FAQs About the Paycheck Protection Program (PPP)
The Paycheck Protection Program (PPP) is back for 2021. The program, which was revitalized as part of the $900 billion stimulus package passed by Congress at the end of December 2020, brings much-needed financial relief to small businesses across the US.
As was the case with the initial round of PPP, details for the program weren’t fully ironed out until after the bill had passed. As a result, many small business owners were left scratching their heads as to how PPP works. We know how vital this financial lifeline is for many small business owners. Here are answers to some of the most common questions small businesses have asked us about PPP. You can also find primary details regarding the loan (like how to calculate your payroll costs and what the loan can be used for) on our PPP page.
When will the PPP extension end?
The 2021 round of PPP will be open until March 31, 2021, or until program funds are exhausted, whichever happens first.
How much is available in the new round of PPP?
Congress has allocated $285 billion for PPP as a part of the $900 billion stimulus package passed in late December.
How large of a loan can a business qualify for through PPP?
Small businesses can qualify for a potentially-forgivable loan worth up to 2.5 times the business’s monthly payroll costs in their First Draw, as was the case with the initial round of PPP. Qualifying businesses (i.e. food service or accommodation businesses with a NAICS code starting with “72”) may qualify for a Second Draw up to 3.5 times monthly payroll costs.
The program also includes the following caps:
- Maximum total loan amount: $10 million (aggregate total for First and Second Draws)
- Maximum loan amount for a Second Draw: $2 million
- Maximum loan total for businesses within a corporate group: $20 million
What protections have been added to PPP?
Congress has included 3 key provisions designed to support businesses that have been hit the hardest by the coronavirus pandemic. Here’s what we know now:
- Restaurants, hotels, or live venues that fall under a NAICS code starting with “72” can apply for 3.5 times their monthly payroll costs on their Second Draw.
- Live event and production companies that have been forced to close may be eligible for a special grant.
- $12 billion have been specifically earmarked for BIPOC-owned businesses.
What is needed to qualify for a First Draw on a PPP loan?
To qualify for a First Draw on a PPP loan (i.e. for new PPP borrowers) in 2021, you must meet the following criteria:
- Your business was operating as of February 15, 2020.
- You own a small business with associated payroll costs, you run a nonprofit with associated payroll costs, or you’re a sole proprietor/freelancer.
- You certify that your business has sustained economic damage due to the COVID-19 pandemic.
- You have 500 or fewer employees.
- You’re an independent contractor, sole proprietor, self-employed individual, or a business partner (For limited partnerships, only one PPP application can be submitted per partnership.)
- You have employed for whom you paid salaries and payroll taxes.
Will you be able to get another PPP loan if you received one during a previous round?
Yes, in a manner of speaking. The SBA refers to this as a “Second Draw” on your PPP loan, as opposed to applying for a second loan (which is not allowed). There’s some legal jargon we could go into here, but the short version is: if you previously received a PPP loan, yes, you can apply for additional funding through the program.
What will the requirements be for a Second Draw on a PPP loan?
If you received a PPP loan during one of the early rounds and need additional funding, you may apply for a Second Draw if you meet the following requirements:
- Your business has fewer than 300 employees.
- You can show a 25% revenue reduction during the first, second, third, or fourth quarter of 2020 (relative to the same quarter in 2019).
How much can you qualify for in a Second Draw?
Your business can qualify for a loan up to 2.5 times your monthly payroll costs, just like the first round. Businesses with a NAICS code starting in “72” may qualify for up to 3.5 times their monthly payroll on the Second Draw.
The maximum loan amount for Second Draws is $2 million. The maximum aggregate total for First and Second Draws is $10 million (if you happened to receive $9 million in your first draw, you would only be able to receive $1 million in the second draw). The maximum that can be borrowed by businesses within a corporate group is $20 million.
What additional businesses are now eligible for a PPP loan?
Under the new stimulus package, the following business types are now eligible for PPP funding:
- News organizations
- Some hospitals owned by government entities
- Businesses that receive legal gaming revenue (if they meet applicable requirements)
- Electric, telephone, and housing cooperatives
- 501(c)(6) organizations and 501(c)(19) tax-exempt veterans organizations
- Tribal businesses
- Destination marketing organizations (if they meet applicable requirements)
- Certain faith-based organizations
Is Lendio a PPP lender?
Lendio is a lending marketplace that connects borrowers with a curated network of 75+ lenders. We are not a lender, and applying through Lendio does not guarantee you a PPP loan.
If not a lender, what is Lendio’s role with PPP?
