What Are the New Rules for PPP Loan Forgiveness?

If you’re one of the many small business owners who have taken out a PPP loan , you’re probably wondering what the new rules are for loan forgiveness. Thankfully, the SBA has released some guidance on the matter. Here’s what you need to know.

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PPP Loan Forgiveness

The Paycheck Protection Program (PPP) loan forgiveness process has changed. The new rules say that you must use at least 60% of your PPP loan for payroll costs in order to qualify for loan forgiveness. The remaining 40% can be used for other eligible expenses, such as rent, utilities, and mortgage interest.

What are the new rules?

The Small Business Administration (SBA) released new rules for the Paycheck Protection Program (PPP) loan forgiveness process on October 8, 2020. The new rules provide more flexibility for borrowers to use the PPP loan proceeds and still receive forgiveness.

The key changes to the PPP loan forgiveness process are:

-Borrowers have up to 24 weeks (previously eight weeks) to spend the PPP loan proceeds and still receive full forgiveness.
-Borrowers are no longer required to spend at least 60% of the PPP loan proceeds on payroll costs to receive partial forgiveness. Borrowers now only need to spend 60% of the total loan amount on eligible expenses (payroll costs, rent, utilities, mortgage interest) to receive partial forgiveness.
-The new rules also extend the deadline for rehiring employees or restoring salaries from June 30, 2020, to December 31, 2020.

What are the conditions for loan forgiveness?

The SBA released new interim forgiveness rules on June 16, 2020. Borrowers can now apply for forgiveness of their PPP loans after the end of their covered period (either 8 or 24 weeks). The new rules also give borrowers more flexibility in how they spend their PPP loan funds.

To be eligible for loan forgiveness, borrowers must use at least 60% of their PPP loan funds on eligible payroll costs during their covered period. Eligible payroll costs include salary, wages, tips, leave pay, health insurance premiums, and retirement contributions. The remaining 40% of the loan may be used on eligible non-payroll costs, such as mortgage interest payments, rent payments, and utility payments.

Borrowers who do not use at least 60% of their PPP loan on payroll costs will have their loan forgiveness reduced accordingly. For example, if a borrower only spends 50% of their loan on payroll costs, they will only be eligible for 50% loan forgiveness.

Borrowers who return some or all of their PPP loan funds before the end of their covered period will not be eligible for loan forgiveness.

What are the exceptions to loan forgiveness?

The SBA’s new interim final rule on PPP loan forgiveness comes with some significant changes, one of which is a reduction in the amount of loan forgiveness for borrowers who don’t restore their workforce to pre-pandemic levels.

Specifically, the rule says that borrowers will have their loan forgiveness reduced by the same percentage that they cuts their employees’ wages by during the covered period. For example, if a borrower cuts an employee’s wages by 25 percent, then 25 percent of that employee’s salary will be subtracted from the loan forgivenes

There are a few exceptions to this rule. Borrowers won’t have their loan forgiveness reduced if they can demonstrate that they couldn’t find qualified employees or couldn’t restore business activity to previous levels because of COVID-19-related health and safety guidelines.

The rule also includes a “safe harbor” provision that says borrowers won’t have their loan forgiveness reduced if they restores workforce levels and wages by December 31, 2020.

How to Apply for PPP Loan Forgiveness

What is the application process?

The PPP loan forgiveness process will be completed in two steps:

1. First, you’ll need to submit a loan forgiveness application to your lender. This application will include information on how you’ve used the loan funds, as well as supporting documentation.

2. Once your lender receives your application, they’ll have 90 days to review it and make a decision on forgiveness. If you’re approved, they’ll send the forgiveness amount to the SBA. If you’re not approved, you’ll have to begin making loan repayments.

What documentation is required?

In order to apply for forgiveness of your PPP loan, you must submit documentation to your lender that includes:

-An explanation of how the proceeds from the loan were used
-Proof of payment for eligible payroll costs, eligible non-payroll costs, and any other required expenses
-Documentation supporting your employee headcount, wages, and salary levels
-A signed certification from a representative of your business that attests to the accuracy of the documentation and certifies that the loan was used in accordance with PPP requirements

This documentation must be submitted to your lender no later than 10 months after the end of your covered period.

What is the deadline for applying for loan forgiveness?

The deadline to apply for PPP loan forgiveness is fast approaching. The SBA will begin accepting applications for loan forgiveness on August 10, 2020. This means that you only have a few weeks left to get your application in.

The SBA recently released an updated version of its loan forgiveness application, which includes a number of new rules and clarifications. Here are the most important things you need to know:

– You must apply for loan forgiveness within 10 months of the end of your covered period.
– You must use at least 60% of your loan funds for payroll expenses in order to qualify for full forgiveness.
– If you do not use at least 60% of your loan funds for payroll expenses, you may still be eligible for partial loan forgiveness.
– You must submit documentation verifying your payroll and other eligible expenses.
– The SBA will review your application and make a decision within 90 days.

If you have any questions about the new rules for PPP loan forgiveness, or if you need help preparing your application, please contact us today. We are here to help you navigate this process and ensure that you get the maximum amount of loan forgiveness possible.

What Happens if You Don’t Qualify for Loan Forgiveness

The Paycheck Protection Program loan forgiveness rules have changed. If you don’t qualify for loan forgiveness, you will still be required to make full payments on your loan. However, you may be able to negotiate a payment plan with your lender.

What are the consequences?

Currently, if you do not qualify for loan forgiveness, you will have to repay the entire loan amount plus any interest that has accrued.

If you are unable to repay the loan, you may be subject to collections actions by the SBA. This could include offsetting any future tax refunds due to you by the amount of your unpaid loan balance, as well as wage garnishment and seizure of other assets.

What are your options?

If you don’t qualify for loan forgiveness, you have a few options. You can:
– negotiate with your lender to extend the loan term or lower the interest rate
– sell the business or assets used to secure the loan
– declare bankruptcy
– walk away from the business

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