The year 2020 has brought with it its share of unforgettable events, top of which includes the COVID-19 pandemic that has led to massive economic uncertainties. Due to this, countries have had to cushion their economies, with new laws being established such as the CARES Act. The Coronavirus Aid Relief and Economic Security act is a relief package intended to shield businesses from financial turmoil and includes the PPP loan. Chances are if you operate a business in America, you know what the paycheck protection program is all about. But if you are still fumbling with this new term or simply need to update yourself on it, here is what it entails.
What Is the Paycheck Protection Program Loan?
The paycheck protection program or PPP loan refers to a loan established for businesses mainly to help them keep their workers on the payroll. The loan also helps businesses cater to other expenses such as rent and utilities.
How Do PPP Loans Work?
For you to get a paycheck protection program loan, you need only apply directly to the Small Business Administration (SBA) or through a lender. If you go for the second option, your lender will first verify information about your business, such as payroll filings and certifications. After this, your lender then calculates your loan amount and submits it to the SBA. The SBA then decides if your loan will be approved or not. Once approved, your PPP loans lender contacts you for the final loan signing and you receive your funds.
Features in Paycheck Protection Program Loans
- A loan of up to 2.5 times your covered monthly payroll costs.
- A PPP loan free of any charges or fees for your application.
- PPP loans are free of collateral or guarantees.
- No prepayment penalties.
- A fixed interest rate of 1%.
- Loan forgiveness which covers specific areas as outlined below.
Loan Forgiveness Policies
The new paycheck protection program loan forgiveness allows for an extended maturity date. This means that you get a longer repayment period for your loan if not funded, up to 5 years. Longer PPP loans repayment duration means that your business will have lower monthly payments. It, however, depends on the loan amount that you qualify for.
A covered period which lasts for 24 weeks. It means that to be eligible for loan forgiveness, you need to incur or pay your expenses within 24 weeks, beginning from the time of loan origination.
60-40 share of payroll and non-payroll expenses. The third loan forgiveness policy states that 60% of your costs should cover payroll areas such as cash compensation, employer contributions, health, retirements and owner compensation. The remaining 40% of non-payroll costs should cover aspects such as utilities, rent and mortgage interest.
Extended time to rehire full-time equivalent employees. The fourth policy takes into consideration businesses looking to take PPP loans forgiveness but have an inadequate workforce to show for it. So, rather than risk repaying your entire paycheck protection program, you have until December 31st, 2020 to restore your employees’ wage levels to qualify for the loan forgiveness.
Relief for businesses that remain closed during the year. Given the restrictions following COVID-19 orders, some businesses may not be able to get back to their pre-COVID-19 operation levels. If you fall under this category, you also qualify for loan forgiveness. The only thing you need is documentation to show that the pandemic led to your business’s closure.
Restrictions in PPP Loans
The advent of the paycheck protection program loan saw massive confusion for businesses, resulting in tighter restrictions for applicants. The current restrictions, therefore, state that your PPP loan application should be used for only payroll-related costs. Such costs exclude amounts above an annual salary of $100,000 or more for employees.
Who Qualifies for PPP Loans?
- Businesses already in operation by February 15, 2020.
- Small businesses, non-profits, a veteran, or tribal organization with fewer than 500 employees.
- If your business has also received an economic injury disaster loan but not used it for the stated purpose, you also qualify for this loan.
- Businesses in the accommodation and food service sector with less than 500 employees for each location.
- Self-employed personnel, sole and independent contractors.
How Businesses Can Manage PPP Funding
During this time of economic upheaval, it is key that you use your paycheck protection program wisely. To start with, manage your PPP loan by allocating it only for the right forgivable expenses. Separate your expenses based on the previously discussed forgivable requirements to ensure you get the most benefit of your loan. Doing so ensures that you do not have to repay large sums of money when you can get relief for your PPP loan application.
Second, get your documents in order. Whether you intend to get PPP loan forgiveness or not, proper documentation will ensure that you avoid the risk of your business getting into financial difficulty again. Proper record keeping will help you track all funding, allowing you to know what is working and what needs extra attention.
Plan, adjust and compare. Your PPP loan application is a necessary source of funds for your current setback. But what happens 1 year down the line? Your paycheck protection program loan may not last that long, meaning you have to plan how to get your next source of funds. Adjust your expenses based on what you can do without and what resources you need to bring on board to ensure you rise from your current financial turmoil. It is only in forecasting and planning that you will be able to maximize your PPP funding.
The LQD PPP Forgiveness Loans Processing Platform
The LQD PPP Forgiveness Platform is an end-to-end solution for managing and completing SBA PPP Forgiveness Applications. With LQD Business Finance’s already existing tech-stack and use of data integration and automation, PPP Forgiveness Applications can be monitored and completed quickly and efficiently
Our platform significantly reduces the time required to complete the application while also increasing accuracy and protecting against future audits using best of class data integration and automation. The LQD PPP Forgiveness Platform is a dynamic technology that:
- Collects all required data and documentation
- Performs all the required payroll, FTE, and expense calculations
- Performs an audit risk assessment with secondary QC verification
- Generates a completed application for the borrowers
- Provides a cloud-based backup folder containing all required data and verification documents
Offering both a free and premium option, the free option gives access to not only the application management service but also provides the borrower with an audit risk score, which is an indication of how likely the borrower will be to face audit and what steps the borrower can take to successfully prepare.
The premium service also comes with live technical support. Questions and technical issues are handled by a live agent who can provide remote desktop support if needed. Finally, our premium service is also the only solution that comes with free audit protection. Each Application undergoes a rigorous quality control process to ensure compliance, and LQD will defend any future SBA PPP audit on the company’s
SBA PPP loans can help keep your workforce employed, but it is equally important to understand your businesses’ role in the process. At LQD Business Finance, we will help you manage and process PPP forgiveness loan applications quickly and efficiently. Get started today by requesting a demo for your paycheck protection program.
- Small Business Relief