SBA Clarifies When You Need To Start Paying Back Your PPP Loan [Even if Bank Says Otherwise]
Small businesses have been hit especially hard during the COVID-19 pandemic. To help alleviate the financial burden, the U.S. Small Business Administration (SBA) has introduced the Paycheck Protection Program (PPP). The PPP is a loan program that offers forgivable loans to small businesses to help them pay their employees and keep their businesses afloat during the pandemic. It is an important source of financial assistance for many small businesses, but many are left wondering, “How long do I have to pay back a PPP loan?”
The answer to how long you have to repay a PPP loan depends on the loan terms and conditions. Generally speaking, the SBA requires PPP loan recipients to pay back the loan within two years, with interest rates set at 1%. However, the loan terms can vary depending on the lender. Some lenders may offer longer repayment terms, while others may require repayment in as little as six months. Additionally, the SBA has recently announced that borrowers may request an extension of up to five years for certain loans.
In addition to the loan terms, the amount of time you have to pay back a PPP loan also depends on the type of loan. The SBA offers two types of PPP loans: First Draw loans and Second Draw loans. First Draw loans are intended for businesses that have not previously received PPP loan funds, while Second Draw loans are for businesses that have already received a PPP loan. The repayment terms are different for each type of loan. For First Draw loans, borrowers must repay the loan within two years. For Second Draw loans, borrowers must repay the loan within five years.
The SBA has also announced additional repayment incentives for PPP loan recipients. For example, the SBA has stated that borrowers who have used their loan funds for eligible expenses will have their loan balance forgiven. This means that borrowers will not have to repay any portion of the loan that was used for eligible expenses, such as payroll costs. This is a great incentive for small businesses that are struggling to stay afloat during the pandemic.
Overall, the answer to how long you have to pay back a PPP loan depends on the loan terms, the type of loan, and any additional repayment incentives offered by the SBA. It is important to read the loan agreement carefully and to understand all of the loan terms and conditions before signing.
Key Points:
– Generally, the SBA requires PPP loan recipients to pay back the loan within two years, with interest rates set at 1%.
– The loan terms can vary depending on the lender, and the SBA has recently announced that borrowers may request an extension of up to five years for certain loans.
– The repayment terms are different for First Draw and Second Draw loans. For First Draw loans, borrowers must repay the loan within two years, while borrowers of Second Draw loans must repay the loan within five years.
– The SBA has also announced additional repayment incentives for PPP loan recipients, such as loan balance forgiveness for eligible expenses.
People Also Ask:
Q: How much time do I have to pay back a PPP loan?
A: Generally speaking, the SBA requires PPP loan recipients to pay back the loan within two years.
Q: Are there any repayment incentives for PPP loans?
A: Yes, the SBA has announced additional repayment incentives for PPP loan recipients, such as loan balance forgiveness for eligible expenses.
Q: How do First Draw and Second Draw loans differ in terms of repayment?
A: For First Draw loans, borrowers must repay the loan within two years, while borrowers of Second Draw loans must repay the loan within five years.
How Long Do You Have To Pay Back A Ppp Loan – Whats The Best?
The US Small Business Administration released new guidance on October 7, 2020, clarifying that lenders must recognize new extended deferral period for payments on all Paycheck Protection Program (PPP) loans, even if the executed promissory note indicates only a six-month deferral.
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The US Small Business Administration released guidance Wednesday clarifying that lenders must recognize the previously established extended deferral period for payments on the principal, interest, and fees on all Paycheck Protection Program (PPP) loans, even if the executed promissory note indicates only a six-month deferral.
The guidance means that lenders must immediately comply with the extended deferral period and notify borrowers of the change.
The Paycheck Protection Flexibility Act of 2020, P.L. 116-142, extended the deferral period for loan payments to either (1) the date that SBA remits the borrower’s loan forgiveness amount to the lender or (2) if the borrower does not apply for loan forgiveness, 10 months after the end of the borrower’s loan forgiveness covered period.
Before the Flexibility Act became law June 5, the deferral period could end after six months. And while the Flexibility Act extended the deferral period, it did not specify whether lenders and borrowers had to modify promissory notes used for PPP loans to reflect the extended deferral period.
Because the first PPP loans were awarded in April, some PPP borrowers had recently received notices from lenders that payments on their PPP loans were due. The new guidance, found in question No. 52 in the SBA’s frequently asked questions document for the PPP, clarifies that the deferral period extension automatically applies to all loans, with no requirement from the SBA of a formal modification of the promissory note.
The SBA published the new FAQ item a day after issuing a letter stating that it has begun remitting PPP loan forgiveness payments to lenders – in other words officially forgiving some of the 5.2 million loans, totaling $525 billion, granted under the program.
Congress created the PPP as part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136, which was signed into law March 27. The legislation authorized Treasury to use the SBA’s 7(a) small business lending program to fund loans of up to $10 million per borrower that qualifying businesses could spend to cover payroll, mortgage interest, rent, and utilities.
PPP borrowers can qualify to have the loans forgiven if the proceeds are used to pay certain eligible costs. However, the amount of loan forgiveness will be reduced if certain employment and compensation levels are not maintained or if less than 60% of the funds are spent on payroll over a loan forgiveness period of either eight weeks or 24 weeks.
The program stopped accepting applications on Aug. 8 with almost $134 billion of congressionally approved funds remaining unspent.