When you first got a loan, you probably didn’t apply for a 1% low interest (P3) loan. So you have a loan. Now you want to know how to cancel a PPP loan.
However, as P3’s new cancellation policy becomes available, you may have questions (and frustrations) about the process.
How to get PPP loans?
Depending on what you do with your P3 loan within 8-24 weeks of receipt, you may be entitled to a partial or full cancellation.
We know that you really want to know how to completely forgive him. First, do the following to make sure the PPP loan is withdrawn:
- Use it for eligible expenses
- Update the number of employees *
- Don’t reduce your employee’s salary by more than 25% *
- Document everything
- Talk to your lender
- Apply for a loan discount
If you borrowed more than $ 50,000, the P3 payment calculation takes into account 1) how much you spent on a P3 loan, 2) your job, and 3) whether you reduced your salary. “Employee participation greater than 25%.
1. Use it to qualify expenses
All borrowers, regardless of the PPP loan amount, must use 100% of the loan to qualify for the PPP loan rates. Eligible costs are salaries and eligible non-accounting costs. And the SBA requires that most of easy to get loans be used to pay wages.
Use at least 60% for labor costs and 40% for unskilled labor costs. Here’s the breakdown:
- 60%: labor costs
- Wages, salaries, commissions, tips, bonuses or risk payments (maximum gross income of $ 100,000 per employee)
- Social benefits (for example, vacation, sick days *, health insurance, retirement pension, group life insurance, disability, vision and dental care)
- State and local taxes collected as compensation
- 40%: costs without remuneration
- Mortgage rates
- Covered business costs (for example, business software or payroll costs)
- Covered property damage (for example, vandalism or looting)
- Production costs (that is, elements of the main activity)
- Health and safety costs (for example, personal protective equipment)
* A PPP loan can be used to pay for paid sick leave, but cannot be used to pay for sick leave and family leave under the Family Response to Coronavirus Act.
Remember that you can use the loan to cover other expenses. However, this part is not affected.
Summary on how to get a complete resolution of a PPP loan: Use at least 60% of the PPP loan to cover labor costs. The remaining 40% can be used to cover non-billable costs.
During what period will the loan be used for eligible expenses?
Oakparkfinancial says, your P3 loan is designed to cover your expenses for 8 to 24 weeks. Therefore, the loan depends on the costs during the guarantee period.
The clock starts when the lender makes the first repayment of the PPP loan. From that date, you have 8-24 weeks to make qualifying payments. This is called the “protected period.”
The SBA guidelines, released May 15, allow borrowers with a billing schedule of at least two weeks to use an “alternate billing cycle.” The insurance period begins on the first day of the payment term after receiving the first payment.
If you still have extra money after the warranty period ends, you have two options:
- Return to creditor
- Take advantage of this, but remember that you have to return this coin plus 1% interest
2. Show the number
Do you have a PPP loan of more than $ 50,000? Then this is for you.
The purpose of the payroll program is to keep workers on payroll (without unemployment). For this reason, it is important to keep your workforce at the level required to qualify for a loan.
Of course, keeping the workforce high is only part of the equation. You already know that 60% of the loan must be spent on labor costs (and 40% on other eligible expenses) to be repaid. But even if you spend 60% on labor costs and 40% on non-labor costs, you can lose a lot of credit if your workforce dwindles.
When applying for a P3 loan, you considered all employees: full-time and part-time employees.
However, for loan purposes, CARES takes into account the average full-time equivalent (FTE) over your life.
To calculate the full-time equivalents during the warranty period, you can use one of the following methods:
- Enter the average number of hours each employee works per week, divide by 40 and round to the nearest tenth (maximum 1.0).
- Assign 1.0 for employees who work 40 hours or more per week and 0.5 for employees who work fewer hours
The SBA limits APP loans based on average full-time staff reductions. Here are the calculations of how much your P3 loan payment will decrease when you work full time:
Loan reduction percentage = Average number of full- time positions during the guaranteed period / Average number of full-time positions per month filled during the selected eligible period **
** You can use one of the following two periods:
- February 15, 2019 – June 30, 2019
- January 1, 2020 – February 29, 2020
(If you are a seasonal employer, you can use one of the above periods or the 12-week period between February 15, 2019 and February 15, 2020)
Then multiply the loan reduction percentage by the loan amount (based on eligible expenses) to determine the loan reduction.
You can calculate the average number of employees per full-time position by calculating the average number of employees for each billing period of the month.
I reduced the number of employees. What I can do?
Fortunately, the SBA offers two “havens” that can help qualified borrowers avoid falling into full-time employment.
