How to Maximize Forgiveness on Your PPP Loan

May 6, 2020
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On Monday, April 27, the Small Business Administration (SBA) resumed accepting Paycheck Protection Program (PPP loan) applications from participating lenders. This came after the federal government passed a second stimulus package aimed at helping small businesses affected by the COVID-19 crisis. This will give the program a fresh influx of cash and we’ll see another frenzy of applicants.

PPP loans are a very attractive prospect for small business owners because there is a possibility of 100% loan forgiveness. The purpose of the Paycheck Protection Program is to help businesses get by during these tough times. In theory, if the loan funds are used for their intended purpose, then that allows you to get maximum loan forgiveness.

However, as with any government program, the PPP loan program is not without its gray areas and complications. That is why I am writing this article today because there are several steps you can—and should—be taking in order to increase your chances of 100% PPP loan forgiveness.

1. Be Prepared

It is very important to understand how PPP loans work and how you can qualify for maximum loan forgiveness. Technically, you will apply for loan forgiveness through your lender at the end of an 8-week period that begins when the loan funds are issued. Yet, you need to take certain steps from the very beginning to improve your eligibility for loan forgiveness when it comes time to ask for it.

2. Use the PPP Funds for Allowable Expenses

There are certain expenses that can be paid with PPP loan funds and certain expenses that cannot be paid with PPP funds. Approved expenses include:

  • Qualifying Payroll & Benefit Costs
  • Permitted Mortgage Interest (But Not Principal)
  • Rent & Utility Payments

You should also remember that at least 75% of the loan forgiveness amount must be used for qualifying payroll and benefits costs during the covered period. If possible, you should use all of the funds for qualifying payroll expenses, which will greatly increase your chances of 100% loan forgiveness.

3. Carefully Track Your PPP Funds

You want to have a good cash flow system in place that allows you to precisely track all of your loan funds and how they are disbursed. One good idea is to set up a new back account just for your PPP loan proceeds. It will allow you better monitor expenses, cash flow and debits to make sure the money is being used in only the approved places.

4. Keep Detailed Documentation

Be sure and document everything accurately. When it comes time to apply for maximum loan forgiveness, you want to be able to provide the bank with very detailed records and specific documentation to show how every penny of the loan was utilized in your business.

5. Start Payroll Payments Immediately

From the date you receive your PPP funds, you should try to start payroll payments. Do what you can to make sure that all of your pay periods fall directly within the 8-week loan forgiveness window. Anything paid after that period won’t count toward your loan forgiveness request. Another smart tip is to avoid paying any one employee (including yourself) more than $3,846.15 per each 2-week pay period. Any amount over an annualized $100,000/year salary will not count towards forgiveness.

6. Seek Professional Guidance

PPP loans can be complex to navigate, but they can be a huge benefit to your business during this tough time. And, these relief funds are even more beneficial if and when you are able to maximize your loan forgiveness. It can be very helpful to work with a financial specialist who can show you how to set up your funds disbursement systems and make the right payroll decisions.

Take the right steps toward maximum loan forgiveness and get the absolute most out of your Paycheck Protection Program loan. Contact Illumination Wealth today to schedule a financial consultation for your business and let us show you how to take advantage of today’s excellent PPP loan options.