SBA Program May not Forgive as Much of the Loans as Business Owners Believe

The Small Business Administration (SBA) may forgive your stimulus loan, but only if you read the fine print. 

Small business owners can borrow up to $10 million under the Paycheck Protection Program designed to help companies during the coronavirus pandemic. Employers can use the funds to cover the costs of salaries, bonuses, retirement benefits, parental leave and health care benefits.

The loans are forgivable, but only if employers use 75% of the amount borrowed to cover the cost of payroll, per NBC News. That means if business owners want their loan forgiven, they can only put 25% of the amount toward rent and other supplies. As an example, if a business’s payroll is $75,000, the maximum forgivable amount is $100,000.

If business owners must spend more than 25% of the loan on non-payroll expenses, then they will need to pay back the unforgiven part of the loan within two years at a 1% interest rate. 

The loan is a good deal for many employers. However, for a business owner who maintains few employees, but high rent or supply expenses, he or she may want to take the forgiveness clause into consideration.