Prepaying PPP Loan Prior to Requesting Forgiveness

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the11diesel
Posts: 128
Joined: Wed Sep 05, 2007 10:18 pm

Prepaying PPP Loan Prior to Requesting Forgiveness

Post by the11diesel » Fri May 22, 2020 1:57 pm

Hi all,

It is my understanding that the principal--but not the interest--of PPP loans are eligible for forgiveness. Since there is no prepayment penalty, is anyone else considering prepaying the PPP loan prior to going through the forgiveness process?

Obviously, the interest rate on the PPP loan is relatively low, so we're not talking huge dollars. If there were no downside to paying it off early, however, I thought it may make sense to do so in order to stop incurring the additional interest. One potential downside of paying it off is that it sets up an extra step for the loaning bank and/or the government to go through for purposes of "forgiving" the loan, since it would be necessary for funds to be transferred back to the company I work for (rather than simply not requiring payment from my company).

Thoughts???

-RJ

terran
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Joined: Sat Jan 10, 2015 10:50 pm

Re: Prepaying PPP Loan Prior to Requesting Forgiveness

Post by terran » Fri May 22, 2020 2:01 pm

I wouldn't do this. I suspect the most likely mechanism for forgiveness is to reduce the loan amount, and I wouldn't count on repayment beyond the remaining loan balance to be an option. I suppose if you really wanted to you could repay the amount you're certain won't be forgiven.

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8foot7
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Re: Prepaying PPP Loan Prior to Requesting Forgiveness

Post by 8foot7 » Fri May 22, 2020 2:20 pm

At 1% interest annualized over a couple of months I think I would just sit tight and let the forgiveness process be nailed down, worked out, and have a few people go through it. Even a $250,000 PPP loan will incur just $200 per month in interest, and if your time is worth anything, fighting to get money refunded back out of a loan that's already been paid could easily exceed that.

If you are a sole proprietor and you know the fixed amount of forgiveness to expect, then I might go ahead.

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MP123
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Re: Prepaying PPP Loan Prior to Requesting Forgiveness

Post by MP123 » Fri May 22, 2020 2:24 pm

So much is up in the air regarding use and forgiveness of the loan that I wouldn't be in a big hurry to pay it off. It might turn out that the portion you repaid early would in fact be forgivable too. It's only 1% interest, I'd wait until the SBA finalizes their rules and guidance before paying any remainder back.

jjface
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Re: Prepaying PPP Loan Prior to Requesting Forgiveness

Post by jjface » Fri May 22, 2020 2:44 pm

I am in no hurry. Rules are unlikely to change for me but you never know. Will wait until the forgiveness system is up and running at my lender and my 8 weeks are up. Interest for me is probably less than $20 over a few months anyway.

Pdxnative
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Re: Prepaying PPP Loan Prior to Requesting Forgiveness

Post by Pdxnative » Fri May 22, 2020 4:34 pm

Does not seem worth repaying before seeing how forgiveness settles out—you could be costing yourself money to save a pretty small amount of interest.

simas
Posts: 630
Joined: Wed Apr 04, 2007 5:50 pm

Re: Prepaying PPP Loan Prior to Requesting Forgiveness

Post by simas » Fri May 22, 2020 4:47 pm

the11diesel wrote:
Fri May 22, 2020 1:57 pm
Hi all,

It is my understanding that the principal--but not the interest--of PPP loans are eligible for forgiveness. Since there is no prepayment penalty, is anyone else considering prepaying the PPP loan prior to going through the forgiveness process?

Obviously, the interest rate on the PPP loan is relatively low, so we're not talking huge dollars. If there were no downside to paying it off early, however, I thought it may make sense to do so in order to stop incurring the additional interest. One potential downside of paying it off is that it sets up an extra step for the loaning bank and/or the government to go through for purposes of "forgiving" the loan, since it would be necessary for funds to be transferred back to the company I work for (rather than simply not requiring payment from my company).

Thoughts???

-RJ
Isn't the interest only charged on amounts not forgiven (total amount granted minus forgiveness amount is converted to the loan)?
if that is true, zero value to be prepaying anything
if that is not true , the 1% over two year is incredibly cheap money and make no sense to prepay. for comparison, VWIUX (Vanguard intermediate term muni index admiral shares) has reported sec yield of 1.82%..

EnjoyIt
Posts: 3934
Joined: Sun Dec 29, 2013 8:06 pm

Re: Prepaying PPP Loan Prior to Requesting Forgiveness

Post by EnjoyIt » Fri May 22, 2020 4:50 pm

I took my loan monies and immediately placed them in a high yield savings account earning 1.3%
Once this whole forgiveness thing is figured out I will move or use it.

Luckywon
Posts: 918
Joined: Tue Mar 28, 2017 10:33 am

Re: Prepaying PPP Loan Prior to Requesting Forgiveness

Post by Luckywon » Fri May 22, 2020 5:21 pm

Huge downside potential (forfeit forgiveness) , minuscule upside potential. Sounds like a very bad idea to me.

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