Paycheck Protection Program (PPP) Loans

Small businesses need a lifeline right now, and the federal government has stepped up to offer Paycheck Protection Program loans. Because of the pared-down SBA requirements for PPP loans, more small businesses will qualify for the SBA coronavirus loans than previous SBA loan options.

Paycheck Protection Program Loan Requirements

The requirements for PPP loans are incredibly simple. Your business only needs to hit 2 criteria:

• Your business (or nonprofit) was in operation as of February 15, 2020
• You’re an independent contractor or sole proprietor, or your business/organization has either employees or independent contractors for whom they have associated payroll costs
• You certify that your business has sustained economic damage due to COVID-19

That’s it.

What Paycheck Protection Program Loans Are For

PPP loans will help small businesses, including sole proprietors and independent contractors, and private nonprofits maintain payrolls and continue necessary payroll-related payments like rent and utilities. The full allowable uses of the loan are:

• Payroll costs: Compensation in the form of salaries, wages, commissions (or similar compensation), cash tip payments (or the equivalent)
• Healthcare costs: Any costs related to the continuation of group healthcare benefits, including insurance premiums
• Mortgage interest payments (but not payments on the mortgage principal)
• Rent
• Utilities
• Interest on any other debt obligations incurred before February 15, 2020

How Paycheck Protection Program Loans Are Calculated

PPP loans are calculated based on 2.5 times your business’s (or organization’s) monthly payroll costs. Payroll costs include compensation, as outlined above, along with other payroll-related costs like retirement payments, state and local taxes on payroll, payment for vacation or paid leave, group healthcare costs, and allowances for separation or dismissal. For a comprehensive outline of what is used and excluded, you can visit our PPP calculator, where you can also get an estimate on your potential PPP loan size.

Are SBA PPP Loans the Same as Disaster Loans?

PPP loans differ from Economic Injury and Disaster Loans (EIDLs). PPP loans are available to all US businesses based on the requirements above.

Due to overwhelming demand, applications have closed for EIDLs. If you previously applied for an EIDL, here’s how the loan differs from PPP. EIDLs are limited to designated disaster areas— for COVID-19, the SBA classifies that as all US states and territories—and the loans have more stringent requirements. Unlike PPPs, EIDLs/disaster loans must be repaid in full.

Do You Have to Prove Economic Injury?

To qualify for a PPP loan, you must certify that your business has sustained economic injury due to the COVID-19 pandemic. This certification is required to ensure that funds are distributed to small businesses that have been hit the hardest by business disruptions due to the pandemic.

Paycheck Protection Program Forgiveness

PPP loans are eligible to be forgiven, up to 100% of the loan principal if the funds are used appropriately. Here’s what you need to know about what qualifies, how to apply, and how to calculate your potential PPP loan forgiveness.

Costs and Payments Eligible for Forgiveness

Any costs incurred and payments made in the first 24 weeks of the loan, following the origination date, under these set categories are eligible for forgiveness:

• Payroll costs (as listed above)
• Mortgage interest payments (but not payments on the principal)
• Rent
• Utilities

Calculating Your PPP Loan Forgiveness Amount

No more than 40% of the forgiven amount can be for non-payroll costs (i.e., mortgage interest, rent, and utilities).

If your business has laid off employees, that will also affect how much of your loan can be forgiven. Originally, employees needed to be rehired by June 30, 2020, in order for their salaries to be counted toward forgiveness. Under the Paycheck Protection Plan Flexibility Act (PPPFA), that deadline was extended until December 31, 2020. The PPPFA adds additional exceptions for small businesses and nonprofits that are unable to rehire workers by that date if:

• Your business was unable to rehire an individual included as an employee as of February 15, 2020.
• You were able to demonstrate that you were unable to hire similarly qualified employees on or before February 15, 2020.
• You are able to demonstrate an inability to return to the same level of business activity at which your business was operating before February 15, 2020.

Additional guidance from the government is needed as to exactly how a business would “demonstrate” an inability to rehire employees or that you were unable to return to the same level of business activity.

With employee count considerations and other factors, the total effect on your PPP loan’s forgiveness-eligibility depends on some complicated math that your funding manager can walk you through to give you a specific answer for your business.

How Long Will It Take to Receive Funds?

Once a borrower receives a Preferred Lender Program (PLP) number for their loan, the loan is approved by the SBA, and funds are reserved for the borrower. Starting on the date a borrower receives a PLP number, the lender has 10 calendar days to disburse funds. The loan must be disbursed in full, and the 24-week loan forgiveness period begins the day funds are disbursed.

Due to overwhelming demand and high loan volume, many lenders struggled to fund loans from the first round within the 10-day period. The SBA issued guidance that for borrowers who had been issued a PLP number prior to April 28, lenders had 10 calendar days to disburse funds, starting on April 28.

If a lender cannot disburse funds due to delays from a borrower, like missing paperwork, the lender has 20 days to disburse funds. If they haven’t received the necessary information from the borrower by the end of that 20-day period, the loan may be canceled. If loan funds are designated for the refinancing of an Economic Injury and Disaster Loan (EIDL), the funds will be deducted from the disbursement amount and paid directly to the SBA by the lender.

When Do Paycheck Protection Program Loan Payments Start?

For portions of the loan that are not forgiven, payments are deferred for the first 6 months. But keep in mind that interest will accrue during the 6-month deferral period.

Can You Get a PPP Loan If You Have Other Loans?

Yes, you can qualify for a PPP loan even if you already have other loans, including other SBA loans. You cannot use the funds from PPP loans and other loans for duplicate use at the same time. For example, if you use a disaster loan (EIDL or loan advance) to pay your business’s May rent, you cannot also apply for a PPP loan to cover May rent.