Paycheck Protection Program Details
The Paycheck Protection Program (PPP) is a component of the Coronavirus Aid, Relief, and Economic Security (CARES) Act that provides small businesses with capital to cover payroll costs through federally guaranteed loans.
The first phase of the PPP passed on March 27th, 2020 for $349 billion. In this first round, 1.6 million businesses were approved within 2 weeks. After the funds were exhausted, another $310 billion of funding for loans was made available on April 24th, 2020.
In July, it was announced that more than $120 billion in funds was still available to small business owners. Due to this, the application deadline was extended to August 8th for business owners that didn’t receive a PPP loan previously.
Now, in January 2021, there are two PPP loan options available to small business owners, referred to as first draw and second draw PPP loans. This round is designed to provide loans to small businesses that haven’t received funding yet in previous rounds as well as those who have lost 25% or more in revenue.
On this page, we’ll explain how you can qualify for this financing.
What Else Can I Do To Help My Business?
Key Features of the PPP
This financing option provides cash flow assistance through entirely government-funded loans to employers who continue to pay their employees during the COVID-19 process. By pursuing the Paycheck Protection Program, you’ll have financing to keep your valued employees on-staff, and the SBA will forgive the loans for eight weeks.
- Qualification Requirements:
Applicants must have fewer than 500 employees on-staff, but there are certain industries that can exceed this number. Here’s more information on the SBA’s size standards.
If you have multiple business locations, you may be able to apply for more than one loan. However, you must still have fewer than 500 employees across all businesses. In addition, businesses that were formed after February 15th won’t qualify. Otherwise, there’s no additional time in business requirements.
At this time, credit determinations will be made at the lender’s discretion.
- Loan Amount & Terms:
The maximum loan amount is $10 million, depending on payroll costs. At this time, a borrower’s PPP loan can be for an amount equal to 2.5 times their business’s monthly payroll expenses.
This also depends on any loans outstanding under the SBA’s Disaster Loan Program since January 31st. However, seasonal and new businesses will have payroll expenses capped at $100,000 annually per employee. The length of the PPP loan is 5 years.
- Interest Rates & Fees:
The maximum interest rate for the PPP is 1%, and there’s no application, loan, or prepayment fees.
- Collateral Requirements:
The SBA doesn’t require collateral or a personal guarantee in order to apply.
- Use of Funds:
The main use of this program is payroll, which encompasses many expenses, including salary, commissions, and tips (which are capped at $100,000 annually per employee). It can also cover employee benefits and state and local taxes based on compensation.
In addition to using the funds for payroll, you can also utilize it for mortgage interest, rent, and utilities.
- Funding Timeline:
Per the SBA, applicants can be approved relatively quickly and expect to have funds in their account within 2 to 3 weeks.
- How to Apply:
- Application Deadline:
PPP loans are available through August 8th, 2020.
- Loan Forgiveness & Deferment:
This financing option is forgivable for amounts spent on the approved use of funds during the 8-week period following the receival of funds.
However, this cannot exceed the principal of the loan. In addition, the amount of loan forgiveness will be reduced if the business’s number of full-time employees decreases. Loan forgiveness will also be reduced if salaries and wages decrease after loan origination.
The PPP has a 6-month deferral, but interest will continue to accrue during this time.