News

The federal government is about to turn off the tap on its supply of forgivable loans for small businesses.

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

Since it opened on April 3 via the CARES Act, more than 5 million loans to small businesses have been approved, adding up to $521.7 billion, according to Aug. 3 data from the Small Business Administration.

Entrepreneurs have been attracted to the program, as the loans are forgivable if borrowers spend at least 60% of the proceeds on payroll expenses. Those who miss the threshold may be eligible for partial forgiveness.

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

Loans that were issued prior to June 5 must be repaid in two years. Those issued after that date have a maturity of five years.

“Some businesses may have not been impacted at the beginning of the pandemic and have held on, but as things dragged on, they’re starting to hurt,” said Edward S. Karl, CPA and vice president-taxation at the American Institute of CPAs.

“Not only are these favorable loan terms, but the big thing is that, under many circumstances, the business can apply for and get loan forgiveness.”