The most extensive way that the federal government has soughed out to aid the business that is affected by the coronavirus related shutdowns and disruptions is implementing the “Paycheck Protection Program PPP. The Paycheck Protection Program is re-opened in the week of January II for the new borrowers and specific PPP borrowers with PPP loan application. To promote access to the capital, the first thing is only the community financial institutions that can make first draw PPP loans.
Calculation of the Self-employed individual PPP loans
The PPP loan application for the self-employed individuals is based on their average payroll expenses. But, as the businesses of self-employed did not have any payroll system, so tier loan is divided by 12 with their net profit to obtain the average of monthly net profit. The number obtained is 2.5 equals to the PP loan amount. That means the PPP loan is roughly 10 weeks of net profit. The net profit can be referred to in the Schedule C, Form 1040.
The owner compensation replacement
The main thing is, instead of spending the funds on the payroll, one can automatically get the 2.5 months of net profit forgiven without the need to spend on anything. This is what is termed as an ‘owner compensation replacement’.
Claiming the PPP loan and owner compensation replacement
The total amount of the owner compensation replacement that is eligible to claim for forgiveness is generally calculated as above and it is essential for the entire PPP loan. The loan amount is not a factor in the additional payroll expenses. Wealth management services Irving can help you get on the right track with your PPP loan application.
For example, if the individual is using an 8-week forgiveness period, they can claim the 8 weeks’ worth of owner compensation replacement. The remaining PPP funds that will be needed to spend on the utilities, mortgage interest expenses, rent to be forgiven. You can clarify your doubts at Wealth management services Irving
When it comes to the self-employed have multiple businesses with the PPP loan application. They will be capped at $20,833 in owner compensation replacement across all the loans that are obtained by all the businesses that are managed by them.
How to apply for forgiveness
Self-employed individuals can utilize the simplified forgiveness application which we usually called as an ‘EZ form’. This form applies to the employees who didn’t have any payroll. If they do not have the payroll expenses they can utilize the standard forgiveness PPP loan application.
We can expect the bog lenders that will set up their online application process, s they need not fill out the SBA’s version of the form. The forgiveness applications are not being accepted or processed just yet.
Documentation to prove the expenses for forgiveness – PPP loan application
A self-employed individual has to prove their expenses for the rent, utilities, and mortgage interest. For the owner compensation replacement, all they need to provide is their 2019 schedule C to be able to claim the forgiveness amount.
Always keep in mind that the lender and the SBA will have the right to audit the business’s financial documents and the records that are outlined in the respective loan agreement. It follows with the ongoing record habits.
In General, the PPP loan application carry generous terms. The PPP loans are usually issued with a 1% interest rate with the loans that are issued before the 5th of June in 2020 maturing after two years and the loans that are issued post this date has five years tenure. There are no collateral or personal guarantees that are required for the loan and there will not be any fees that are charged to the small level businesses by the credit unions or banks that are authorized these loans. The loan terms are also generous as the best aspect of them is they could be forgiven.
Requirements for Forgiveness
To qualify for the PPP loan application forgiveness, the businesses have to fulfill various requirements and terms that are updated on Dec 2020.
Completion of loan forgiveness application
As long as you have abided by the requirements and rules that are provided by the SBA, then self-employed individuals or businesses can submit their loan forgiveness applications. The businesses have to apply to the financial institution from which they received their PPP loan application. Small businesses with the employee also can utilize the standard PPP forgiveness application t avail the loan. The sole proprietors, individuals self-employed can utilize the EZ version of the application.
Full forgiveness requirements
At least 60% loan has to be used for payroll costs and the remaining for mortgage, utility, and others. If there is no payroll for self-employed the net profit of the weeks claimed can be taken into the consideration.
The loan forgiveness reduction from the EIDL
The stimulus bill revised in December 2020 about the Economic Injury Disaster Loan EIDL grants impact of the PPP loan application forgiveness. In general, the PPP loan forgiveness would be reduced by the amount of a business received in EIDL grants. The process is changed so that, loan forgiveness will not be reduced irrespective of the EIDL grant.
Steps to apply for PPP loan application- forgiveness
Step 1
Contact the PPP lender and complete the right form. The lender will provide either SBA form 3508, 3508EZ,3508S or an equivalent form.
Step 2
As a self-employed individual, if you do not have the payroll, you need these for PPP loan application:
Business mortgage interest payments with a copy of the lender amortization schedule, receipts for the payments verification, and statements.
Business rent or lease payments proofs and utility payment invoices and receipts as proof.
Step 3
Submit the forgiveness form and the respective documentation to the PPP lender with all the supporting documents and follow-up with the lender to submit the additional documentation if required or requested by the lender for PPP loan application.
Step 4
Communicate with your lender throughout the process of your PPP loan application. If SBA undertakes the loan reviewed, the lender will notify you for the review and SBA loan review decision. You can have the right to appeal on specific SBA loan review decisions. Your lender is responsible for notifying you of all the updates.
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