What You Need To Know About Payroll Protection Program (PPP) Loan Forgiveness

Suppose you’ve been following the news on the Corona virus Aid Relief & Economic Security (CARES) Act. In that case, you’d have known that the government allocated a significant portion of money towards the Payroll/Paycheck Protection Program (PPP). The PPP is intended to support businesses that are unable to function to support their employees. It’s essentially a government allowance that companies with fewer than five hundred employees can access and can be forgiven. The PPP was developed as a way to ensure job security despite businesses being unable to operate during the pandemic lockdown. However, the federal government is willing to forgive these loans, provided that companies meet specific criteria. In this article, we look at what those stipulations are.

Payment Schedule and Interest Rates

Since this is a loan, businesses that use the Paycheck Protection Program need to start repayment on their principal amount no later than ten (10) months after the initial grant. The company also must seek to repay the amount in full before two (2) years have passed. If a business intends to be forgiven for the grant, repayments are remitted until payment resumes later. The federal government is willing to defer interest on the loans for a period of one (1) year and prolong loan maturity to between two (2) to five (5) years for all PPP loans granted on or after the date of the Flexibility act. The government has also capped the interest rate at 4{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} per annum, but the current rate is significantly lower, at around 1{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2}.

Qualifying to Have The Loan Forgiven

For a business to qualify for having the payments removed or reduced under the Paycheck Protection Program, the enterprise must ensure that all employees on its payroll initially remain employed by the company. There are also stipulations about what the loan can be used for, and breaching those stipulations means that the government will not forgive it. The PPP loans are only to be used for:

  • Payroll costs, with an allowance of up to $100,000 per employee
  • Utilities
  • Rent on lease
  • Mortgage interest
  • Additional wages for employees that supplement their earnings with tips

Additionally, the Coronavirus Flexibility Act states that no less than 60{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2} of the loan’s total amount must be spent on payroll to qualify for forgiveness. If some employees are laid off, there’s a chance that the business may still be able to access forgiveness, but not for the full amount of the loan. Forgiveness is also impacted if a company lowers the pay of employees by more than 25{9e6afc18e04fc5fa66224b06488e691531267e3d6804b0d35af7d6b75debefc2}. Enterprises can still access complete forgiveness if they roll back the reduction in payroll amount before December 31st.