The Paycheck Protection Program for Business Owners and the Self-Employed
On June 5th, the Paycheck Protection Program Flexibility Act (PPPFA) became law to help business owners qualify for PPP loan forgiveness on simpler terms. The PPPFA was pushed forward due to the many complaints and uncertainty surrounding the PPP loan terms. In fact, many business owners were afraid to accept the loans because the original terms would leave them financially worse. If you are considering applying for the PPP loan, the deadline is approaching!
Learn more about new loan forgiveness terms below for business owners and the self-employed. As always, request a consultation with Ash Wasilidas, CPA to learn how the PPP loan can help your unique business needs.
What is the PPP Loan?
The Paycheck Protection Program (PPP) is part of the CARES Act of 2020. In short, it was designed to help businesses operate during the COVID-19 pandemic while still paying their employees. Although the program seemed ideal, the terms for loan forgiveness were out of reach for many businesses. Therefore, many business owners did not accept or apply for the loan. This has left many businesses non-operable and employees jobless.
Fortunately, changes were made in June 2020 to ease the loan forgiveness terms. The terms are as follows.
- Businesses now have up to 24 weeks to use the funds.
- Only 60% of the funds are required to use toward payroll, instead of the original 75%.
- Businesses now have 40% of the funds to utilize toward expenses such as rent, utilities, and inventory.
- Employees must be rehired by December 31, 2020, which offers more relief compared to the original deadline of June 30th.
- Loan repayment has also been extended to 5 years should the business not qualify for loan forgiveness.
- Also, those who qualify for loan forgiveness can defer their payroll taxes.
New PPP Loan Forgiveness Application
With these new changes, the SBA released a revised loan forgiveness application. If you have not applied yet, you can find the application here. There is a simplified version called the 3508EZ. We suggest seeking guidance from an accountant to determine which form you should use.
The PPP Loan for the Self-Employed
Self-employed individuals with no employees can apply for the PPP loan. The most one can receive is $20,833, without employees. This is known as owner compensation replacement. It is recommended that the self-employed individual maintain a separate business account to receive the funds and then disperse the money into their personal account. Doing so will offer an easier way to prove how the money was used.
Should You Apply and Accept the PPP Loan?
Many business owners are worried about accepting the loan due to its terms and the possibility of repayment. Is it right for your business? Find out with a consultation from Ash Wasilidas, CPA. He has over 20 years of experience assisting businesses of all sizes and dynamics. Call (617) 462-6651 or book online here.