Across America, there was a mad rush to sign up for the “too good to be true” Paycheck Protection Program. Small businesses are trying to survive during these unprecedented times and saw the PPP as a source of hope (and for some a massive headache). The reason for optimism was, if executed correctly, these low-interest-rate loans would be forgiven by the Government (hence the mad rush to sign up for one).
The Interest Rate for the loan, if not forgiven, is still very attractive. 1% interest paid back over two years, and no prepayment fees are not the worst option for a struggling business. But why pay any of it back, if it can be avoided?!
Here are some tips in order to receive full forgiveness.
The loan is forgiven if you spend 100% of the money to cover payroll, mortgage interest, rent, and utilities over the eight weeks following receipt of the funds. 25% can be split among rent, utilities, and mortgage interest, but you must pay at least 75% towards payroll.
The forgiveness is not an all or nothing. It can be reduced by varying amounts depending on how you use the money. It can be reduced by the two following ways; reducing your employee headcount or payroll from February 15th, or paying more than 25% towards non-payroll costs.
This type of loan is unique in that there is no standard set- up guidelines. Yes, the SBA is overseeing these loans, but your lender can have specific requirements of their own to allow forgiveness. Make sure you check in with them periodically to avoid a mistake.
Document everything! From the second you receive the funds, make sure you are archiving every expense used from the loan. The lender will not just take your word for it that you used the money for appropriate costs.
I hope these four steps provide some clarity for business owners hoping to receive full forgiveness on their PPP loan. During this crisis, every dollar is important, so avoid a simple mistake by following the tips above.
Arthur Strauss, CFP®
Investment advice offered through Strauss Financial Group, Inc., a Registered Investment Advisor.
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