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Use The PPP Loan To Support Your Business Finances

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The Paycheck Protection Program gives small businesses the tools they need to continue paying their employees, rehire any employees who might have been let go, and pay for any necessary overhead.

The CARES Act introduced a loan program called Paycheck Protection Program (PPP). The original intention was to offer small businesses in the United States cash-flow assistance by arranging for federally assured loans. The initial program was 350 billion USD. The Small Business Administration (SBA) endorses these loans.

The Highlights of the PPP Loan

Any small business is eligible for the loan. The interest rate is 1%, and the loan has a maturity of two years. If the loan is taken after June 5, 2020, the loan is five years. The loan encompasses the costs for 24 weeks commencing from the disbursement date. You need not make any payments for the loan until the processing of your forgiveness application is completed or 10 months have passed after the end of the 24-week covered period. There are no processing fees. You need not provide any personal guarantees or collateral. Forgiving the loan and converting it to a non-taxable one is possible.

How to be Eligible for the PPP Loan?

All of the following are eligible.

Self-employed individuals have to provide payroll tax filings reported to the Internal Revenue Service (IRS). Independent Contractors have to provide Schedule C and Form 1099-MISC. And Sole proprietorships have to provide Schedule C of the tax return that displays the net profit due to the sole proprietorship.

In 2021, if you want the second PPP loan, the business has to prove that their reduction in revenue is 25 percent or more. For this, a comparison of revenue between a specific quarter in 2020 and the same quarter in 2019 is made.

An example is a business that recorded 40K USD in sales revenue in Q3 of 2019. If the sales revenue in Q3 of 2020 is 30K USD or lesser, this business becomes eligible for PPP.

Usage of PPP Loan

Approximately three-fifths of the PPP loan must be mandatorily used to fund payroll and employee benefits. The balance two-fifths of the loan can be used for the following: worker protection expenses to be Covid-compliant, supplier expenses such as expenses of sold goods, property damage expenses owing to disturbances of the public not having insurance, operations expenses such as the needs of software and accounting, utilities, rent and lease payments, and mortgage interest payments.

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When businesses strictly adhere to the above guidelines, businesses can have the complete loan forgiven. More details about this loan are available at erctoday.com.

The Amount Given in a PPP Loan

An SBA-approved lender disburses the PPP loan to a business. To compute the loan amount, you should find out the monthly average payroll expenses in 2019 or 2020 or the one-year period that ends on the date of your application. These expenses have to be multiplied by 2.5 to determine the loan amount. The maximum loan amount by this calculation is 2 million USD.

If your business is in the Food and Accommodation industries, the monthly payroll expenses must be multiplied by 3.5 with a maximum amount of up to 2 million USD. In the case of seasonal employers, the computation of the average monthly payroll is done as follows. You need to consider 12 weeks from February 15, 2019, to February 15, 2020.

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How would PPP Loan Forgiveness impact my taxes?

The effects of a PPP loan on my tax return are reinforced in a new bill. Any forgiven portion of a PPP Loan will not be considered taxable income. Additionally, all costs related to a PPP Loan will continue to be taxable income.

Simply said, a PPP loan won’t impact how you file your taxes.

Can I make a PPP & SBA disaster loan request?

You can, of course. For the same reason that the Paycheck Protection Program is not applicable, you cannot qualify for SBA disaster financing.

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