The Paycheck Protection Program is a product of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The loan was originally valued at $350-billion and aimed at offering small businesses with cash flow assistance for eight weeks. These loans are backed by the Small Business Administration (SBA).
In April, the program was extended to become the Paycheck Protection Program and Health Care Enhancement Act, following the addition of $310 billion. In the latest changes, the Paycheck Protection Program Flexibility Act introduced changes by allowing more time to spend the borrowed money. Besides, the new changes make it easier to have the loan forgiven.
The loan, which is available to small businesses, matures in two years and attracts an interest rate of 1%. Businesses that apply for forgiveness are exempted from loan repayment until their application is determined. The Paycheck Protection Program loans do not require collateral or guarantee, and there are no fees charged. The loan is offered to businesses to cover expenses for 24 months from the date of loan application.
Qualifying for Paycheck Protection Program loans
Compared to SBA disaster loans, Paycheck Protection Program loans are extensive. These loans are available to:-
- Small businesses
- Sole proprietorships
- Independent contractors
- Self-employed individuals
To apply, sole proprietors need to submit a Schedule C from their tax return filed. The forms should show the sole proprietor’s net profit. Independent contractors need to submit Form 1099-MISC and their Schedule C. Finally, those who are self-employed need to submit their payroll tax filings.
One requirement with the PPP loans is that 60% of the money should be used to fund the payroll and employee benefits activities. The remaining can be divided between payment of mortgage interest, rent and leases, and utilities.
Recipients must closely manage the loan forgiveness process
Small business owners need to close manage the loan and the application process by ensuring all documentation is done right. This increases the chances of loan forgiveness. To qualify for loan forgiveness, businesses must apply within 10 months of the end of their covered period. Businesses should carefully study loan forgiveness applications to avoid additional costs.