Do you have a PPP loan? Here’s why you won’t be eligible for Full Forgiveness

The concept of financial aid for small businesses is not new, but during the COVID-19 crisis the need for help has been much greater than usual. With an economy stuck in a recession and pandemic-related shutdowns hurting local establishments from left to right, it was clear to lawmakers that small businesses would need substantial help to get through 2020 without running the risk of having to. close permanently.

This help came in the form of the Paycheck Protection Program, or PPP. Under the PPP, companies with up to 500 employees could benefit from a loan equal to two and a half times their monthly wage costs. The best part? PPP loans are fully repayable provided at least 60% of their proceeds are used for payroll costs.

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If you’ve taken out a P3 loan, you may be anxious to get that debt canceled. But here’s why you may have to settle for a partial loan forgiveness.

You can only get free help

PPP loans were not the only type of relief offered to small businesses during the pandemic. Economic disaster loans were also an option, and although they were not forgivable like PPP loans, they offered companies the option of obtaining a grant equal to $ 1,000 per employee for a total of 10 employees. , or $ 10,000. The EIDL grants have been made in the form of advances on their associated loans, and they do not need to be repaid. But if you received an EIDL grant as well as a PPP loan, be aware that your PPP loan forgiveness will be reduced by the amount of your grant. And this is something you may need to plan for.

Of course, even if you are required to repay part of your PPP loan, you will be subject to extremely favorable borrowing terms. PPP loans have an interest rate of 1% and loans issued before June 5 have a two-year repayment period. Those issued after June 5 have a five-year repayment period.

When should I request the cancellation of my PPP loan?

The Small Business Administration (SBA) already allows recipients of PPP loans to request forgiveness. But you might want to wait. The rules surrounding forgiveness have evolved since the start of the program (example: the percentage of loan proceeds to be spent on payroll has already increased from 75% to 60% for forgiveness purposes since the program was launched), so if you sit tight, you may get more precision on what expenses are considered forgivable.

There have also been rumors that the SBA will automatically cancel PPP loans that fall below a certain monetary threshold. It’s unclear what that threshold will entail, but if your loan was under $ 20,000, for example, you might not have to fill out any paperwork to be forgiven. Therefore, you may want to sit back and wait for more information and advice before going through the stages of canceling your loan.