For many small business owners in North Carolina and the rest of the country, Pandemic Protection Program loans have been a source of emergency funds. About 4.9 million loans have been made as part of the $2 trillion CARES Act. And loan forgiveness could also play a part in your emergency relief.
In a press release issued in July, Small Business Administration (SBA) Administrator Jovita Carranza said, “PPP is keeping employees on payroll and sustaining millions of small businesses.”
Under the CARES Act, businesses may convert these loans into grants as long as they meet certain requirements. Before you apply for loan forgiveness, make sure you qualify and have everything you need. Here’s a checklist.
1. Verify Your Eligible Expenses
Business owners need to meet a few requirements in order for their loans to be forgiven. These funds must be spent within 24 weeks of receiving the loan.
Only the following expenditures are eligible for loan forgiveness:
- Payroll costs, which must account for 60% of your PPP loan expenditures. Benefits may be included in this calculation.
- Interest on mortgage obligations originating before Feb. 15, 2020.
- The following utilities: transportation costs, sewer, electricity, water, gas, mobile or landline phone service, and internet.
- Rent on lease agreements activated before Feb. 15, 2020.
One important note is that payroll costs must account for 60% of your PPP loan expenditures.
2. Troubleshoot Potential Loan Forgiveness Issues
If you’ve used the loan for anything other than the aforementioned items, you’ll owe your lender for those costs. You may also fail to qualify if you’ve decreased the number of full-time employees you employed or decreased wages or salaries of any employee earning less than $100,000 by more than 25%.
If you have lost employees or cut salaries too much, don’t worry. In most cases, you have until Dec. 31 of this year to return to your previous staff and salary levels in order to qualify for forgiveness.
You can also qualify for forgiveness if you can demonstrate that conditions made it impossible for you to return to normal levels of business due to COVID-19 regulations.
3. Get Your Documents Together
In order to forgive your loan, your lender will need proof of how you spent the money. Before you apply, make sure you have the following documents:
- Payroll confirming the number of employees and their salaries/wages
- Utility bills (see approved utilities above)
- Mortgage statements
- Lease documents
- Accounting transcripts
- Expense receipts, including canceled checks
4. Submit Your Application for Loan Forgiveness
Every lender will have their own system to help borrowers apply for loan forgiveness. Many banks have developed online tools especially for this purpose.
Consult your lender’s website to learn how to apply.
5. Review Your Results
Your lender will let you know once the SBA has made a decision about your specific case. You can appeal appeal their decision if you think they’ve ruled in error.
Any loans that aren’t forgiven will need to be repaid. Fortunately, the SBA has capped the interest rate for PPP loans at 1%. The administration has also defined the loan repayment period at two years. Businesses who took loans later can take up to five years to repay them.
You must submit your loan forgiveness application within 10 months of your 24-week forgiveness period. Payments on your loan principal can be deferred until the SBA finalizes your loan forgiveness amount. The lender may not charge prepayment penalties.
Are you applying for a PPP loan? Learn more about reporting errors in North Carolina, just to have a better sense of its ongoing application.