The concept of financial support for small businesses is nothing new, but during the COVID-19 crisis, the need for help was much greater than normal. With the economy trapped in a recession and pandemic-related closures that hurt local establishments left and right, it was clear to lawmakers that small businesses needed a substantial amount of help to make it through 2020 without running the risk of permanently closed.
That help came in the form of the Paycheck Protection Program, or PPP. Under the PPP, companies with up to 500 employees on staff could be eligible for a loan equal to two-and-a-half times their monthly wage costs. The best part? PPP loans are fully forgivable, provided that at least 60% of their proceeds are used for payroll costs.
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If you have taken out a PPP loan, you can be sure of forgiving that debt. But here’s why you might need to arrange for partial forgiveness of loans instead.
You can only get so much free help
PPP lending was not the only type of relief available to small businesses during the pandemic. Economic disasters for disaster relief were also an option, and although they are not forgiven like PPP loans, they have offered companies the option to receive a subsidy equal to $ 1,000 per employee for a total of 10 employees, or $ 10,000 . EIDL subsidies were issued as an advance on their associated loans, and they did not have to repay. But if you have received an EIDL grant and a PPP loan, you should know that your forgiveness of PPP loans is reduced by the amount of your grant. And that’s something you might need to plan for.
Of course, even if you are required to repay part of your PPP loan, you will be subject to very favorable loan terms. PPP loans have an interest rate of 1% added to them, and loans issued before 5 June have a two-year repayment period. Those issued after June 5 have a five-year payback period.
When should I apply to repay my PPP loan?
The Small Business Administration (SBA) allows all recipients of PPP loans to apply for forgiveness. But you might want to hold back. The rules for forgiveness have evolved since the program began (point by point: the percentage of loan proceeds that should be spent on pay has already shrunk from 75% to 60% for forgiveness purposes since the program was rolled out), so if you sit tight, you can get better clarity on what expenses are considered forgivable.
There have also been rumors circulating that the SBA will automatically grant PPP loans that fall below a certain monetary threshold. It is unclear what that threshold will mean, but if your loan was somewhere in the $ 20,000 range, you may not need to fill out any paperwork to forget it. Therefore, you can sit tight and wait for more information and guidance before going through the steps to clear out your loan.
