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How to make sure you get the maximum amount forgiven on a PPP loan if you're a business owner relying on government funds to stay afloat

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  • The Senate recently approved $310 billion more in funding for the Paycheck Protection Program (PPP), which offers forgivable loans to struggling small businesses.
  • Karen Mills, former head of the US Small Business Administration (SBA) and senior fellow at Harvard Business School, offered advice for getting the maximum amount forgiven from your PPP loans on an episode from Linkedln's webinar series "Business Unusual."
  • Using PPP loans for anything other than payroll costs, rent, or utility bills will ultimately reduce the amount of money forgiven, she said.
  • Here's how to maximize the amount forgiven from your PPP loan.
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Many small-business owners are struggling in the wake of social distancing and self isolation caused by the coronavirus pandemic.
However, there are some opportunities for relief.
The Senate recently approved an extra $310 billion in funding for the Paycheck Protection Program (PPP), which provides forgivable loans and grants to small-business owners and independent contractors who retain workers during this international disruption.
The Paycheck Protection Program covers mortgage interest, rent, and utility payments for small-business owners up to eight weeks after receiving the loan. Failing to maintain staff, payroll, or using these funds for anything other than the allowed expenses will reduce the amount of money forgiven.
While some help is better than no help, it can be difficult to know how to get the most money forgiven.
In a recent episode of Linkedln's webinar series "Business Unusual," Karen Mills, a senior fellow at Harvard Business School and a former head of the Small Business Administration, offered tips for maximizing the amount forgiven on your PPP loans. Mills said it is critical for leaders to prioritize what makes the most sense for the reopening of their business.
"One of the things to do right in this moment, besides going to get as much money as possible from all the programs, is to think about your business with a fresh eye," Mills said. "You should think about what customers are really profitable to you."
Mills also recommends using this time to identify the products your customers value.
Maintaining your staff, wages, documenting your expenses, and keeping in contact with your bank are all tools for increasing the amount forgiven on your PPP loans, she said. Here are four tips for getting the most out of your PPP loan.

Keep your employees

Mills said it can be tempting to lay off or furlough employees to cut expenses. But decreasing the number of full-time employees in your business will reduce the amount of money forgiven on your loan. One of the main guidelines for the PPP loan is retaining staff.
If you're contemplating layoffs, Mills said retaining your staff can help you qualify for more funding.
"Small businesses think of their employees like family," Mills said. "You want to make sure that they stay on the healthcare and that they stay employed rather than go to unemployment, which many have had to do."

Keep their wages up

Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 in 2019, according to a fact sheet by the US Department of Treasury.
Therefore, you must pay your employees, Mills said. If you're a small-business owner who let your employees go, she recommends rehiring them for the company's long-term survival.

Keep your receipts

No more than 25% of the forgiven amount may be for nonpayroll costs, notes the US Department of Treasury. According to Mills, it is especially important to keep track of the information you submit for payroll documentation.
When you're filling out an application for the PPP loan, you should include documents that verify the number of full-time employees and pay rates, as well as the payments on a mortgage, lease, and utility bills.

Keep in touch with your lender

If you want your PPP loan to be forgiven you should first submit a request to the lender that is servicing the loan, according to the US Department of Treasury. The lender must make a decision on the forgiveness of the loan within 60 days.
Ultimately, all of these steps are not only important for keeping the lights on at your business but can help you reach a bigger goal in mind — reopening.
"One of the hopes is that while we are going to talk about how to get this funding," she said. "We also should think about how are you going to change your business for the better for the future."
SEE ALSO: How your small business can cash in on the government's $349 billion relief program so you can quickly pay rent, keep staff employed, and restructure your debt
SEE ALSO: Small business owners can get either loans forgiven or payroll tax relief from the $2 trillion coronavirus stimulus bill, but not both. Here's how to decide which is better for you.
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