You must understand everything about the PPP forgiveness process BEFORE you apply. Check out these five items you must understand.
by Marc Parham, Small Business Expert, CAPBuilder Network Group, Marcp@capbuildernetwork.com,
1. Most lenders are not ready to process forgiveness applications.
Many are developing technology tools such as “forgiveness portals” or will leverage other automation options for a more efficient process. Treasury Department issue final guidance, those technology tools can’t be finalized. The timing on when that guidance will be available is uncertain. Bank of America, as one example, is telling PPP loan holders it expects to begin opening its online loan forgiveness application process in early August and will email instructions to borrowers when it’s ready.
2. The forgiveness process involves several steps
Please note that the forgiveness process involves several steps and it can take up to five (5) months after submission of your completed forgiveness application to receive a final determination on loan forgiveness from the SBA. As long as you apply within 10 months of the end of your forgiveness or covered period, you will have to make no loan payments while awaiting the SBA decision (interest will continue to accrue on the entire loan amount. Accrued interest will be forgiven on the portion of the loan that is forgiven).
3. Using the EIDL loan for payroll
If you received an Economic Injury Disaster Loan (EIDL) and refinanced portions thereof for payroll using your PPP loan, those amounts will be considered when calculating the percentage of the PPP loan utilized for payroll purposes. If you received an EIDL grant, the grant amount will reduce the amount of PPP loan forgiveness.
4. Will you owe money?
Customers will owe money when the PPP loan is due if they use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 24 weeks after getting the loan. Not more than 40% of the forgiven amount may be for non-payroll costs. They will also owe money if they do not maintain their staff and payroll. Number of Staff: A customer’s loan forgiveness will be reduced if they decrease their full-time employee headcount. Level of Payroll: Their loan forgiveness will also be reduced if they decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
5. The 75% / 25%
The 75% / 25% rule for payroll costs and non-payroll cost has been updated to 60% / 40%. This will allow businesses to use up to 40% of the loan proceeds on non-payroll costs. This is great news. However, there is a catch. The bill states that “to receive loan forgiveness under this section, an eligible recipient shall use at least 60 percent of the covered loan for payroll costs.” This language is not favorable for businesses that do not spend 60% of the loan proceeds on payroll costs. Example: A borrower received a $100,000 PPP loan and spent $50,000 on payroll costs and $50,000 on non-payroll costs.
There are many other rules or statements about PPP forgiveness that are very important. You will find that applying for forgiveness is a lot more complicated that applying for the money. Its very important that you understand everything before you apply.
Bio- Marc Parham
is a small business expert, host of the CAPBuilder Talk Radio Show, Professional
Speaker, and Author of the book %u201CYes I Can %u2013 Develop My Idea and Start My Own
Business”. He has been a business owner for over 25 years where he has
helped thousands of people to change their lives. His mission is simple, to
educate and coach people to start taking more control of their lives by
learning how to start and grow their own small business.
is a Managing Partner at the CAPBuilder Network Group; a consulting company
whose focus is helping people start and grow their own businesses. For more
information about the CAPBuilder Network
Group and other informative articles please go to http://www.capbuildernetwork.com