PPP: Qualifying for Loan Forgiveness

The Payroll Protection Program went through its first wave of applicants in April of 2020 when the program was first launched. As of April 27, 2020, the application has been reopened to business owners and entrepreneurs seeking help as coronavirus impacts their businesses. There are several misconceptions around the Payroll Protection Program, particularly about when (and how) the loan can be forgiven. Let’s dig into how you can qualify for PPP loan forgiveness as a business owner, and what steps you need to take to stay compliant.

Understanding PPP

The Payroll Protection Program offers loans to small businesses to help them stay open, continue to pay their employees (and themselves), and pay utilities during these unprecedented times. The loan has a maturity of two years and an interest rate of 1%. Loan payments can be deferred for up to six months, and no lender (or the government) will charge any fees for applying for the loan. 

For many small business owners who’s revenue has taken a hit due to the nationwide secure-in-place orders that are being lifted in waves (but may come back again at a later date depending on the spread of the virus), the PPP has been incredibly beneficial. This is especially true because, according to the government, the loan can be forgiven completely if small business owners can prove they’ve used the funds in several key ways.

Qualifying for Forgiveness

Your PPP loan will be 100% forgiven if you meet the following criteria:

1. 75% of the loan is used for payroll.
2. All employees are kept on the payroll (or were quickly rehired upon receiving funding) for eight weeks. 
3. Salary levels are maintained.
4. The remainder of loan funds are used for utilities, rent, and interest on mortgages.

Forgiveness is decreased at the discretion of the Small Business Association if:

1. You’ve fired employees due to coronavirus.
2. Salary levels have decreased.
3. You did not use the funds for the approved expenses.

Keeping a Paper Trail

The Payroll Protection Program, the CARES Act, and a number of other financial stimulus packages that may be passed in the coming months are unprecedented. The “rules” for loan forgiveness, or applying for the help you need, may seem confusing - and it’s largely because the government is implementing these strategies in an effort to keep up with the needs of our population. The rules for these programs (including application dates and requirements) may shift over time as the situation with the coronavirus evolves. 

However, right now, you have a responsibility as a small business owner to keep a paper trail if you wish to qualify for PPP loan forgiveness. Here are the steps you can take to do so:

1. Track all spending in the coming months.
2. Prepare monthly payroll reports.
3. Gather any receipts for non-payroll expenses (including rent and utilities). 
4. Reach out to your financial institution within 90-days of the 8-week time frame that the loan was intended to help you with payroll to see what you need to do to submit your application for forgiveness. 

Be as diligent as possible in collecting comprehensive records and prioritizing forgiveness application deadlines to ensure your chance of having the loan forgiven by your lender.

Do you need help navigating your Payroll Protection Loan? Contact us today. We’re here to support you!

Wood Smith Advisors, a woman-owned Registered Investment Advisor (RIA), is a fee-only financial services firm that partners with its clients to simplify their financial lives. We focus on women, entrepreneurs, and individuals with complex financial situations, providing objective and competent advice, education and services to help them develop and build their businesses and reach their financial goals. We can be reached by clicking here.

"Finance Made Simple" blog posts are intended for educational purposes and not for specific advice. Each person’s situation is different. Consult your financial advisor for advice relating to topics discussed.