US governors set a lockdown since March to stop the spread of coronavirus. This situation causes a lot of small businesses struggle to survive. Many of them are unable to operate under the same level of business activity.
To help businesses survive during this difficult situation, the CARES Act establishes PPP loan or the loan forgiveness program. Payment Protection Program (PPP) aims to help businesses keep running under this circumstance. There are two main reasons why this program was established.
The first one is to give aid to businesses in funding. When business owners get the fund they need to keep the business running, it will help to prevent the economy from collapse. The second reason is to make sure that workers can keep their job. Many workers losing their job will cause unemployment rates to increase. The increasing number of unemployment can bring a negative impact on the economy
Loan Forgiveness for Small Business
Despite the positive impact of the PPP loan, many small business owners still hesitate to use the money. This is due to the long list of requirements that they need to fulfill.
When the loan forgiveness first releases for small businesses last month, there are a lot of rules that borrowers should meet. They should use at least 75% of the fund for the payroll. They also have to make sure that the monthly payroll doesn’t decrease more than 25% than before.
Borrowers can use the remaining 25% of the loan for the operational costs. But the fund should not be used for paying mortgage principal. If borrowers spend the money outside the requirement, they will have to pay it back. Borrowers must pay the money within 2 years with 1% annual rate.
Those requirements put many business owners in a difficult position. Because it means they have to choose between using the money in ways that won’t benefit their business or taking more debt.
New Form Released on Wednesday
In an attempt to pump the economic growth, Small Business administration released a new loan forgiveness form on Wednesday. The new release form eases some difficult requirements.
In the new form, the proportion of money that needs to be spent on payroll decrease to 60%. The new form also requires less documentation. This makes it possible for self-employed and business owner with no employee to apply for the program.