Let’s say you’ve been following the news about the Coronavirus Relief and Economic Security (CARES) Act. In this case, you knew that the government had set aside a significant portion of the money for the Paycheck/Payroll Protection Program (PPP). The public-private partnership aims to support companies that are unable to work to support their employees. It is basically a government allowance that companies with fewer than five hundred employees can access and can be pardoned. PPP was developed as a way to ensure job security despite the inability of companies to operate during the pandemic lockdown. However, the federal government is willing to forego these loans, provided that the companies meet certain criteria. In this article, we look at what those terms are.
Payment schedule and interest rates
Because this is a loan, businesses using the Paycheck Protection Program need to begin repayments on the principal amount no later than ten (10) months after the initial grant. The company should also endeavor to pay the full amount before two (2) years have passed. If the company intends to be exempt from the grant, payments are made until payment is resumed later. The Federal Government is prepared to defer interest on loans for one (1) year and extend the loan maturity to between two (2) to five (5) years for all PPP loans granted on or after the date of the Flexibility Act. The government has also set the interest rate at 4% per annum, but the current rate is much lower, at around 1%.
Eligible for loan forgiveness
In order for a company to qualify for canceled or reduced payments under the Paycheck Protection Program, the organization must ensure that all employees on its payroll remain initially employed by the company. There are also stipulations about the purpose of the loan, and violating these conditions means that the government will not forgive him. PPP loans are to be used only for:
- Payroll costs, with an allowance of up to $100,000 per employee
- Rent by lease
- Mortgage interest
- Extra salaries for employees supplement their earnings with tips
In addition, the Coronavirus Flexibility Act states that a minimum of 60% of the total loan amount must be spent on payroll to qualify for forgiveness. If some employees are laid off, there is a possibility that the company may still be able to obtain forgiveness, but not for the full amount of the loan. The tolerance is also affected if the company cuts employee salaries by more than 25%. Companies can still access the full forgiveness if they reverse the reduction in the payroll amount before December 31st.