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

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The federal government is about to turn off the tap on its small business forgivable loan offer.

Saturday August 8 is the last day for entrepreneurs to apply for a Paycheck Protection Program loan.

Since it opened on April 3 through the CARES Act, more than 5 million small business loans have been approved, totaling $ 521.7 billion, according to August 3 data from the Small Business Administration.

Entrepreneurs were drawn to the program because loans are repayable if borrowers spend at least 60% of the proceeds on salary expenses. Those who miss the threshold may be eligible for a partial pardon.

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Even if the loan must be repaid, the terms are attractive. Borrowers are subject to an interest rate of 1% and there is a six-month grace period before repayment begins.

Loans issued before June 5 must be repaid within two years. Those issued after this date have a maturity of five years.

“Some companies may not have been affected when the pandemic started and held on, but as things drag on they start to hurt,” said Edward S. Karl, CPA and vice president of taxation at the American Institute of CPA.

“Not only are these loan terms favorable, but more importantly, in many circumstances the business can apply for and get a loan forgiveness.”

Those who wait too long might miss it.

“The main hurdle now is finding lenders who are willing and able to meet the demands,” said Albert Campo, CPA and managing partner at AJC Accounting Services in Manalapan, New Jersey.

“We don’t know what the next two months will look like with potential closures,” he said. “If the banks don’t lend at the end of the day, it will be very difficult for many small businesses to survive in the future.”

Here’s what you need to know if you’re getting ready to apply with a few days left.

Gather your papers

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If you filed your 2019 tax return before July 15, you should already have the supporting documents required by your lender.

It could be more complicated if you go into overtime and defer your taxes until October 15.

The net income you report on the loan application should match the numbers on your 2019 tax return, said Sheneya Wilson, CPA and founder of Fola Financial in New York City.

A discrepancy between these figures could report your fraud request, she said.

Covid-19 shows how exposed these small businesses are, and so we figure out how to take advantage of available loans and programs.

Sheneya wilson

CPA and founder of Fola Financial

Indeed, a Florida man allegedly embezzled nearly $ 4 billion in PPP funds and used around $ 318,000 to buy a Lamborghini, according to the Ministry of Justice.

Expect lenders to ask for the following:

  • Completed income tax returns for 2019, including Schedule C if you are an independent contractor or self-employed.
  • Invoices, bank statements or register showing that you are self-employed and active on or around February 15, 2020.
  • Form 1099-MISC if you are an independent contractor. This details the compensation you received.
  • Bank statements showing the income paid to you.
  • If you have employees, submit forms 941 and 940, which show Social Security and Medicare tax deductions and unemployment payments, respectively.
  • Proof of health care and pension plan contributions.

Watch your budget

Although the SBA continues to publish details about the pardon via frequently asked questions, the general guidelines call on entrepreneurs to allocate at least 60% of their funding to the payroll to obtain the pardon.

“At this point, you plan how to use the funds to maximize your forgiveness eligibility,” Campo said.

What this might imply will be nuanced depending on the type of business it is. Business owners in high-rent locations could devote a significant portion of their income to these expenses.

Businesses also need to closely monitor their budgets, especially as state regulations may require them to operate at reduced capacity due to the pandemic.

Indeed, many PPP borrowers face the fact that they are strapped for funding as Covid-19 continues to hurt their income.

“Can you cover your costs at this point?” Campo asked. “Are you going to keep the costs where they were before the coronavirus and absorb the blow?

“Do you have enough cash to cover your costs and do you hope that in the next four to five months we will have a vaccine?” “

Forgiveness tracking

The SBA is supposed to begin processing lender pardon requests on August 10, but the date could be changing as Congress prepares the next step in coronavirus relief.

“Even some lending institutions are not yet accepting forgiveness requests,” Wilson said.

While there is no way to predict how lawmakers may proceed, borrowers can take steps to make the forgiveness process less painful.

If you’ve just received P3 funding, consider keeping those dollars in a separate business bank account. Document the ways you use the funding and keep official books and records, the CPAs said.

It’s also a good time to think about your business tax planning for the future.

“Covid-19 shows how exposed these small businesses are, and so we are figuring out how to take advantage of available loans and programs,” Wilson said. “We are also evaluating our business operations so that next time we are not so badly affected.”

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