We match qualified borrowers with SBA-approved lenders. Our single online application makes it easy to apply to our network of SBA-approved lenders. Once a borrower applies for a PPP loan, we work with them to ensure that the application has everything it needs to be deemed complete by the SBA, match the borrower with an appropriate lender, and then the lender takes care of the rest.
What is the lender’s role with PPP?
Each lender provides Lendio with the criteria (state, loan size, etc.) of customers they would like to serve. They also have 100% control of the volume of applications that they choose to pull from Lendio’s marketplace. Once small businesses are matched to the lender, the lender validates payroll, submits to E-Tran, performs necessary fraud checks (KYC/KYB, etc.), pushes out closing documents, and then ultimately funds the deal.
Does the lender actually underwrite each file?
Yes. The lender will review each application and the necessary payroll documents to make sure that the loan amount is calculated correctly. They will also validate that the business has fewer than 500 employees and was in business prior to February 15, 2020. If the lender believes that the loan amount calculation was incorrect or doesn’t have proper documentation, they will reach out to you for additional information.
How long does the SBA take to process the application once submitted by a lender?
Once a lender submits a PPP application through the SBA’s system (E-Tran), the SBA’s decision is fairly immediate. The delay comes from thousands of banking and other financial institutions submitting thousands of applications to the system all at once. This has led to the E-Tran system being shut down for periods of time. If the loan receives preliminary approval, the borrower is issued an SBA loan number, which indicates that funds are reserved for them.
Can a borrower be denied a PPP loan after being issued an SBA loan number?
Yes. Once an SBA loan number is issued, the PPP loan must still go through the lender’s final underwriting process.
Is it possible to cancel my SBA loan number with my lender?
Yes, it is possible. To cancel an SBA loan number, you need to reach out to your lender directly. Only the lender can request to cancel the SBA loan number through the SBA. Once an SBA loan number has been canceled, you may reapply for a PPP loan with an alternate lender.
Why am I being asked for a credit check?
It may be that the lender uses a credit check as part of their Know Your Customer (KYC) process or other underwriting and verification practices. The SBA does not require a credit check to qualify for a PPP loan.
How long will it take the lender to fund the loan?
The lender has 10 calendar days to distribute funds, starting on the day the borrower receives an SBA loan number. In accordance with SBA guidelines, the loan must be disbursed in full. The 24-week loan forgiveness period begins on the day the funds are disbursed by the bank.
If a lender is unable to issue funds due to a borrower-caused delay, like missing paperwork, the SBA allows 20 days for funds to be disbursed. If the lender still has not received the necessary information at the end of that 20-day period, the lender is required to cancel the loan.
Why was I denied? Do I need to resubmit somewhere else?
This varies on a borrower-by-borrower basis. It may be because the necessary documents are missing or an issue arose in the lender’s final underwriting that prohibits the borrower from receiving the PPP loan. Unfortunately, we don’t have full access to all of the reasons a lender may have for declining an application.
If your application is flagged by E-Tran due to one of these issues, it may still be possible to fix the issue. Once you fix the issue, you can reapply for the loan, and we’ll do our best to get you resubmitted through a different lender. Additionally, to increase your odds of approval and funding, we recommend you apply at as many places as possible.
Another common reason for denial is that there is already an SBA loan number under that Taxpayer Identification Number (TIN), which often happens when a business owner who owns multiple businesses applies for a loan.
How will the SBA review borrowers’ required good-faith certification concerning the necessity of their loan requests?
All borrowers must certify in good faith that “current economic uncertainty makes this loan request necessary to support the ongoing operations of the applicant.” Any borrower that received a PPP loan with an original principal amount of less than $2 million will be deemed to have made the required certification concerning the necessity of the loan request in good faith.
Borrowers with loans greater than $2 million may still have made the certification in good faith. All loans greater than $2 million, and other loans as appropriate, will be subject to SBA review. Borrowers that did not have a basis to make the certification (concerning the necessity of the PPP loan request) will have to repay outstanding PPP loan balances and will not be eligible for loan forgiveness.
If the borrower repays the loan, the SBA will not pursue administrative enforcement. Any borrower that repaid a PPP loan in full by May 18, 2020, will be deemed by the SBA to have made the required certification concerning the necessity of the loan request in good faith.
Are employees of foreign affiliates included for purposes of determining whether a PPP borrower has more than 500 employees?
Yes, according to the interim final rule on the treatment of foreign affiliates, released on May 19, 2020. However, due to borrower confusion, the SBA will not find any borrower that applied for a PPP loan prior to May 5, 2020, to be ineligible based on the borrower’s exclusion of non-US employees from the borrower’s calculation of its employee headcount.
According to the interim final rule, borrowers must count non-US employees toward the 500 limit, but these employees are excluded for average payroll and loan calculations.