After closing down due to lack of funding, yesterday the Paycheck Protection Program officially reopened with an additional $310 billion from Congress. PPP loans are designed to keep small businesses running during the coronavirus crisis, and can help business owners and independent contractors pay salaries and cover expenses. Business owners can borrow up to 2.5 times their average monthly payroll, and the best part is that they might not have to pay it back.
The name "loan" is actually a bit of a misnomer, because your PPP loan will be fully forgiven, as long as you follow certain guidelines. We wanted to share some advice from Fundera on best practices to guarantee that you can get your loan forgiven.
What Can Be Forgiven?
To get your loan forgiven, you need to use 100% of the loan on eligible costs within eight weeks of receiving the loan.
In order to get your loan forgiven, 75% of the loan must go to payroll costs. Payroll costs include:
-Salaries and wages
-Medical, parental, or vacation leave
-Health insurance premiums
-State, federal or local taxes on employee compensation
-Retirement benefits
-Dismissal allowance (back pay for furloughed employees).
What about the other 25%?
The other 25% of your loan can be used on rent or mortgage payments for your business. It can also be used to pay debts, but if you choose to do so that portion of your loan will NOT be forgiven and will need to be repaid.
What Can Reduce Your Forgiveness?
Certain actions will reduce the portion of your loan that can be forgiven. They include:
-Spending more than 25% of your loan on non-payroll costs. If you do that, the portion of the loan you DID spend on payroll will be forgivable, but only times 0.75.
-Laying off employees or reducing their pay. If you lay off employees or reduce their pay by more than 25%, and do not rehire them by June 30th, 2020, your loan forgiveness will reduce in proportion to the number of employees you lose. You can calculate the exact loss of forgivable loan with Fundera's guide here.
I'm an Independent Contractor. Does this still Apply?
Yes! Independent Contractors can and should apply for PPP loans, but the same rules apply--you must use 75% of your loan to go to your lost salary, based on your 2019 revenue.
The other 25% of your loan can go to other eligible costs, like rent or mortgage, as long as you listed them as deductions on your 2019 Schedule C form.
Want to Apply for the PPP? We Can Help!
Skip is your personal concierge for government services. We can make the loan application process smooth and painless. Learn more about our COVID-19 response services here!
