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July 1, 2022

PPP Loan Forgiveness – Pros and Cons

PPP Loan Forgiveness – Pros and Cons

by MikeH / Thursday, 18 February 2021 / Published in Flexibility Capital
Pros and cons

All you need to know about Paycheck Protection Program loan (PPP)

The Paycheck Protection Program loan is a type of funding program established by the U.S Small Business Administration (SBA) to provide easy business funding to help small businesses, self-employed workers, and non-profit organizations who are affected by COVID 19. PPP fundings have an interest rate of 1%. Also, in order to access this funding, it is not necessary to provide any personal guarantee or security of paying back the loan. 

However, there were some myths when SBA introduced this loan. Some believed that it was fraud news and truth while some were confused that they will only support large corporations and not small businesses. Also, some thought the interest rate must be high and PPP loan forgiveness is all fake. But, SBA has clearly stated all its procedures and guidelines declaring all of them as a myth.

PPP Loan Forgiveness

You are eligible to claim 2.5 months’ worth of your 2019 or 2020 net profit to replace pay. If you did not have any other payroll expenses factoring into your PPP loan amount, this means your entire PPP loan could be forgiven for the 24-week period.

The organizations should spend the amount on authorized expenses. Total payments for payroll may be forgivable. Many businesses were at the loss. But still, some companies continued paying their employees. Seeing such a scenario, the government agreed on PPP loan forgiveness.

Pros:-

COVID-19 pandemic had an adverse effect on everybody. PPP is the best program launched by the U.S government to help citizens. Many small businesses shut, many house-workers got unemployed. PPP gave them one more chance to settle their loss. If an individual could not pay the loan, he can apply for the PPP loan forgiveness option. This was the government’s best step to support its citizens.

  • Saved small businesses

Due to the lockdown, many start-ups and small businesses ran out of loss. No customers, no profit. Many companies were on the verge of shutting down. The PPP saved them all. It gave them support to continue their work. 

  • Helped non-profit organizations

Non-profit organizations run on charity. It was obvious that everyone was going through their own bank balance breakdown, so rarely somebody did the charity.  The Paycheck Protection Program forgiveness helped these organizations to not pay the loan back. Such organizations can apply for PPP loan forgiveness and they do not have to pay back the loan anymore.

Cons:-

This program, with some terms and conditions, gets ready for loan forgiveness. Also, it does not follow some strict action. It has some mentioned points, participants can show the loss on those mentioned points and then can get rid of paying the loan back. This will not affect the individual, but the nation. To clarify, if everybody who took the PPP funding, applies for the PPP loan forgiveness, it will indirectly cause loss to the government. Above all, the government will not get the money back or get a very negligible amount back which affects their own economy.  Some genuinely apply for loan forgiveness and many more just want to take advantage of the government’s easy program policies without really thinking about its consequences.

Conclusion 

As it has been said, every coin has two faces so it is obvious everything has its pros and cons. The same goes with PPP loan forgiveness too. But, this program is no less than an angelic program for those who need it badly. Remember, this program saved many small businesses at the worst time. PPP loan forgiveness is for the organizations which took funds for payroll, mortgage, rent, lease, and utilities.

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