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Suppose you have been following the news about the Corona Virus Aid Relief and Economic Security Act (CARES). In that case, you would have known that the government allocated a significant portion of the money to the Payroll / Paycheck Protection Program (PPP). The PPP is intended to support companies that cannot function to support their employees. Essentially, it is a government allowance that companies with fewer than five hundred employees can access and can be forgiven. The PPP was developed as a way to ensure job security despite the fact that companies were unable to operate during the close of the pandemic. However, the federal government is willing to forgive these loans, as long as companies meet specific criteria. In this article, we take a 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 their principal amount no later than ten (10) months after the initial grant. 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 forwarded until payment is later resumed. The federal government is willing to defer the interest on loans for a period of one (1) year and extend the maturity of the loan between two (2) and five (5) years for all PPP loans granted from the date of the law of flexibility. . The government has also capped the interest rate to 4% per year, but the current rate is significantly lower, around 1%.
Qualify for loan forgiveness
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 remain initially employed by the business. There are also stipulations about what the loan can be used for, and failure to comply with those stipulations means that the government will not forgive you. PPP loans can only be used to:
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Payroll costs, with an allowance of up to $ 100,000 per employee
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Utilities
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Rent on lease
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Mortgage interest
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Additional salaries for employees that supplement their income 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 possibility that the company may still be able to access the discharge, but not for the full amount of the loan. Forgiveness is also affected if a company reduces employee pay by more than 25%. Companies can still access full forgiveness if they reverse the reduction in payroll amount before December 31.