SBA Paycheck Protection Program (PPP) Loans
When business is anything
but usual
How a Paycheck Protection Program (PPP) Loan Works
Loan Amount: Loan amounts are limited to $2 million for Second Draw PPP loans and $10 million for First Draw PPP loans, respectively. Loan amounts are limited to 2.5 times your average monthly payroll cost (or 3.5 times for companies in the hospitality and food service industry).
Rates and Expenses: There are no additional fees of any type, including origination fees or prepayment penalties, and the interest rate is fixed at 1%.
Duration: 5 years. Prior to June 5, 2020, the term for PPP loans is 24 months.
Repayment: Whether and when you ask for debt forgiveness will determine how long you can delay making payments on PPP loans.
Eligibility for a PPP Loan
Small businesses must meet the following criteria for a First Draw PPP Loan:
Businesses with 500 or fewer employees, including independent contractors, sole proprietors, self-employed people, charities, tribal organisations, and veteran organisations
Entities that adhere to the SBA’s industry-based small company size standards: Full Guidelines Here
Small businesses must meet the following loan qualifications for a Second Draw PPP Loan:
possessed a prior PPP First Draw loan and had used or anticipated using the entire principal amount for permitted costs.
Must be able to provide evidence of a decrease in gross revenue of at least 25% from 2019 to 2020.
has no more than 300 workers
Understanding PPP Loan Forgiveness
From the conclusion of the covered period forward, you are qualified to submit a loan forgiveness application (the 8- to 24-week period after you received your funds). You have until the loan’s maturity date to submit an application for forgiveness. The final instalment of the loan is payable on the maturity date.
Eligibility
PPP Loans may be forgiven, along with accumulated interest.
- Up to 100% of PPP Loans may be forgiven.
- Forgiveness is only available on PPP Loans used for payroll costs, operating expenses, supplier costs, worker protection costs, covered property damage costs, rent, covered utilities, and mortgage interest (no prepayments).
- Payroll expenditures must account for at least 60% of the entire amount of PPP Loan money (including benefits)
Forgivable Amount
This is equal to how much was spent over the covered period (8 to 24 weeks) on permitted expenses after:
- You got your PPP Loan money, or
- the start of your subsequent payroll cycle
The following situations may result in a reduction of the forgiven sum:
- If the PPP Loan funds are not used for the 60/40 ratio of permitted costs,
- If wage and benefit levels are not preserved
Forgiveness Application
There is only one application available for PPP Loans of $150,000 or less. For PPP Loans over $150,000, there are two applications: the EZ Application and the Full Forgiveness Application.
You must be able to attest to one of the following in order to be eligible for the EZ Application:
- You operate a sole proprietorship, independent contractor, or non-employer (self-employed) firm.
- You did not decrease personnel levels and annual salaries of employees by more than 25% over the covered time.
- You might prove that you were unable to maintain normal business levels by showing that you did not lower yearly compensation or hourly wages of employees by more than 25%.
For businesses with PPP Loans at or under $150,000, you can find your Forgiveness Application form here. For businesses with PPP Loans over $150,000, if you are eligible for the EZ Application, you can find the EZ Application form here. If you are not eligible for the EZ Application, you can find the Full Forgiveness Application form here.
PPP vs. EIDL Loans
Under the CARES Act, the SBA launched the Paycheck Protection Program, a new financing initiative with the goal of providing small companies with payroll support as soon as possible. An established SBA loan programme called the Economic Injury Disaster Loan Program offers low-interest loans to companies that have been impacted by natural disasters. Businesses affected by COVID-19 can now apply for loans because to the CARES Act’s increased funding for this programme.
PPP loans are a fantastic choice for small businesses in need of money to pay their employees and pay their rent. If your company needs money to pay for payroll, sick leave, mortgage or rent payments, or to pay off current debt commitments, an EIDL loan may be a viable choice. Since the first year’s payments are deferred, you do have some time to restart your firm before you must begin making loan payments. EIDL loans, however, do not offer loan forgiveness, and their interest rates are greater than those of PPP loans (though still relatively low). Additionally, you are allowed to apply for both a PPP loan and an EIDL loan, but you must have different use cases for each loan’s funds (for example, you cannot use both applications to request money for payroll support).
FAQs: SBA PPP Loans
*When will I have to start paying the loan back?
Payments on your PPP Loan are postponed until you’ve applied for forgiveness and received a decision from the SBA, but interest will continue to accrue during this time if you submit your application for forgiveness within 10 months of the end of the covered period (8- to 24-week period after you received your funds). The PPP loan payments are no longer deferred and you must start paying loan payments to your PPP lender if you request for forgiveness after that 10-month period but before the PPP loan maturity date (the maturity date is the date on which the final payment of the loan is due). Depending on the allowed forgiveness amount once you receive a decision from the SBA, your PPP lender might have to return the payments you’ve already made.
Payments are delayed for 10 months following the conclusion of your covered period if you do not apply for forgiveness.
Is there any collateral or personal guarantees needed for this loan?
Loans made under the Paycheck Protection Program are supported by a federal loan guarantee. There is no need for a personal guarantee or collateral.
The Payroll Protection Program: What is it?
Payroll Protection Program does not exist. The Paycheck Protection Program, however, is occasionally mispronounced as the Payroll Protection Program.
I haven’t heard anything about my current PPP loan being forgiven. Are Second Draw PPP loans still available?
The decision to forgive your current PPP loan will not affect your eligibility for a Second Draw PPP loan, but you must certify on your application that you spent the entire loan amount only for expenses that qualify for forgiveness (for more information, see detailed guide from U.S. Chamber of Commerce).
What costs are included in payroll? I employ freelancers while working alone. Have I received my payroll?
Payroll expenses cover wages and benefits provided to employees, including health insurance, retirement benefits, parental and sick leave, and vacation time. Payroll expenses for sole proprietors and independent contractors also include compensation or net self-employment earnings. On an annually basis, there is a $100,000 cap on costs per employee. Check out the U.S. Chamber of Commerce’s great guide for more information on payroll costs.
I need money for more than just paying the bills. Do I have access to any other financing options?
Yes. You might be qualified for an SBA loan or an Business Capital Resource business loan. For additional information on other government aid initiatives for small businesses during COVID-19, you can also visit the resource portal. You can be qualified for a loan or grant from your local or state government, as well as an SBA Economic Injury Disaster Loan, if the coronavirus has had an impact on your company (EIDL).
Can I acquire a PPP Loan and an Business Capital Resource Business Loan at the same time?
Yes. We at Business Capital Resource recognise that these loans may be used for a variety of objectives, therefore we make it simple for you to apply for both a PPP Loan and an Business Capital Resource Loan. Please be aware that Business Capital Resource does not accept PPP loan applications.
Who should I approach for forgiveness on both loans if I submit an application for a Second Draw PPP loan with a different lender?
If you applied for a Second Draw PPP loan with one lender after receiving a PPP loan from another in 2020, you will need to petition for forgiveness of each loan separately with each lender.
What may I get if I paid back some or all of my initial PPP loan?
You may reapply for a First Draw PPP Loan or, in some circumstances, request to reduce your First Draw PPP loan amount if you previously returned some or all of your first PPP loan money and did not receive loan forgiveness by December 27, 2020. (for more information, see First Draw PPP loan guide from the SBA).