What You Need to Know to Repay Your PPP Loan
PPP Loan Repayment – What You Need to Know to Repay Your PPP Loan
The Paycheck Protection Program (PPP), established by the Coronavirus Aid, Relief, and Economic Security (CARES) Act, provides in-depth details on the use of PPP loan proceeds, how to apply for loan forgiveness and, if used properly, how the loan proceeds can be forgiven.
If you are like many other businesses, when you were approved for a PPP loan, you were likely hoping to have the entire loan forgiven.
There are many reasons why a business may not qualify for total PPP forgiveness. In this article, we explain a few reasons why this might happen and provide you with the most frequently asked questions on how to repay your loan.
PPP Loan Forgiveness Guidelines
If you qualified for a PPP loan, you have up to 24 weeks (8 weeks if you choose a shorter coverage period) to use the loan proceeds toward:
- Payroll costs – At least 60% of your PPP loan must be used on payroll-related costs.
- Operating costs – The remaining 40% of your loan proceeds must be spent on other approved non-payroll costs, including rent payments and utility bills.
- Full-time employees (FTEs) – You must maintain your FTE employee headcount and compensation levels.
- PPP forgiveness and taxes – You won’t need to claim your PPP loan amount in your 2020 tax filings. Forgiveness amounts aren’t considered as a cancellation of debt for federal taxes, and your expenses forgiven under PPP guidelines can’t be treated as a tax deduction. If you didn’t meet all of these requirements, you will need to repay a portion of your PPP loan.
For a more complete explanation of the PPP loan forgiveness guidelines, click here.
PPP loan forgiveness Frequently Asked Questions
Do I need to repay my PPP loan?
Being required to repay your PPP loan depends on if your PPP loan forgiveness application is approved. Once the SBA has issued a decision about the amount that will be forgiven, the borrower is responsible for repaying any remaining amount plus interest, which accrues beginning when the loan is disbursed.
Do I need to do anything for my PPP loan to be forgiven?
Yes. You need to apply for loan forgiveness through your PPP lender. You need to provide documentation verifying that the loan was used for acceptable purposes. To be eligible for loan forgiveness, businesses have up to 24 weeks from the date the loan is received to spend the PPP proceeds If you do not apply for forgiveness, you will have to pay back the total amount of the loan.
What paperwork do I need to apply for forgiveness?
The details of PPP loan forgiveness applications may vary by PPP lender, but expect that you will need to provide the following documents and records:
- Verification of employee status for each full-time employee on your payroll
- Salary or wage rates for each full-time employee
- Mortgage documents
- Real-estate lease agreements
- Evidence of rent paid
- Applicable utility bills
If I submit a loan forgiveness application, do I need to make payments on my loan prior to SBA remitting the forgiveness determination?
As long as you submit your PPP loan forgiveness application within 10 months of the completion of the covered period, you are not required to make any payments until the forgiveness amount is remitted to the lender by SBA.
If the loan is fully forgiven, you are not responsible for any payments. If only a portion of the loan is forgiven or if the PPP loan forgiveness application is denied you must repay any remaining balance due on the loan on or before the maturity date of the loan. Interest accrues during the time between the disbursement of the loan and SBA remittance of the forgiveness amount. You are responsible for paying the accrued interest on any amount of the loan that is not forgiven.
The PPP lender is responsible for notifying you of remittance by SBA of the loan forgiveness amount (or that SBA determined that no amount of the loan is eligible for forgiveness) and the date on which the borrower’s first payment is due, if applicable.
When will I know how much I owe?
A borrower has 10 months following the 8- or 24-week “Covered Period” to apply for loan forgiveness. Once the PPP loan forgiveness application has been submitted, the PPP lender has 60 days to submit it to the SBA and then the SBA has 90 days to render a final decision.
If my business doesn’t qualify for 100% forgiveness, when will my first payment be due?
Once a final forgiveness decision is provided by the SBA, your lender (Kabbage) will calculate your due amount during your account’s next cycle (generally the monthly anniversary of your disbursement date), and we will issue you a statement.
When is my entire loan due?
The entire loan is due in two years (if you were approved before June 5, 2020) or five years (if you were approved after June 5, 2020). In both cases, you can repay early without any prepayment penalties or fees.
What are the terms of a PPP loan?
All PPP loans carry an interest rate of 1.0%. It’s important to remember that interest accrues from the date of loan disbursement and is not forgivable. The maturity of a PPP loan depends upon the disbursement date. If your loan was disbursed prior to June 5, 2020, the loan has a two-year term. If it was disbursed after June 5, 2020, the loan has a five-year term.
How long can I defer repayment of unforgiven loan funds?
You can defer repayment of unforgiven loan funds until the SBA pays the full loan forgiveness amount to your lender. If you don’t plan to apply for loan forgiveness, you can defer repayment for up to 10 months after your loan disbursement date.
The PPP loan was intended to help businesses keep employees working and reduce the number of unemployment claims due to the COVID-19 pandemic. For many, the PPP loan was the best option to keep from making a wage reduction. For the many PPP loan recipients, it is time to start the repayment process. Filing for PPP loan forgiveness may bring more resources to keep your businesses going by reducing the liability of additional payments being made.
The SBA published a very informative FAQ section regarding the PPP loan forgiveness process. Note that they update the regulations and guidelines periodically to provide more information to borrowers and lenders.
Find out other ways Kabbage benefits small businesses.