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. However, most of these individuals are still waiting to receive the funds.
After the funds were exhausted, another $310 billion of funding for loans was made available on April 24th, 2020. In this second round, it’s anticipated that funds will run out just as quickly, with so many business owners still in need of funds.
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. More information on the SBA’s size standards can be found here.
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. 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 2 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:
This program will commence on Friday, April 3rd for small business owners and sole proprietors, and April 10th for independent contractors and self-employed individuals. PPP loans are available through June 30th, 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. If the business can resume full-time employment and salaries by June 30th, this reduction won’t apply.
The PPP has a 6-month deferral, but interest will continue to accrue during this time. The SBA will provide additional directions to lenders about deferment guidelines by April 27th.