Know PPP Loan Forgiveness Rules to Save Money

Know PPP Loan Forgiveness Rules to Save Money

The Paycheck Protection Program announced by the Small Business Administration (“SBA”) in last April is by far one of the most popular programs among those designed to help small and mid-size businesses. It is due to the fact that loan forgiveness rules provide a substantial relief to small business owners. As it approaches the final period of its implementation, on the last Monday of June the SBA reported that 4.7 million business loans had been approved in a total amount of 515 billion dollars. Many Korean business owners including many beauty supplies have received the loan with which they are funding the business operation. Some businesses already used up the fund, and they are looking for a way to have the loan forgiven.

Those businesses who have accepted the PPP loans must be aware of the loan forgiveness rules to minimize the amount of repayment. In early June, the U.S. House of Representatives passed a bill to make it easier to qualify for loan forgiveness. The changes were made based on the public sentiment that the old rules did not reflect the reality surrounding this unprecedented time. All business owners who have accepted PPP loan money are subject to the new loan forgiveness rules. What are the major changes in the loan forgiveness rules?

The expenditure deadline for the fund has been extended.
This is a good news for business owners who send out paychecks bi-monthly or bi-weekly. The new rules extend the eight-week period to 24 weeks in which the loan money should be spent for payroll. PPP borrowers can spend the money for employee wages in anytime within 24 weeks from the time they received the funds. This relieves many borrowers from the burden to meet the payroll expenditure requirement within 8 weeks.

The payroll expenditure requirement is also reduced.
The requirement to use 75% of the loan for payroll has been reduced to 60%. Consequently, PPP borrowers can use the money more flexibility in business operations. In other words, even if the business owners spend 40% of the loan money to pay the rent, mortgage interest, or utilities, the entire amount of the loan can be forgiven.

The workforce restoration deadline for the full forgiveness is extended to the year end.
The SBA will allow business owners who terminated employees during COVID-19 crisis to rehire them by December 31st instead of June 30th. If business owners rehire former employees by the year end or hire other people in the same number, they will meet the loan forgiveness requirement. In any case, however, the 75% of the total salary must be maintained. If the total salary is less than 75% of the pre-Pandemic level, the forgiveness may not be full.

You have more time to repay the remaining balance of the loan.
Even if you do not qualify for the full forgiveness, you can repay the balance within 5 years. This adds three more years to the previous two years. The interest rate is 1% fixed, and it will start accruing from the day the loan was made. There are other helpful tips for business owners.

SBA will acknowledge special circumstances.
If an employer cannot rehire due to certain exceptional circumstances, the PPP loan may be fully forgiven. The exceptional circumstances are as follows:

1) if certain employees turned down good faith offers, then those employees do not count for the workforce restoration.
* To prove it, you should make the offer in writing and at the same hours and wages as before the pandemic. The turning down of the offer must be documented with the employees’ signature. (The employee who turned down the offer will not qualify for unemployment benefit.)

2) if it was a termination for cause, that also constitutes an exception. If an employee was fired for cause, then you can prove the cause to the SBA for full forgiveness.

3) if the employee voluntarily quit the job or reduced the work hours, that can be also an exceptional case.

You must prepare for an imminent audit.
As soon as the loan money is all out, they will start audit the expenditure soon. Any business existed before the coronavirus pandemic may apply for the PPP, so most businesses should be easily meet the eligibility for the loan. However, you must track the expenditure thoroughly. You need to prove that your spending was made on the payroll, rents, utilities, and mortgage interest.

The SBA will notify the lending institution in writing before the audit. The SBA will receive the documentation from the bank or other types of lenders and determine how much loan should be forgiven, and if necessary, the SBA may contact you directly. If they decide you do not qualify for the full or partial forgiveness, your forgiveness application will be denied in full or partially. Of course, the borrower may appeal.

In this process, if any attempt from a borrower to intentionally deceive the SBA is discovered, the borrower may be subject to imprisonment up to 5 years or fines up to $250,000. And for 6 years from the forgiveness decision is made, the SBA may re-audit the case at its discretion.

Advice from professionals for business owners who received both EIDL and PPP loans.
The business owners who received both EIDL and PPP loans should wisely decide where to spend the money to avoid any penalties. The SBA and the Treasury prohibit the expenditure of two funds for the same item. For example, if $10,000 of PPP loans was spent in payroll, the EIDL cannot be used for the same amount. If both loans should be spent on the payroll, professionals recommend you spend all PPP funds and then EIDL. You should distinguish the expenditures appropriately, so you can avoid any penalties.


BNB Magazine AUG 2020 ©