Nov 02, 2020 06:27 PM EST
The federal government made the PayCheck Protection Program or PPP loan for more than six months like a lifeline to small businesses amid the pandemic. According to Forbes, business owners used their loans to pay workers and cover essential costs.
One of those PPP loans might belong to you, even if you are an independent contractor or a tech startup CEO. There is the same question from loan recipients: What to do about PPP loan forgiveness?
PPP loans are forgivable if an entrepreneur uses them according to the program's guidelines. However, many small business owners are still struggling with how to apply for forgiveness. The advice from their lender or unclear government guidance doubted by the business owners and would end up costing them.
Within eight weeks of receiving the money, PPP loans should be used. Congress agreed to extend the covered period to 24 weeks, later in the year, through the PPP Flexibility Act. Besides, this act extended the first payment deferment on loan to ten months following the covered period.
Meaning, borrowers will have up to ten months to apply for loan forgiveness after using their loan without being required to make any payments on their loan. Therefore, all loan recipients can put off applying for forgiveness until Q1 of 2021. For the majority of borrowers, it will be even later into 2021. Using this period to decide how to proceed, there is no penalty, as per Forbes.
According to CNBC, the tax professionals advised small businesses who took a forgivable loan this year and their banks to slow down. The CARES Act established the Paycheck Protection Program, which also went into effect this spring.
According to data from the Small Business Administration, the last day a firm could have applied for a loan is between April 3 and August 8, wherein more than 5 million PPP loans were approved, with a total of $525 billion.
If applicants devote at least 60% of the proceeds to payroll expenses, they are eligible for PPP loan forgiveness. The SBA and Treasury Department signaled they're ready to start processing loan forgiveness this fall. The SBA rolled out a simplified application for businesses that received a $50,000 or less loan in October.
Even the banks that made the loans first send borrowers letters to encourage borrowers to apply to have balance wiped out or make plans to begin payment as early as next month.
One email to a borrower, obtained by CNBC, reads, "Thank you for trusting Florida Credit Union with your Small Business Administration (SBA) Paycheck Protection Program (PPP) loan."
It also says that a borrower's loan obligation is coming due with the first payment due date, 1/15/2020. The letter reminds the receiver to apply for loan forgiveness using their given link.
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