June 3rd, 2021
The Paycheck Protection Program (PPP) has been a lifeline for many small businesses that experienced a loss of revenue due to the COVID-19 pandemic. Over the past year, the program was expanded several times to allow more participants to take part in it and receive funding.
The government has made the loans forgivable which is great news for cash-strapped businesses but forgiveness is not automatic. Make sure that you take the steps required within the timeline specified to ensure that you are not required to pay it back.
There at least two key caveats for those taking PPP loans:
- the funds had to be used for qualified expenses (see the list below) and
- as a recipient, it is your responsibility to ask your lender for forgiveness within 10 months after the end of your covered period (24 weeks for most loan recipients).
This 10-month window is closing rapidly for some businesses, especially if you received first-round funding. Most banks are now accepting applications for PPP loan forgiveness so be sure to contact your lender. Otherwise, you will have to start repaying your PPP Loan. You can find full details on loan forgiveness requirements on the Federal Register website.
The following is a quick summary of what are considered Eligible Expenses for PPP Loan Requirements:
The first PPP round loans included eligible expenses like:
- employer-sponsored health insurance,
- and other expenses, which are also covered in this second round.
In addition, the second round of PPP funding includes four categories of additional covered expenses:
- Operational expenses such as cloud computing, HR, and accounting software.
- Property damage costs for damages caused by public disturbances in 2020 that were not covered by your business insurance.
- Supplier costs for payments made to suppliers before taking the PPP loan that were essential for keeping your business running.
- Worker protection costs for PPE and other investments made to abide by local and federal COVID-19 business guidelines.
PPP loan forgiveness amounts are not taxable on a federal level which could offer significant tax savings for your business. However, be sure to check with your own State and local tax authorities for additional information on how they are treating PPP funds.
It’s imperative that if you received PPP funds for your freelance business that you take action to request forgiveness from your lender within the 10-month window noted above and also ensure that you have all of the required documentation to process the forgiveness application. Failure to do so means that you will be required to repay the loan and any accrued interest—a burden that no business owner wants to bear, especially as we work to emerge from the Covid-19 pandemic period.