What you want to know about PPP loan

PPP Loan

The Paycheck Protection Program is a loan designed to provide a direct incentive for small businesses to keep their workers on the payroll.

Loan forgiveness

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 60% of the forgiven amount must have been used for payroll).

Loan details

1. PPP loans have an interest rate of 1%.

2. Loans issued prior to June 5 have a maturity of 2 years. Loans issued after June 5 have a maturity of 5 years.

3. Loan payments will be deferred for six months.

4. No collateral or personal guarantees are required.

5. Neither the government nor lenders will charge small businesses any fees.

Impact on your business financials

o When loan is funded to association, loan balance is recognized on company’s balance sheet.

Dr: Cash // Cr: PPP Loan Payable

o When loan is utilized to cover association’s payroll, rent, utilities, and other related expenses.

Dr: Payroll /Rent/Utilities/Interest Expenses // Cr: Cash

o When the loan is forgiven by the lender with approval letter, loan will be removed from balance sheet and income will be recognized.

Dr: PPP Loan Payable // Cr: Other Income – Cancellation Debt

o When company makes loan principle and interest payment

Dr: PPP Loan Payable Dr: Interest Expense – PPP Loan // Cr: Cash Account

Frequently Asked Questions about PPP Loan Forgiveness (08-11-2020)

Impact on your tax’s return

o When your business borrows PPP loan, your business is not under any obligation to pay any tax at this point.

o Per the IRS, loan amount that is forgiven would not be included in taxable income. However, IRS has clarified that no deduction is allowed for any expenses paid for with the forgiven loan. With the loan forgiveness, business get some benefits, however, tax impact could be different for different busines as some deductions are not allowed to be utilized, potential tax liability could be more than what you expects for year 2020.

Contact me if you have any questions.