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The Paycheck Protection Program – Are You Eligible for a Forgivable PPP Loan?

The PPP has just made available funds to businesses and entrepreneurs. If you're like me and run a small business, you may wonder if you qualify for a forgiveable loan. Let's go through the PPP qualifications.

There are now $284 billion dollars available to businesses and the application deadline expires March 31st, 2021. Let's get into it.

Download the cheat sheet here.

Steps to Apply for the PPP

Apply for the PPP

Step 1: Determine Your Eligibility

You can still receive both rounds of PPP as the first round funds have also been opened up as more businesses returned the funds.

First Round PPP loans

If the following statements apply to your business, you are eligible to apply for your first PPP loan in 2021.

  • Your business was operational before February 15, 2020
  • Your business is still open and operational
  • You have no more than 500 employees

Second Round PPP loans

If the following statements apply to your business, you are eligible to apply for your second PPP loan in 2021.

  • You have used up your first PPP loan
  • Your business was operational before February 15, 2020
  • Your business is still open and operational
  • You have no more than 300 employees
  • You can show a 25% or greater reduction in gross revenue

Step 2: Gather Your Business Docs

What docs do you need to get a PPP loan?

All businesses should provide the following:

  • Government Issue ID (front and back)
  • Organizational Docs like Articles of Incorporations or DBA
  • 2019 IRS Form W-3
  • 2019 IRA Form 940

If you have employees outside the USA, then provide W-2's for employees living abroad. If you have employees making over $100,000, then provide W-2's for employees making over $100,000.

If you have NOT completed a 1040 Schedule C for 2019 or 2020, then fill it out and compute the value for line 31. If line 31 on Schedule C is less than $2,400 then your business is not eligible for a PPP loan.

Step 3: Select Lender and Apply for PPP Loan

Once you have the information, then it's time to apply for a PPP loan. You can take the docs to your bank or you can apply online through our partner, Fundera.

Click Here to Apply with Fundera

After you click the link, you'll fill in your name and email and phone number. Then, add your business opening date along with your annual revenue. Before you submit, they'll ask you for a estimated credit score and select yes or no if you have already received PPP for 2020.

Step 4: Receive Funding

Once your loan hits your bank account, you’ll need to spend all of your proceeds during the “covered period” (again, as of right now, that period is the eight weeks after loan disbursement) to receive forgiveness.

There are a few ways that you can reduce your total PPP loan forgiveness. Forgiveness is not binary—you can reduce your forgiveness dollar by dollar depending on how you spend your funds and whether you maintain your payroll (by salary or by headcount).

Regardless of whether or not you plan to apply for full or partial loan forgiveness, you’ll want to track the following things during your covered period. Doing this will help you understand how much money the SBA will convert into a grant, and how much you’ll need to repay over the next two years.

Track All PPP-Related Expenses

Using your payroll provider, accounting software, and/or your own tracking tools and techniques, record every financial transaction that you make using PPP funding—even if it isn’t a forgivable expense, such as paying off credit card debt. You’ll want to note:

  • The expense amount
  • The vendor or to whom you made the payment
  • The category of the expense
  • The date of the transaction
  • The purpose of the transaction

Keep official records of each of these transactions as well, whether it’s a payroll stub or a receipt. Put “PPP” in the memo of checks when possible.

Document Your Payroll

Maintaining payroll is the intended purpose of the entire PPP program. The government would like to see small businesses keep workers employed—both because it will be easier and less expensive for a business to lay off and then rehire employees down the road, and because it keeps workers off of unemployment rolls.

You may or may not agree that maintaining, or rehiring, your staff is the right move for you at this exact moment. Many businesses applied for PPP funding right away due to the program’s “first-come, first-served” nature with a limited pool of funds, and not every business that was approved for a loan was ready to start using it to rehire or pay staff within eight weeks. In some cities, restrictions will remain in place into June and beyond.

That being said, keeping track of the number of full-time equivalent employees (FTEEs) and their wages is a crucial part of calculating your loan forgiveness. Even if you only maintain half of your staff, or a small portion of it, you will still be eligible for partial forgiveness. Of course, if you maintain your staff throughout the covered period (as well as meet other requirements), your loan will convert to a grant.

If not, you’ll deal with repayment after you’ve used all of your loan funds and/or the covered period ends.

Step 5: Pay Payroll, Rent and Utilities

Now, this is not the time to pay off credit card bills or any debt using the PPP funds. This is not the time to buy a Lamborghini using the PPP or start trading stocks.

The loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
  • Employee and compensation levels are maintained. Payroll costs are capped at $100,000 on an annualized basis for each employee.
  • Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
  • Loan payments will be deferred for 6 months.

When can I apply?

  • Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Step 6: Apply for Loan Forgiveness

1. Contact your PPP Lender and complete the correct form:

Your Lender can provide you with either the SBA Form 3508, SBA Form 3508EZ, SBA Form 3508S, or a Lender equivalent.

The 3508EZ and the 3508S are shortened versions of the application for borrowers who meet specific requirements. Your Lender can provide further guidance on how to submit the application.

2. Compile your documentation:

Payroll (provide documentation for all payroll periods that overlapped with the Covered Period or the Alternative Payroll Covered Period):

  • Bank account statements or third-party payroll service provider reports documenting the amount of cash compensation paid to employees
  • Tax forms (or equivalent third-party payroll service provider reports) for the periods that overlap with the Covered Period or the Alternative Payroll Covered Period:
    • Payroll tax filings reported, or that will be reported, to the IRS (typically, Form 941); and
    • State quarterly business and individual employee wage reporting and unemployment insurance tax filings reported, or that will be reported, to the relevant state
  • Payment receipts, cancelled checks, or account statements documenting the amount of any employer contributions to employee health insurance and retirement plans that the borrower included in the forgiveness amount

Step 7: Repay Remainder

Pay off the remainder of the loan.

PPP Disqualifiers

If any of the following statements apply to your business, you are not eligible for any PPP loan.

  • You were not in operation on or before February 15, 2020
  • You only employ household employees such as nannies or housekeepers (this is not considered a business)
  • An owner of 20% or more of the business is incarcerated, on probation or parole, or has been convicted of a felony within the last year
  • You, or any business owned or controlled by you or any of your owners, is delinquent or has defaulted on a loan from the SBA or any other Federal agency within the last seven years
  • You or your business is bankrupt or is currently in bankruptcy proceedings
  • You are an officer or key employee of the lender you are applying with, or a close relative of one (you may only apply for the PPP with an unaffiliated lender)
  • Your business is a hedge fund or private equity firm
  • You do business in an industry that is generally not eligible for SBA 7(a) loans, such as speculation or multi-sales distribution

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