If you reduce the workforce for FTE while meeting health and safety standards or requirements permitted, you can take advantage of reduced credit FTE under the Safe Harbor 1 (that is, no job cuts).
You may also qualify for an FTE reduction under Safe Harbor 2 if you reduce your FTE use between February 15, 2020 and April 26, 2020 and through December 31, 2020 (for loans issued before December 27, 2020). 2020). December 2020). Or extend until December 31, 2020 The last day of the guarantee period (for loans granted after December 27, 2020).
The SBA also provides for layoffs in the event the laid off worker rejects your offer of reemployment. You may be released from ETP loan repayments upon receipt of a good faith written offer to return to work. And you must document the employee’s refusal. Remember that laid off workers may no longer qualify for unemployment benefits if they reject your offer of reemployment.
You can find more information about these accommodations in the loan application form.
3. Do not reduce the employee’s salary by more than 25%
Do you have a PPP loan of more than $ 50,000? Then this is for you.
If you want a full loan, do not reduce the employee’s salary by more than 25% of the salary received in the last full quarter.
This rule applies to employees who have earned:
- $ 100,000 or less at APR 2019 (all billing periods)
Do not count the workers you never hired in 2019. These workers do not reduce P3 as a pay cut.
If you reduce an employee’s salary by more than 25%, the P3 loan amount will decrease, which is the amount by which you reduce the salary.
I cut my winnings … what should I do?
As with full-time work, there is a safe haven for hourly pay cuts that can avoid credit cuts if they qualify.
To be eligible for this shelter, you must have an average salary as an employee on February 15, 2020. Until December 31, 2020 (for loans granted before December 27, 2020) or until the last day of the protection period ( for loans after December 27, 2020, 2020). 2020). Y.), 2020). 2020).
4. Document everything
In addition to the supporting documents for your PPP loan application, you need to keep track of everything from the moment you receive your PPP loan payment.
- When do you get the loan?
- As long as you spend part of the loan
- Interest accrued on the loan
Keep track of all your expenses with a P3 loan, no matter how small. This includes payroll; Copies of mortgage interest, rents and utilities; Receipts for all other expenses for which the PPP loan was used; Bank statements; and journal entries.
No document is out of place when creating PPP loans. When in doubt, you’d better be careful and have something on your file.
And documenting everything is so much easier to keep your P3 loans separate from your other funds.
5. Talk to your lender
Maintain strong communication with the lender throughout the entire process. From the day you apply to the day you ask for forgiveness, talk with the lender about your loan repayment obligations.
When applying for a PPP loan, ask the lender about the loan approval conditions. And ask what documents you need to bring when applying for a loan.
6. Apply for a loan
To request approval for a PPP loan, use the Loan Financing Application Form (SBA), Form 3508, or an equivalent form provided by the lender. You can use Form 3508EZ or 3508S if you follow the guidelines for regulatory approval.
After completing the form and attaching all the required documents, send it to the lender.
Here’s a quick overview of who can use the different grace request forms:
- Form 3508: Any Borrower
- Form 3508EZ: Borrowers who have not reduced employee wages by more than 25% and who have not reduced / were unable to hire or find similar qualified personnel OR who were unable to function due to health policy compliance
- Form 3508S: Borrowers Receiving a PPP Loan of $ 150,000 or Less
In addition to the loan application form, you may also need to provide supporting documents.
Your lender may have additional documentation requirements, but you may need documents that show:
- Cost of work during the loan period (excluding the employer’s tax contribution)
- Average number of full-time equivalents on payroll
- Payments without labor costs
The records created from this information include:
- The payroll reports show that the money was paid to the employees.
- Tax refunds (for example, Form 941)
- Bank statements
- Accounting accounts
For more information on the documents required by the SBA, see Loan Applications. Contact the lender for more information on the documents you need.
When all or part of the loan is granted, update your ledgers to reflect the payment of your debt.
If you have more questions, see the SBA P3 Cancellation FAQ.
What happens if part of my loan goes unanswered?
If your loan is not granted in whole or in part, you can appeal the decision.
If your application is rejected, you will have to repay the loan. Here’s what you need to know to pay off your unspent PPP loan:
- 2 years (loans granted before June 5, 2020) OR 5 years (loans granted after June 5, 2020)
- 1% interest rate (payable immediately)
- Loan deferral until the SBA has remitted the borrower’s loan amount to the lender OR 10 months after the borrower’s loan term has expired (unless a reduction is requested)
There is no prepayment penalty if you want to pay off the loan balance before the five years are up.
Talk to your lender about how to pay off the unused P3 loan amount and when it is due.