge amounts of the relief funds went to larger companies. We are now in the mists of the second round of funding, and the SBA has decided to allow small business lenders to aid in the distribution so the funds can get to who needs them most. While many are chomping at the bit for badly needed funds to keep their small business afloat, there are terms and conditions that you need to pay attention to.
The Paycheck Protection Program is a forgivable loan if you follow the rules. Even if you do end up needing to pay it back, it is set at a 1% interest rate over 2 years, with no additional fees, but why pay back something you don't have to! If you end up faltering and must pay it back the terms are still generous.
How to Use It
The purpose of the Paycheck Protection Program is in the name: paychecks! The government wanted to keep people working and out of the unemployment line as much as possible, and this was their solution. It is meant to keep your employees on payroll and the benefits would be twofold, businesses could keep paying employees (operating or not/), and people could stay connected to their jobs. So that’s the number one thing to remember, for the loan to be forgiven you must spend at least 75% on the payroll. Keeping your employees attached to the company and away from unemployment. The other 25% can be used to keep you afloat, on things like utilities, mortgage, interest, and the like. Be very careful, if you stray from these expenses, your funding may not be forgiven.
You need to keep track of all your expenses, and keep documentation. From the moment the funds are deposited into your account, you need to keep documentation on how it is spent. The SBA will not take your word for it and forgive your loan. They want to make sure that the funds keep you and your employees afloat over 8 weeks after receiving it. So, every penny you spend on the loan needs to be properly documented, so you can present your documentation when the time comes. You will need to verify the numbers on your payroll and make sure it matches all the salaries of your employees, including verifications for health insurance and retirement. You will also want to keep documents on payments of rent, mortgage, and utilities.
If you were not able to receive a Paycheck Protection Program loan, or need more than what you received, First Union Lending can supplement your funding or take your PPP loan application. Click here to call our representatives standing by to help.