What to know when applying for a new PPP loan before March 31
Recent reviews have allowed more companies to participate in the federal Covid relief program, but there is some key information to keep clear.
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February 12, 2021
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Under the Coronavirus Aid, Relief and Economic Security Act (CARES), the Small Business Administration (SBA) allows businesses to apply for loans under the Paycheck Protection Program (PPP). Through the cancellation of PPP loans, these companies could see part of the loan proceeds used to cover eligible costs canceled in full.
While the PPP loan applications were closed in August 2020, some recent revisions in its provisions allow companies to apply for a new PPP loan. But applicants wishing to apply for the new loan must do so by March 31.
For existing loans, the program also allows borrowers to request a loan forgiveness. Over five million loans have been issued under the PPP. However, companies have been able to ask for forgiveness since August.
PPP loan cancellation
Borrowers can request a loan forgiveness after they have used all the loan products for which they are requesting a forgiveness. The SBA allows them to request a forgiveness anytime up to the loan maturity date. However, if borrowers do not avail themselves of it within 10 months of the last date of the period covered, loan repayments will not be deferred. They will have to start repaying their loans to their PPP lender.
Depending on the circumstances of the business, it may request a loan forgiveness using one of the three loan forgiveness requests. These circumstances include the type of business, the amount of the loan, and the downsizing, wages or salaries.
First, there is the Form 3508EZ, which is available to the self-employed with no employees or those who have kept their employees’ account, and wages and salaries at a specified level.
The second form is Form 3508S for loans of $ 50,000 or less. The 3508S form makes the process less complicated for eligible applicants and is designed for all businesses that do not qualify in the above categories.
- Maintain employee and compensation levels.
- The proceeds of the loan were spent on personnel costs and other eligible expenses.
- Spent at least 60% of proceeds on labor costs.
For the second draw PPP loan cancellation, they must also ensure that they have maintained similar employee and compensation levels to those required for the first draw PPP loan.
Loan forgiveness request
Companies should contact their PPP lender and fill out the correct form to get their PPP loan canceled. As mentioned, they can use any of the three forms to do this. They must also compile their documentation that accompanies the pardon request. These documents can relate to salary or non-salary expenses.
For salary expenses, the required documentation includes the following:
- Bank account statements or other reports from third party payroll service providers. These statements or reports must document the amount of cash compensation paid to employees.
- Tax forms straddling the period covered. These include payroll tax returns filed to the IRS and quarterly business and individual employee returns and unemployment insurance tax returns.
- Payment receipts, canceled checks or account statements. These will document the amount of any employer contributions to health insurance and employee pension plans included in the rebate amount.
For non-salary expenses, companies must provide the following documents:
- Copy of lender’s amortization schedule and lender’s receipts or account statements for commercial mortgage payments.
- Copy of current rental agreement and canceled receipts or checks for commercial rent or rental payments.
- Copies of invoices and receipts, canceled checks or account statements for utility payments.
After compiling the required documents, companies should submit their remittance form and documentation to their PPP lender. The lender may request additional documents, which he must also provide.
It may take a while for the SBA to approve the pardon request. During this time, businesses should stay in touch with their PPP lender, who notifies the borrower when the SBA reviews their loan and the decision they make. Companies also have the option of appealing certain SBA loan review decisions.
Good luck to all of you who are trying to keep their business afloat during these extraordinary times.