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Information Regarding the Payroll Protection Program for Small Businesses

With so many businesses dealing with hardships, the government has issued loan relief as part of the CARES Act of 2020. The Payroll Protection Program (PPP) was designed to provide relief to small businesses with the money they need to keep paying their employees during this time. Here is some information regarding the loan. Before you apply, make sure you speak to your trusted financial advisor. Since there is so many stipulations about how and when you can spend the money and get debt forgiveness, you need to get financial counsel. 

What is The Payroll Protection Program? 

Currently, the PPP has authorized up to $349 billion dollars in forgivable debts for small business owners and their employees. The loan can be used to make rent or mortgage interest payments, cover utilities, and pay employees. As long as a business only spends the proceeds on the aforementioned expenditures, the debt can be forgivable. 

However, there are some stipulations to the debt forgiveness loan. For one, you must spend the amount borrowed in 8 weeks from the date the loan was made. 

Who Qualifies For the Loan?

Any business that has 500 or fewer employees might be eligible for the loan. This includes businesses that are sole proprietors, C and S corporations, LLCs, self-employed, and non-profits. 

How do I Apply For the PPP? 

Loan applications for sole proprietors and small businesses opened on April 3, 2020. Those that are independent contractors or self-employed can apply starting April 10, 2020. You’ll be able to apply at any Small Business Association lender that is listed on the SBA website.  

How do I Calculate The Loan Amount I Need to Apply For? 

Understanding the loan amount your company is entitled to can be confusing. It’s important that you work with your financial advisor to come up with this amount. You’ll have to average your monthly payroll expenses over the previous 12 months and then multiply it by 2.5. 

What Documents Will I Need to Submit? 

The lender will ask you for payroll documentation on all employees that qualify. Payroll includes hourly wages, salaries, commissions, or tips. It’s important to note that this is capped at $100,000 per year per employee. Also, payroll costs include benefits for the employees, state and local taxes. This is where it gets confusing to business owners to average out their payroll costs for the previous year. There is also some discrepency about which 12 month period you need to calculate. 

How Big Can The Loan Be? 

You can apply for two months of the average cost of your payroll plus 25% to use toward rent, mortgage interest, and utilities. The amount you request must be used for approved purchases in 8 weeks, or you will owe the loan amount with interest back to the bank. However, there is possibly a $10 million dollar cap for any business. 

How Much Will Be Forgiven? 

As long as you keep all of your current staff employed and use the monies appropriately, the debt can be forgiven in full. However, if you misuse the funds or cannot prove use, you’ll have to pay it back in 2 years. 

This is some of the information you need to know about this small business loan and how to apply. It’s important that you work with your financial advisor to take out the loan at the time that is right for your company. 

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