PPP Loan Forgiveness Misconceptions

The do's and don'ts of PPP loan forgiveness.

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The covid-19 pandemic hasn’t been easy on anyone, including business owners. According to data released by the government about the Paycheck Protection Program (PPP loan), more than half of the funds were allocated to just 5% of businesses that applied for the aid. 

Additionally, just 28% of the money was provided in amounts less than $150,000. Whether you are a business owner who received a PPP loan or not, you’ve probably contemplated various PPP loan forgiveness misconceptions. If you were denied the loan, you may have applied for bridge loans or alternative funding instead. If you received the loan, you could be concerned about how much of it will actually be forgiven. 

We’ve compiled a list of common myths surrounding the PPP loan so that we can debunk them and clarify the situation. You’ll also find some other funding methods that could help keep your business afloat during these difficult times.

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What is a PPP Loan?

In 2020, Congress introduced the Paycheck Protection Program, which provides forgivable loans aimed to help businesses cover operating expenses and maintain payroll. Small businesses with 500 employees or less were eligible to apply, along with sole proprietorships, independent contractors and the self-employed. 

On January 11, 2021, businesses could apply for a second round of PPP funds. However, only businesses with less than 300 employees are eligible to apply. They must also prove that they’ve experienced a 25% reduction in gross receipts compared to the same period in 2019. 

Debunking PPP Loan Myths

There has been a lot of changes to the program since it first was released, which has led to some widespread confusion about who is eligible and what the loan really offers. 

Let’s review some common myths, so you can know the facts:


  • Need employees to receive: If your business is registered as an S corp or C corp, then yes, you would have to have proof of payroll to receive this type of funding. However, self-employed individuals that are documented as such, or are designated as sole proprietors or independent contractors, are also eligible for aid. 
  • It’s a low-interest loan: The PPP loan comes with strict designations as to what it should be used for. The goal of the program is to make it possible for businesses to retain employees and continue covering payroll. It was not meant to be used as working capital. However, if you’re looking for a way to obtain capital that can be used for any purpose, then consider a small business loan or merchant cash advance.

  • It’s for businesses going bankrupt: Your business does not have to be on the brink of bankruptcy to receive assistance. It simply requires that you show proof that your business has been affected negatively because of the pandemic.

PPP Loan Forgiveness Requirements

According the the SBA, PPP borrowers can have their loan fully forgiven if and only if the funds were used to cover:

  • Payroll costs
  • Mortgage interest
  • Rent and utilities 

Once the loan is funded, the clock for forgiveness is turned on, It began at eight weeks and was later extended to be 24 weeks. If a business fails to adhere to the forgiveness conditions, then the loan will have to be paid back to the bank. Here are the details straight from the SBA.

stack of documents

Loan Forgiveness Misconceptions

Despite the fact that the SBA has outlined its forgiveness conditions, there are still some misconceptions, including:

  • It’s all or nothing: Although it’s optimal for the full loan amount to be forgiven, it doesn’t have to be all or nothing. In fact, it can be reduced in degrees, depending on how you’ve used the funds. If you’ve spent more than 25% of your loan amount on non-payroll expenses, then the maximum forgivable amount will be your payroll costs divided by .75. Additionally, the total forgivable amount is in proportion to your reduction in headcount, or decreased by the total amount you reduced an employee’s wage by if it was more than a 25% reduction.

  • Documentation doesn’t matter: For everything that you use your loan funds to cover, be sure to retain documentation. You’ll have to provide this information to your loan provider to be eligible for forgiveness. If you’re a sole proprietor, then you wouldn’t have used the funds for payroll. You are allowed to use it to replace lost income for up to $100,000 annualized.

  • SBA calls the shots: While the SBA does oversee the program, the funds still come from a lender. As such, each lender may have their own requirements, so it’s important you cover all the bases and ask questions to understand loan forgiveness.

Bridge Loans and Alternative Funding Options

Since many small businesses were denied a PPP loan, and some won’t be eligible for the more recent round, it’s useful to know about other financing options. 

A bridge loan is a short-term loan that can be used until you can find secure and more permanent funding. Bridge loans can provide you with immediate cash flow, but you’ll likely face high interest rates and have to provide a form of collateral (possibly real estate or inventory). 

Furthermore, if you’re a retail business or a business with credit card transactions as sales, then consider a merchant cash advance. A merchant cash advance is not technically considered to be a loan. Instead, you’re selling future sales to a lender like Uplyft Capital today so you can have quick access to cash. Over time, you’ll pay back the sum as a portion of your sales.

Final Words

The Paycheck Protection Program has always been intended to help businesses cover payroll costs and keep their employee head count the same despite the hurdles posed by the pandemic. Yet, many large businesses received the aid. And so, the government created another round of funds that more strictly stipulates its intention for small businesses. 

Even so, many small businesses were unable to receive funding and are still seeking financial aid. Consider alternative funding methods like small business loans, bridge loans and merchant cash advances to achieve relief. 

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