The Paycheck Protection Program (PPP) was designed to help small businesses stay operational and keep their employees employed. This would prevent them from having to apply for unemployment and help businesses to stay afloat. No one at the time knew how long the coronavirus shutdown would last. The government wanted to create a way to help small businesses and even to get loan forgiveness when certain qualifications were met.
Some Money Returned to PPP Program
During the first round of financial help in the PPP program, many businesses that applied were not given money because the funds quickly ran out. The U.S. Small Business Administration (SBA) discovered that several large companies had received loans that should not have received them, and much of the money given to these companies was returned, but not all of it. This made even more money available for small businesses.
A second round of loans was made available, but businesses were slower to apply. The lack of applications meant that there were about $150 billion left in the fund that no one applied for. Uncertainties about how to get loan forgiveness made some business owners hesitant to apply.
News and Questions Stalled Applications
Various news items came out that stirred questions about how the money was to be used after the program had been initiated. This caused some businesses to not even use the money after they got the loan. Others were confused about how the money was to be used to obtain debt forgiveness.
How to Get Loan Forgiveness
Getting the promised loan forgiveness requires that businesses use the money in a certain way. The money was to be used to either keep employees on the payroll or to hire them back if they had already been let go. 75% of the money had to go toward salary for eight weeks following the approval of the loan and salaries could not be reduced. The other 25% needed to go for normal operating expenses.
All expenses from the loan must be documented to receive loan forgiveness. Although the general rules are set by Congress and the SBA, it is your lender that ultimately determines if your business loan meets the qualifications for forgiveness.
Additional Changes for Loan Forgiveness
Congress has been working on making some changes to the requirements of the PPP for loan forgiveness. Several issues that needed clarification were resolved but more still need to be determined. One of them is the issue created when a business receives the loan but then it was forcibly closed by the state or local government because it was not deemed essential. It was settled by enabling businesses to select an alternative period to pay the eight-week salaries.
There are caps on the amount of money an employee can receive. Pay can include extras such as hazard pay and bonuses and still receive loan forgiveness. The total amount forgiven is limited to 8/52 of their compensation in 2019. Self-employed people cannot include money for health insurance or retirement.
Another matter that borrowers need to know is that both lenders and the SBA can ask the borrower questions if clarification is needed on the loan forgiveness application. The SBA can also review any loans to determine if there were legitimate qualifications for the loan. If the application for the loan does not meet the qualifications, the SBA will not reimburse the lender. Lenders have up to 60 days to review the application for loan forgiveness, and the SBA has up to 90 days after that period.