Note: The Paycheck Protection Program closed August 8, 2020.
As is the case with nearly all aspects of the COVID-19 pandemic, new updates and decisions are being made every day.
But amid many unknowns, small business owners can count on some relief starting Friday, April 3 thanks to the $2 trillion Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was signed into law on March 27. The aid package includes a $349 billion economic relief program through the Small Business Administration (SBA) called the Paycheck Protection Program (PPP).
When the initial aid ran out, additional funding was allocated to the PPP and the program is continuing to accept applications until June 30, 2020.
Beyond the Paycheck Protection Program, additional assistance is available to small business owners and individuals via an Economic Injury Disaster Advance Loan of up to $2 million with a $10,000 advance available.
In addition, through its Debt Relief program, the SBA will pay the principal and interest of current 7(a) loans for a period of six months and the principal and interest of new 7(a) loans issued prior to September 27, 2020.
As a small business owner, here's what you need to know about Paycheck Protection loans.
The PPP was designed to support job retention by financially incentivizing business owners to keep employees on the payroll.
The SBA ordinarily provides financial assistance to small businesses primarily through its 7(a) lending program. The PPP is a new program under 7(a) that significantly differs from the other lending programs. Paycheck Protection loans are granted the following unique allowances:
If your business is paying off a different SBA disaster loan, the due date for that loan has been deferred through December 31, 2020.
Businesses with pending SBA disaster loans can also get a Paycheck Protection loan as long as the loans are being used for different things.
Any business with fewer than 500 employees (including sole proprietorships, independent contractors, and self-employed individuals) for which "current economic uncertainty makes the loan necessary to support your ongoing operations" is eligible for a loan, according to the Treasury Department's PPP fact sheet. Private non-profit organizations and 501(c)(19) veterans organizations affected by COVID-19 are also eligible.
Your company must have already been in business as of February 15 to qualify.
A business's maximum loan amount is determined by eight weeks of prior average payroll costs plus an additional 25 percent, or 2.5 times your total payroll expenses for the loan period, up to $10 million.
A single business can only apply for one Paycheck Protection loan.
A Paycheck Protection loan covers the following:
The interest rate has been set at 1 percent. That number may rise but the interest rate has been capped at 4 percent.
The loan provides economic relief for costs incurred from February 15 to December 31, 2020.
Loan payments are deferred for six months and have a maturity of five years. In other words, the first payment is due after six months of the loan origination date and the full loan is due after five years.
There is a financial incentive to maintain your workforce. The SBA will forgive loans for the first 24 weeks if all employees are kept on the payroll and the money is used for payroll, rent, mortgage interest, or utilities.
The amount of loan forgiveness includes payroll costs for employees below $100,000 in annual income.
Forgiveness is reduced if the workforce or wages are reduced, but you can possibly preserve some of your loan guarantee by rehiring employees you've already laid off in response to COVID-19-related economic uncertainty.
There is a maximum 10-year maturity for loan forgiveness.
Lenders participating in the PPP are given the following incentives by the SBA:
Lenders are mobilizing to prepare for the onslaught of loan applications to answer the greater demand for business loans during this time. The SBA has approved over 1,800 lenders in its network which includes any participating SBA 7(a) lender, federally insured credit union or depository institution, and Farm Credit System.
Best Company's mission is to help consumers find trustworthy companies that deserve their business. If you don't already have a lending institution or are looking to make a change, we encourage you to consider reviews-based rankings as you shop for a lender for your Paycheck Protection loan. The current top-ranked business loans companies are as follows:
Just as you would generally for business loan preparation, you need to gather documentation. Fortunately, a loan under the PPP does not require a separate review by the SBA so your eligibility will be determined by the funding institution via guidelines from the SBA. Presumably, this will greatly shorten the approval period so you can get funds soon after applying for the loan.
The U.S. Treasury Department's CARES Act resource page has a sample application you can download as a reference, though you'll apply for the loan through your chosen lending institution.
Prepare documentation of the following information, and you're ready to apply online through your lender:
August 17th, 2022
July 22nd, 2022
Sign up below to receive a monthly newsletter containing relevant news, resources and expert tips on Business Loans and other products and services.