The forgiveness portal for the PPP loans is officially opened as of this week. And yet, not all are rushing to apply. In fact, for some holding off on the forgiveness application may make more sense.
The loans became available beginning April 3rd of this year. Since that date, more than five million US businesses have received the SBA backed funding. This accounts for more than 525 billion in loans given out. The final date to apply (after an extension of the initial deadline/) was August 8th.
The reason the PPP was so attractive was because of the forgiveness aspect of it. As long as 60% of the funds were spent on payroll-related expenses, the money did not have to be repaid. And if business fell short, there was still the option of partial forgiveness. As far as the actual repayment terms, borrowers had six months before they had to start payments, and the interest rate was only 1%. Those who received loans before June 5 have two years to repay, while those occurring after having five.
Now that the forgiveness period has started, it is a bit curious why more companies haven't stepped it up and gotten their applications turned in. One reason is that the SBA continues to issue guidance through a series of frequently asked questions. They are regularly having to clarify what is considered payroll-related expenses. Another huge question on the minds of many business owners: will the expenses covered by PPP loans be tax-deductible. As things seem to be constantly evolving and the SBA and Congress are continually clarifying, waiting until more cards are on the proverbial table might make the most sense.
Additionally, with a potential new relief bill on the horizon, many are wondering if this will touch upon the deductibility issue of the loans. As of now, those owners who used PPP funds for business expenses will not be able to write off those expenses paid for with the loan proceeds. There is however one proposed bill that would allow for such expenses to still be deducted.
Deductibility is hugely important, especially now. If a small business owner cannot deduct a large chunk of their 2020 expenses, this may inflate their income.
It may be hard to hold off on applying, but many experts agree that this might be the best move right now. Until we see how lawmakers are going to proceed and until the SBA answers all relevant questions, it simply makes sense to take your time with this process. What you can do is gather up all the necessary paperwork so that it is ready to go. You want to make sure that you have all documents pointing to how each PPP dollar was spent.
First Union Lending has been working with small businesses throughout this difficult time. We are invested in seeing our clients through this. If you need additional funding to weather this storm, we can certainly help. Call today!