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The US Government in 2020 under Coronavirus Aid, Relief, and Economic Security Act (CARES Act) started the Paycheck Protection Program (PPP). It is part of the second stimulus package cash flow assistance through federally backed funds. The Paycheck Protection Program (PPP) helps hard-hit small businesses with fewer than 300 employees to pay for their payroll. The government issues the first, second, and third draw of PPP funds that have an interest rate of 1% and 5 years of maturity. Moreover, the borrower can use the credit to pay payroll costs, mortgage interest, rent, utilities, and other costs. The deadline to apply for the Paycheck Protection Program (PPP) has been extended to March 31, 2021.
What is PPP forgiveness?
The Paycheck Protection Program (PPP) is subject to forgiveness if the funds are utilized in an authorized manner over 24 weeks of disbursement (or 8 weeks if chosen by them). According to the program, the borrower can ask for forgiveness once they have utilized the entire proceeds in payment of payrolls, mortgage, rent, and utilities. However, the request for forgiveness should be made before the maturity date of the credit.
The Paycheck Protection Program (PPP) will not be deferred if the borrower fails to apply for forgiveness within 10 months after the last day of covered payments. Therefore, in this case, the payment will be made to their PPP lender. Another important thing that borrowers must remember is that they must spend 60% of the amount on the payroll if they want the entire amount to be forgiven. The borrowers should also avoid cutting wages and salaries if they want their PPP funds to become grants.
List of Expenses that qualify for Paycheck Protection Program (PPP) Forgiveness
Source- forbes.com
- Payroll Expenses
- Employer contribution for employee group health care coverage
- Employer contribution for employee retirement plans
- Payment of state and local taxes
- Non-Payroll Expenses (Mortgage, Rent, and Utilities)
How to Apply for PPP forgiveness?
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Reach out to your Paycheck Protection Program (PPP) lender and fill the correct form
Many people face problems in selecting the correct type of form for forgiveness. They are three types of forms that borrowers must know about:
Form 3508S
The borrowers with a working capital amount of $150,000 or less can use this form. While filling out this form, no calculations or documentation is necessary. But comply with rules set up by SBA to avoid a hefty fine of $1 million and 30 years of imprisonment.
Form 3508EZ
This form is for borrowers with a working capital amount greater than $150,000 only if:
- Between January 1, 2021, and the end of the loan covered period, the borrower did not reduce the number of employees or hours of employees.
- The borrower did nid not reduce the hourly wages or salary by more than 25%.
Form 3508
This form is for borrowers who were unable to use both the forms mentioned above.
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Put together all the necessary documents required
The SBA requires payroll and non-payroll documents for the PPP forgiveness.
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Submit the form along with documents to the PPP lender
Once the borrower has correctly filled the form and documents submit them to the PPP lender. The borrower can also ask for guidance if needed.
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Stay in touch with your lender
The lender will notify the borrower if their credit is under review by SBA. If certain SBA reviews fail to satisfy the borrower, then they have the right to appeal.
Did the paycheck program work for small businesses in the US?
The researchers pointed out that only a few small businesses were able to enjoy the benefit of the Paycheck Protection Program. They admitted that the program helped the businesses to pay for the payroll in the time of hardship but did not help much in employment. The financial institutes were the big player in determining which small businesses will get aid, therefore it was noticed that areas with large banks received comparatively less funding. Even though the government tried to be transparent in the process researchers noticed that data raises the question of rejection of forgiveness application based on race.
The pandemic has affected many businesses and livelihoods. The US government’s attempt to revive the economy by supporting small businesses is commendable. But the policymakers should consider working on the shortcomings of the program. However, if you are unaware of the basic know-how of PPP forgiveness then it might be a problem. We hope our article helped you to understand the basics of the Paycheck Protection Program (PPP) Loan Forgiveness.
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