These business owners will not get the full forgiveness of their PPP loans

Entrepreneurs who have received up to $ 10,000 in federal grants and have taken out a forgivable loan from the Paycheck Protection Program are also surprised – they will not get the full forgiveness of their loan they were hoping for.

the CARES Law gave small businesses a few lifelines this spring.

First, he set up an emergency grant program, providing grants to business owners when they apply for an economic disaster loan.

The EIDL Advance offered $ 1,000 in grants for each employee, up to $ 10,000. Independent contractors were also eligible for a maximum of $ 1,000.

The CARES Act also created the Paycheck Protection Program, a loan that entrepreneurs could use to cover payroll, rent, and other expenses.

The sweetener for many borrowers is that the loan is forgivable if they spend at least 60% of the proceeds on payroll costs. Even those who do not meet the threshold may be eligible for a partial pardon.

Cash-strapped business leaders who received an EIDL advance and also took out a PPP loan find that the PPP remittance will not be as generous as they might have anticipated.

This is because the Small Business Association will deduct the grant from the amount of the PPP rebate that a borrower can receive.

In addition, borrowers who have received EIDL advances greater than the PPP loan will not be eligible for the paycheck protection loan remission, according to a series of frequently asked questions on August 11 issued by the SBA.

The problem is on the minds of entrepreneurs as they begin to seek forgiveness. Indeed, the SBA started receiving requests for forgiveness from lenders this week.

“Free money may seem easy to come by, but you will need to be aware of how these grants and loans are handled in order to better prepare yourself,” said Sheneya Wilson, CPA and founder of Fola Financial in New York City.


Jovita Carranza, administrator of the US Small Business Administration, speaks as Steven Mnuchin, Secretary of the US Treasury, listens during a House Small Business Committee hearing in Washington, DC

Erin Scott | Getty Images

Even if companies are forced to repay a PPP loan, they get attractive terms. These loans are subject to an interest rate of 1% and borrowers have a six-month grace period before making repayments.

Loans issued before June 5 generally have to be repaid within two years, while those issued after June 5 mature in five years.

During this time, to get an EIDL advance, businesses usually had to apply for an EIDL loan. In other words, they could borrow up to $ 150,000 at a rate of 3.75%. Repayments are deferred for one year and borrowers have 30 years to repay.

There is no discount for EIDL loans.

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Earlier this year, tax experts recommended that clients enroll in one or the other rather than both. The reduction in PPP forgiveness due to the EIDL advance was a factor.

“This is a problem because there will be people who are going wide-eyed when they don’t get a full pardon,” said Adam Markowitz, registered agent with Howard L Markowitz PA CPA in Leesburg, Fla.

“It will still be a shock to them when they have to pay [the grant] back.”

Indeed, a client who took out a PPP loan of $ 80,000 and received an EIDL advance of $ 6,000 is preparing to repay the grant, he said.

“I’m going to tell him to just write a check,” Markowitz said.

Cash flow

Many questions remain over whether P3 forgiveness will undergo further changes, particularly as Congress continues to face roadblocks to pass yet another Covid-19 relief bill.

In the meantime, tax professionals are managing clients’ expectations if they have taken out both the EIDL advance and the PPP loan. They also help clients gather the documents needed for forgiveness.

At the very least, it helps business owners get a feel for their cash flow so they can set aside the money they’ll need for the repayment, Wilson said.

“Some lenders are not taking forgiveness requests yet, but let’s at least prepare things so that we can submit the documents and get what we need to forgive and repay what has been loaned to us,” she said. declared.

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