Do I have to pay back my PPP loan? Here’s how to get your loan forgiven
April 06, 2020
In this 4-minute read:
- Can all Paycheck Protection Program loans be forgiven?
- What can cause PPP loans to not be forgiven?
- What if my PPP loan isn’t fully forgiven?
This global COVID-19 pandemic has a lot of business owners concerned about the future of their businesses and how they will keep their employees paid. With state-wide shutdowns and the general public being advised to stay home, businesses are starting to suffer.
Recently, the federal government signed into law the $2 trillion CARES Act, which will provide financial assistance for individuals, families, and businesses during this trying time.
IMPORTANT NOTE: On Wednesday, May 13, 2020, the SBA released revisions to their FAQs regarding PPP loan forgiveness. Read the details here.
Womply is acting as a facilitator to connect American small businesses to SBA-authorized lenders to get emergency loans for COVID-19 relief. Start your free application here, or call us at 855-208-8813 for a free consultation.
Under the CARES Act, the Paycheck Protection Program (PPP) authorizes up to $349 billion in forgivable loans to small business owners. Each business can apply for a PPP loan of 2.5 times their average monthly payroll expense, so long as that does not exceed $10 million per business.
One more important fact about these PPP loans: all loan terms will be the same for everyone. Same rates, same deferment options, same conditions for loan forgiveness.
Can my Paycheck Protection Loan be forgiven? If so, how?
The question that most business owners are asking right now with this new COVID-19 financial assistance: how can these loans be forgiven?
It’s understandable that you wouldn’t want to go into debt during this time, especially with the uncertainty of the future as the pandemic progresses. Fortunately, since the intent of this bill is to save American jobs and businesses, there’s a huge motivation built into the provisions of the loan program for businesses: If you keep (or re-hire to meet) your pre-COVID-19 levels of employment and compensation and spend the funds on approved expenses, your PPP loan will be forgiven, meaning you don’t have to pay it back…ever!
Want to know how much you may qualify for? Check out our PPP loan calculator
There are two important conditions for PPP loans to be forgiven:
- Proceeds of the loan must be used to cover payroll costs, mortgage interest, rent, and utilities over the next 8 weeks after the loan funding has been received.
- Employee headcount and compensation levels must be maintained.*
This means that the majority of your loan must be used to keep your staff employed if you want your loan to be forgiven. Ideally, this loan forgiveness plan will help keep unemployment rates down, and help individuals keep their jobs and support their families.
Due to the anticipation of a high volume of requests for PPP loans, we anticipate that no more than 25% of the forgiven loan amount may be used to cover non-payroll costs.
Also note that the interest that accrues (at an amazingly low 1% rate, but still…) is NOT forgivable.
What can cause all or part of my PPP loan to not be forgiven?
The only way you will have to pay back all or part of a PPP loan is if you don’t use it for the specific items outlined above. You CAN use your funding for any legitimate business expense, but if you use your loan for anything other than PPP-approved payroll costs, mortgage, rent, and utilities, expect to pay back at least that portion of your loan.
And a 1% interest rate is amazing, but even with an almost-free interest rate, a 2-year loan maturity date can be tough to meet, especially if you’re still reeling from the impacts of the COVID-19 crisis.
So it would be far better if you used your PPP loan for its intended use, on approved expenses, and got it forgiven.
- How you should spend your PPP loan money
- How to avoid cutting staff during COVID-19
- Who can help me get a PPP / emergency SBA stimulus loan?
- Click to read our complete list of FAQs about the PPP loan process
You will owe money on your loan if you don’t maintain your staff and payroll. The following are ways that you will have your loan forgiveness reduced:
- If you decrease the number of full-time employees you have
- If you decrease salaries or wages by more than 25% for any employees that made less than $100,000 in 2019
With that being said, you can rehire your employees to restore any staff reductions you might have made and meet the PPP loan forgiveness requirements.
*If you’ve already had to reduce your staff or cut compensation due to COVID-19, you can still make things right.
You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.
How do I request forgiveness of my Paycheck Protection Program loan?
You need to submit a request to the lender that is servicing your PPP loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility expenses.
You must certify that the documents are true and that you used the forgiveness amount to maintain employee headcount/compensation levels and to make eligible mortgage interest, rent, and utility payments for the 8 weeks after you receive your loan. The lender must make a decision on the forgiveness within 60 days of your request.
What if my loan isn’t able to be completely forgiven?
In the case that you don’t meet all requirements for complete loan forgiveness, you’ll have specific terms to pay back the required portion of the loan, and these terms are the same for every business.
PPP loan terms:
- 1% interest rate
- Maturity of 2 years (meaning the full amount of non-forgiven principal and any interest is due in 2 years)
- 6-month deferment (you don’t have to start paying back the loan for 6 months—however, interest still accrues during this period)
- 100% guarantee by the SBA
- No collateral is required
- No borrower or lender fees need to be paid to the SBA
- No personal guarantees
Need help applying for a PPP emergency stimulus loan?
Womply is a verified loan agent to help small businesses find an appropriate lender for their PPP loan. We have resources to guide you through the application process and staff that will help you along the way, and help you get to the front of the line with your lender.
Want to learn more? Click here or call us at 855-208-8813 for a free consultation.
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