The recent revisions allowed more companies to participate in the federal Covid relief program, but there is some important information that needs to be kept clear.
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Under the Coronavirus Aid, Relief and Economic Security (CARES) Act, the Small Business Administration (SBA) allowed companies to apply for loans under the Paycheck Protection Program (PPP). By providing PPP loans, these companies could use part of the loan proceeds for eligible costs that are fully forgiven.
While the PPP loan applications were closed in August 2020, some recent changes to their regulations allow companies to apply for a new PPP loan. However, applicants who wish to apply for the new loan must do so by March 31st.
Borrowers can also apply for credit for existing loans under the program. More than five million loans were granted under the PPP. However, companies have been able to ask for forgiveness since August.
Related: New legislation would allow PPP loan auto-forgiveness below $ 150,000
Lending under PPP
Borrowers can apply for a loan once they have used all of the loan proceeds for which they are asking for forgiveness. The SBA enables them to apply for forgiveness at any time up to the loan due date. However, if the borrowers do not make use of it within 10 months of the last date of the covered period, the loan payments will not be deferred. They need to start making loan payments to their PPP lender.
Depending on the company's circumstances, it may apply for a loan using one of three loan applications. These circumstances include the type of business, the amount of the loan, and the reduction in staff, salary, or wages.
First, there is the 3508EZ form, which is available for self-employed people with no employees or without employees, as well as salaries and wages at a certain level.
The second form is Form 3508S for loans of $ 50,000 or less. Form 3508S simplifies the process for eligible applicants and is aimed at companies who do not qualify for the categories above.
Businesses can get their PPP credits for the first and second drawing. However, during the eight to 24 weeks covered period after the loan is paid off, they must have:
Maintained employee and compensation levels. The proceeds from the loan were used on wages and salaries and other eligible expenses. At least 60% of the proceeds are spent on wages and salaries.
In addition, in order to be eligible for Second Draw PPP Loans, they must ensure that they have maintained employee and compensation levels that meet the requirements for First Draw PPP Loans.
Related Topics: How to Get and Have an SBA Coronavirus PPP Loan Granted
Apply for credit
Businesses need to contact their PPP lender and fill out the correct form in order to issue their PPP loan. As already mentioned, you can use one of the three forms to do this. They also need to compile their documentation that goes with the request for forgiveness. These documents can relate to either wage or payroll costs.
For payroll, the required documentation includes the following:
Bank statements or other reports from third party payroll service providers. These statements or reports should document the amount of cash compensation paid to the employees. Tax forms that overlap with the period covered. This includes income tax returns reported to the IRS and quarterly company, as well as individual employee payroll and unemployment insurance tax returns. Payment receipts, canceled checks, or bank statements. These document the amount of all employer contributions to health insurance and pension provision that are included in the award amount.
For non-billable expenses, companies must submit the following documents:
Copy of the lender's amortization schedule and receipts or bank statements from the lender for mortgage payments. Copy of the current lease contract and receipts or canceled checks for rental payments or lease payments. Copies of invoices and receipts, canceled checks, or bank statements for payments to business entities.
After gathering the required documents, companies must submit their award form and documentation to their PPP lender. The lender can request additional documents that they must also provide.
It may take time for the SBA to approve the request for forgiveness. During this time, businesses must stay in touch with their PPP lender, who will notify the borrower when the SBA conducts a review of their loan and the decision made. Companies also have the option to appeal certain SBA loan review decisions.
Good luck to everyone trying to keep their company alive during this extraordinary time.