When Should I Pay Back My PPP Loan?
Another day, another change to the Paycheck Protection Program rules. On June 22nd, the Small Business Administration released the Interim Final Rules which are meant to clarify and make official some of the guidance that has recently been released. These changes include the 24-week extension to use PPP funds, the 60% payroll minimum, and employee reduction exception for those who do not restore workforce levels to pre-pandemic numbers. So now that you've gotten your PPP money, maybe even used it all up already, now what? Do you wait it out until the 24-week period ends or should you submit your application for forgiveness now? There are a few points to consider, so let’s take a deeper dive.
1| Make Sure You Meet Your Deadlines
Under new guidance, PPP Forgiveness applications can now be submitted as soon as the money is spent, you don’t have to wait the full 24 weeks. Note that under the new Interim Final Rule if a borrower reduced an employee’s wage by more than 25%, they must account for that salary reduction for the full 8-week or 24-week period, not just the time before the application is submitted. Additionally, borrowers must apply for forgiveness within ten months after the last day of the covered period to defer the loan and avoid making any payments. The key here is that you must have spent all of the loan proceeds for which you are requesting forgiveness. So, if you meet these criteria, we say go ahead and submit your EZ Forgiveness Application as soon as possible.
2| PPP Loans Are Not Completely Tax Free
There’s no doubt that PPP loans have been instrumental in keeping many businesses afloat during these tough times. But like your dad warned you, there’s no such thing as a free lunch. Although the forgiveness itself is not taxable, you also aren’t able to claim any expenses you haven't paid for - which means you cannot write off any expenses that you used PPP funds to cover. This is a fancy way of saying the loan isn’t tax free. While this point shouldn’t have much of an effect on when you submit your forgiveness application, it’s certainly something to keep in mind when looking at your books.
3| Paying Your Loan Sooner Can Save You Money
Like many other loans, the PPP doesn’t charge prepayment penalties and paying down your principal as soon as possible will prevent too much interest from accruing on the original full principal amount. And if you haven’t applied for a PPP loan yet, but want to jump on the bandwagon before it’s too late, the new deadline for applications is August 8, 2020.
Now that most businesses have re-opened their doors, it’s time for those business owners to return to normal without worrying about following strict and constantly changing PPP rules. Bottom line - if you’ve spent all of your PPP funds, go ahead and get your EZ Forgiveness Application completed as soon as possible. Here’s a link straight to the application so you can get started on that. And as always, give us a shout if you have any questions or need assistance.
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