What is a PPP loan?
PPP stands for Paycheck Protection Program. PPP is a kind of loan implemented for small businesses to keep their workers on the payroll. It acts as a lifesaver for small business firms. Under the Paycheck Protection Program loan, the business gets a guarantee of eight weeks of payroll and other incentives to keep their workers and pay their bills, as in the PPP loan.
Small business firms with a payroll of fewer than 10 million dollars, or 2.5 times the average, are eligible for the Paycheck Protection Program loan. The loan will be forgiven completely if the guidelines are properly followed.
The Small Business Administration (SBA) regulates the loan, and it is expected to renew with new funding on April 24, 2020.
How can you obtain a Paycheck Protection Program loan?
There are various guidelines the company needs to follow for the eligibility of PPP loans. Besides, 100% of loans will be excused if all the criteria are followed. When it comes to numbers, a company will have a maximum of five hundred employees who can apply for the loan.
The criteria are further broken down into:
- Business firms that fall under “accommodation or food services,” such as restaurants and hotels, are included. The employee size must be less than five hundred.
- The tribal business, run by a community, can also apply for the Paycheck Protection Program.
- Independent business that owns franchises with a small group of workers.
- Independent workers, self-employed, gig workers, and sole proprietors are also eligible for Paycheck Protection Program Loans.
However, according to SBA, the PPP loan applies to those firms and workers who went live on April 10, 2020.
Parameters for PPP Loans
Applying and using PPP loans are constrained. The requirements and supporting documents vary from firm to firm and from worker to worker.
Here is a detailed guideline about the same:
If you are applying as a
- A contractor or sole proprietor without payroll
Supporting Documents: Utility Statements, Rental Agreements, or Mortgage Agreements.Forgiven: Eight weeks of owner compensation agreement, rent, and utilities if they are eligible in a business tax return.
- A contractor or sole proprietor with payroll
Supporting documents: utility statements, rental or mortgage agreements, a document proving your retirement and health insurance, and 8-week payroll reports.Forgiven: eight weeks of owner compensation agreement, rent, utilities if they are eligible in the business tax return, and payroll expenses before COVID-19.
- A corporation or Non-Profit with payroll
Supporting documents: utility statements, rental or mortgage agreements, 8-week payroll reports, a document proving your retirement, and health insurance.Forgiven: Eight weeks of owner compensation agreement, rent, and utilities if they are eligible in a business tax return.
If the PPP Loan is approved, the funds can be used as:
- Payroll includes salaries, wages, parental, health, and family.
- Rent
- Utilities
- Mortgage Interest
How do you account for a PPP loan?
A firm or an individual needs to keep the record updated to make sure that the PPP Loan is forgiven.
1. Separate Bank Account: Keep all the PPP loan funds and transactions in a separate bank account. It is easier to track all the expenditures.
2. Software and Apps: There are software and applications available that allow you to keep your records organized and accessible. You can keep an eye on your funds and transactions from anywhere.
Conclusion
The Paycheck Protection Program is the best practice for small business firms since they can keep their workers on the payroll for a limited period. The PPP loans can be forgiven if you follow the guidelines properly. Go through the eligibility process before applying for the loan and enjoy the best service from the government.
