(PLEASE NOTE: PPP Loan info changes regularly. For the most up to date info, please visit the SBA website.)
The Paycheck Protection Program is designed to keep workers on the payroll. Small businesses can apply for the PPP loans and must spend it on the payroll and eligible operating expenses only. The period for which you can spend the PPP loan is called the covered period or PPP Loan Covered period.
The PPP has seen several updates since it was launched last year. The SBA has announced a third phase of funding through the PPP loans. The deadline for PPP loan applications is May 31, 2021.
PPP Loan Forgiveness
If you have spent the PPP loan amount on the payroll and eligible operating expenses, you can apply for the forgiveness of that loan amount. You'll need to meet certain requirements to qualify for loan forgiveness.
Some key points to note with PPP loan forgiveness eligibility are:
PPP loan must be spent on Payroll expenses, at least 60% of the total amount.
You can spend no more than 40% of the PPP loan on operating expenses such as Rent, Utilities, mortgage interest, and employer contribution plans.
You must spend the PPP loan amount during the covered period.
Your small business must provide the necessary documentation to back the claims for PPP loan forgiveness. One of the important aspects of PPP loan forgiveness is to choose the covered period correctly.
How to Choose the PPP Loan Forgiveness Period?
Once you have spent all the PPP loan amount, you can apply for loan forgiveness. You can immediately apply for loan forgiveness with your lender with the required documents. However, all of your loan amounts must be spent within the covered period.
The PPP loan covered period is the timeframe from the day you received funds and the last day you can spend the loan amount on eligible expenses. You must spend the PPP loan amount within this period to be eligible for loan forgiveness.
The Loan covered period options are:
8 weeks: The minimum covered period can be 8 weeks or 56 days. Borrowers who have received loans before June 2020 have the option of choosing between the 8 or 24 weeks covered period.
24 Weeks: The maximum covered period can be 24 weeks or 168 days. The borrowers receiving funds after June 2020 have a 24 weeks covered period.
You can also choose a covered period anywhere between 8 and 24 weeks.
Once you have chosen the covered period, you’ll need to spend the loan amount on eligible expenses within the period. Your loan repayment will be deferred for 10 months from the last day of the covered period. If you do not receive any loan forgiveness, you’ll need to make the repayments at 1% interest including the grace period time.
The PPP loan repayment term for loans sanctioned before June 2020 is two years and five years for loans sanctioned after June 2020.
Alternative Payroll Covered Period
If your small business follows a weekly or biweekly payroll schedule, you can choose an alternative payroll covered period. Your PPP loan covered period will start on the first payroll day after you have received the loan amount.
How Much Loan Forgiveness Can You Apply For?
You can apply for the loan amount forgiveness that you have spent within the covered period. Any loan amount spent after the covered period does not include in the forgiveness amount. If you can back your claims with necessary documents, you can apply for a full loan amount forgiveness as well.
Once you apply for loan forgiveness, your lender will decide within 60 days on your application. Your lender will assess and decide on the forgiveness amount. It can be forgiven in full, partial, or none. You can appeal with the SBA if you are not satisfied with your lender’s decision.
What if you Don’t apply for Loan Forgiveness?
Any loan amount spent on non-eligible expenses or spent on eligible expenses out of the covered period cannot be calculated towards the loan forgiveness. Similarly, if you do not apply for loan forgiveness, you’ll need to make the repayments with 1% interest to your lender. The loan repayment term for PPP loans sanctioned after June 2020 is five years.