PPP Loan Forgiveness: Everything You Need to Know

When the Coronavirus Aid, Relief, and Economic Security (CARES) Act was passed in March of 2020, one of the provisions of it included the Paycheck Protection Program (PPP). Part of the $2 trillion relief plan outlined a way for small businesses to make payroll and overhead costs during their loss of revenue during the shutdown. Here’s everything you need to know:

What is a Small Business?

Odds are you part of one. More than 99% of all the firms in the US are small businesses—an organization that employs less than 500 people. 

How Much Can I Receive?

The PPP will offer low-interest, forgivable loans for up to 2.5 times the average monthly payroll. This number is determined by the average of the payroll that was run for one year before the start of the loan. 

Who Can Apply?

Any small business (fewer than 500 employees) is eligible to apply. This also extends to nonprofit organizations, self-employed people (writers, lawyers, tax professionals, etc), and veteran organizations. 

The most an organization can receive is $10 Million. All applications will need to have filed before the deadline on June 30, 2020. 

Did You Say Forgivable?

Yes, I did. That means that the loan you are getting might not need to be paid back. If the money you receive is used in a specific way, then the loan can be forgiven. Here’s how you will need to spend the loan money for that to happen:

  1. Maintain your employee’s payroll for 8 weeks after the loan is issued. 
  2. 75% of your loan needs to be allocated towards payroll.
  3. The other 25% can be used for overhead: mortgage, rent, utilities, etc. 
  4. You may use the money for sick leave and health benefits for your employees.
  5. You need to maintain your staff and pay for them for 8 weeks following receipt of your loan.

Lowering Your Employees’ Salary

I mentioned before that you’d need to maintain your salary, but there is an exception to this. Should their wages be lowered from the period of February 15, 2020 – April 26, 2020, but their salary is fully restored by June 30, 2020, then the loan can also be forgiven. 

Still, 75% of the loan would have to go towards salary. 

Scenarios and Examples

Let’s look at some actual numbers with the fictitious company, Widgets Inc. 

  • Number of Employees: 10
  • Number of employees laid off: 0
  • Amount of loan received: $100,000
  • Amount spent on payroll: $75,000
  • Amount spent on Mortgage, rent, etc: $25,000

Using these easy numbers, Widgets Inc. spent 75% of the loan on payroll, 25% on other expenses, and they kept all their employees on the payroll. Their loan would be forgiven.

Let’s use the same company and see how these numbers play out when an employer doesn’t meet the guidelines:

  • Number of employees: 10
  • Number of employee laid off: 4
  • Percentage of staff reduction: 40%
  • Percentage of staff kept: 60% (this will be used to determine how much of the loan will 
  • be forgivable).
  • Calculations: 60% (from above) of $100,000 (loan amount) is $60,000.
  • $100,000 (loan amount) – $60,000 (forgivable amount) = $40,000
  • Loan Amount to be Repaid: $40,000

How do I Apply?

You can download the application through your PayWow account. 

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