Now that you’ve gotten your new business off the ground, you may be wondering if your small business will qualify for loan forgiveness. Don’t worry. Many business owners are eligible for forgiveness under the SBA’s EIDL program or the Department of Education’s PPP program. We’ll break down how to qualify for them in the following sections.
What is the Difference Between PPP and SBA?
There are several similarities between the PPP and Small Business Administration (SBA) grants. The main difference is how the money is used and distributed. Both programs focus on providing business grants for economically distressed areas and offer loan forgiveness to recipients of these grants.
It’s important to understand exactly what each program offers before applying or accepting a grant, as each has different guidelines for success.
EIDL Grant Forgiveness Qualifications
According to Lantern by SoFi, business owners can get up to $10k of the Targeted EIDL Advance forgiven. To receive this, you must be a resident of a designated rural or urban low-income community and have received an EIDL Grant from your lender. Businesses must also provide goods or services that will benefit these low-income communities through local economic development initiatives.
You may also qualify for loan forgiveness if you have less than 300 employees and meet other requirements. Eligible small businesses in one of 604 eligible counties may get up to $5,000 per Targeted Advance borrower forgiven. Also, if at least 50% of your business’s total annual gross revenue was affected by the pandemic, you could receive a full EIDL grant forgiveness.
Consequences for Non-Permitted Use of The EIDL Grant
The EIDL may be subject to immediate payback of 50% more than the initial loan amount, per IRS non-compliance policy, for one or more reasons.
Some include using the loan for purposes not permitted under law or using them after institutions transferred it from a prior employer without a repayment. If you knowingly transferred an EIDL without repaying your debt to a previous employer, possible criminal charges could apply.
PPP Loan Forgiveness Qualifications
The CAA, 2021, made sure business owners can become eligible for forgiveness for up to 100% of the original loan. Also, the Passage of the PPP Flexibility Act of 2020 allows any owner, investor, or operator who took out a loan under the PPP Program to apply for loan forgiveness for up to 80% of their total outstanding loan amount. Of course, applicants had to use at least 60% of the grant funds within 18 months while meeting certain other criteria to be eligible.
Consequences for Non-Permitted Use of The PPP Loan
Violators may be subject to immediate payback of the entire loan, which may have been disbursed in multiple payments. The government will then charge interest at a higher rate per year from the disbursement date. If you spent 40% of the loan for non-payroll costs, you are also subject to fines and disqualification from the PPP loan forgiveness program.
Consequences may also include participation in any Department of Energy audit or investigation. They are subject to criminal prosecution by appropriate federal authorities. These violations can result in disqualification from any further participation in EIDL unless there has been full restitution and appropriate measures taken to ensure future compliance.
If federal loans are a burden on you, you may be eligible for loan forgiveness programs that will help lighten your load. This post explored two such programs. It’s important to know that each program has its own set of eligibility requirements and that neither is a catch-all get out of debt-free card.