4 steps to get your PPP loan canceled
For small businesses affected by the coronavirus epidemic, the Paycheque Protection Program has been a source of both hope and frustration over the past few weeks.
Difficult deployment, unclear guidelines, unprecedented demand and an application bottleneck cluttering up a obsolete system led many business owners not to qualify for a loan during the first round of financing via the CARES law. The mad rush for PPP loans was arguably based on the fact that these low interest loans are also forgivable. Right now, every business owner in America would gladly accept free money to help keep their business afloat.
Now that some business owners are receiving loans and hopefully millions more will follow soon, it is time to turn your attention to the details of the loan cancellation.
The terms of an unsatisfied PPP loan are always generous – 1% interest, repaid over two years, with no other borrowers or prepayment fees. But why pay more than necessary? Follow these four steps to secure the cancellation of the PPP loan.
1. Examine the uses of the loan that will be canceled.
Remember: Lenders will cancel your P3 loan if you spend 100% of the funds on salaries, mortgage interest, rent, and utilities within eight weeks of receiving the loan. You must spend at least 75 percent specifically on payroll. The remaining 25 percent can be split between rent, utilities, and mortgage interest (if applicable).
You can also use your loan to cover existing debts, such as credit card payments, but you will not receive a loan discount on these costs.
The idea is that this loan will keep your employed workers and your lights on for the next two months after receiving the funds.
2. Understand how your loan cancellation can be reduced.
The cancellation of PPP loans is not binary. It can be reduced to varying degrees, depending on how you spend your loan. There are two main actions that will reduce your loan forgiveness:
Using more than 25% of your loan on a non-salary charge: In this case, your maximum cashback amount will be equal to the salary charge divided by 0.75.
Downsizing or “material” salary: to maintain a 100% pardon, you will either have to keep your payroll as it was before February 15, 2020, or rehire and cancel the pay cuts by the end of the “period covered” of the PPP. June 30. The total amount remitted will be reduced in proportion to the reduction in headcount, or reduced by the total amount of reduced salary if you reduce an employee’s salary by more than 25%.
If you’ve laid off employees or reduced their wages and then received a P3 loan, it’s time to rehire them or get their wages back. Every dollar you don’t spend on doing so is a dollar you have to pay back, plus interest.
3. Document all of your loan expenses.
A lender won’t just take your word for it if you tell them you’ve spent your loan proceeds appropriately. From the moment your loan arrives in your bank account, you will need to be diligent in how you appropriate your funds and document all the expenses you make with them.
When it’s time to request a loan forgiveness, bring the following documents with you to the table, assuming you’ve spent your loan proceeds across all eligible categories:
Documents verifying the number of full-time equivalent employees on the payroll and their salary / wages for the period you used the loan to pay them. These can include payroll reports from a payroll provider, income tax returns, income tax / salary / UI returns from your state, and documents that verify retirement and pension contributions. Health Insurance.
Documents showing mortgage interest, rent and utility payments. These could be canceled checks, payment receipts or account statements.
Sole proprietors and other self-employed people can use the loan proceeds to replace lost income (up to $ 100,000 annualized), but if you do this, the rest of your loan must be used on non-wage costs in order to benefit from a full discount.
4. Follow the specific guidelines of your lender.
Finally, keep in mind that although the SBA oversees this program and gives final loan approval, your P3 loan goes through your lender. This lender may request additional documents or you may use certain channels to request loan forgiveness. There is no “one size fits all” set of guidelines here, other than your lender must give you a response to your loan cancellation request within 60 days of receiving it.
Therefore, make sure you fully understand your lender’s loan forgiveness rules when you take out your loan and check with them throughout the forgiveness process. During this pandemic, every dollar counts, so don’t let a simple mistake or misunderstanding stand in the way of total loan cancellation when the time comes.