As the global pandemic of the Coronavirus wreaked havoc on US small businesses, the PPP, also known as the Paycheck Protection Programme, came to life. Backed by the Small Business Administration (SBA), the Coronavirus Aid and the Economic Security CARES Act established this loan program with over 350 billion USD to provide eight-weeks’ worth of cash to help small businesses pay their employees.  

PPP General Criteria  

The Paycheck Protection Programme loans are mostly dedicated to sole proprietorships, independent contractors, and self-employed individuals. Each entity, however, needs to follow slightly different procedures. In particular, when it comes to the PPP loan, the funds must be eligible for the costs of payrolls, mortgage interest payments, rent, lease payments, or utilities in the 8-24 weeks period following disbursement. Moreover, the PPP loan is eligible for all small businesses with a maturity rate of two years and a 1% interest rate, and the borrowers need to apply for the loan within the timeframe of the maturity date. Additionally, loan payments are not urgent until the forgiveness application is processed or until the ten months following the covered period end, and there are no fees, collateral, nor personal guarantees necessary. Finally, the loan is forgivable and can eventually turn into a non-taxable grant.  

How to Apply for A PPP Loan 

Applying for the PPP loan isn’t as complicated as you may think. First, you’ll need to fill out a two-page application form in which you’ll provide some information as the business owner—namely, Name, Address, Primary Contact, Business Tax ID, and phone number. Then, you’ll state if you were in operation on Feb 15th, 2020 and were affected by the economic crisis and can’t go on without a loan, that you will use the money to retain workers, maintain payroll or make necessary business-related purchases and that you haven’t previously received a PPP loan. You’ll also need to provide the following: Full name, home address, title, and ownership percentage of each business owner with greater than 20 percent ownership, EIN or SSN if you’re a sole proprietor, and your DBA (doing business as), legal name, and operation name of your business. Make sure that you have all the required payroll information ready and the annual payroll tax filing form. If you fail to provide all necessary documentation to verify payroll, your loan may not be approved.  

Transition to Second Phase of PPP  

The focus has shifted from disbursement in the first phase of PPP to loan forgiveness. Amendments have been made to the PPP when the Flexibility Act of 2020 was signed into law on June 5th, 2020. Such amendments aim to give borrowers more freedom in terms of funds accessibility and period while obtaining the possibility of full forgiveness. The Act reduces the payroll spending by 15% in addition to allowing two new exceptions for borrowers, making them eligible for full forgiveness despite their workforce. The period of paying off the loan has also extended to 5 years instead of only 2. Furthermore, businesses can delay payroll taxes even when taking a PPP loan.  

The Flexibility Act Explained 

According to the original PPP, 75% of the forgiven amount is allocated to payroll costs solely. However, the Flexibility Act reduces this percentage to 60 and up to 40 if the loan amount is used for mortgage interest, rent, or utility payments. Moreover, borrowers can use the 24-weeks deadline due on Dec 31, 2020, to restore their workforce to its normal levels.  

As we’ve mentioned, the act extends the loan repayment period to 5 years with no additional increases pertaining to the 1% rate, giving borrowers more time to pay off the unforgiven amounts of their loans. Additionally, the payment deferment period has also been extended to six months after the covered period ends and until the SBA sends the loan forgiveness amount to the lender. As per the guidance issued by the SBA on June 8th, 2020, In the event that the borrower doesn’t apply for forgiveness, the deferral period is set to 10 months after the covered period ends. Finally, unlike the original CARES Act, the PPP Flexibility Act allows businesses that took a PPP loan to delay their payroll taxes. 

Posted in Insights