Suppose you have been following the news about the Corona Virus Aid Relief and Economic Security (CARES) Act. In that case, you would have known that the government allocated a significant portion of the money to the Paycheck/Payroll Protection Program (PPP). The PPP is intended to support businesses that are unable to function to support their employees. It is essentially a government subsidy that companies with fewer than 500 employees can access and can be forgiven. The PPP was developed as a way to ensure job security even though businesses were unable to operate during the pandemic lockdown. However, the federal government is willing to forgive these loans, as long as the companies meet specific criteria. In this article, we look at what those stipulations are.

Payment schedule and interest rates

Since this is a loan, businesses using the Paycheck Protection Program must begin repaying the principal amount no later than ten (10) months after initial award. The company must also try to repay the amount in full within two (2) years. If a business intends to be forgiven for the grant, refunds are remitted until payment is later resumed. The federal government is willing to defer interest on loans for a period of one (1) year and extend the maturity of loans between two (2) and five (5) years for all PPP loans granted after the date of the Flexibility Law. . The government has also capped the interest rate at 4% per year, but the current rate is significantly lower, around 1%.

Qualifying to have the loan forgiven

In order for a business to qualify for payments to be eliminated or reduced under the Paycheck Protection Program, the business must ensure that all employees on its payroll initially remain employees of the business. There are also stipulations about what the loan can be used for, and failure to abide by those stipulations means the government won’t forgive you. PPP loans will only be used for:

• Payroll costs, with an allowance of up to $100,000 per employee
• Utilities
• Rent with option to buy
• Mortgage interest
• Additional wages for employees who supplement their earnings with tips

Additionally, the Coronavirus Flexibility Act states that no less than 60% of the total loan amount must be spent on payroll to qualify for forgiveness. If some employees are laid off, there is a chance that the business may still qualify for forgiveness, but not for the full amount of the loan. Forgiveness is also affected if a company reduces employee pay by more than 25%. Businesses can still access full forgiveness if they reverse the reduction in payroll amount by December 31.