PPP Loans are a fantastic hand-up for small businesses. Here are three “need to know” aspects of the Paycheck Protection Program:
- It’s not just to cover paychecks.
- There’s money available.
- It’s not really a loan. It’s more like a grant. Prove you applied for the monies correctly, and you don’t have to pay it back.
The paycheck protection program application process ends May 31. And there may not be another round of PPP.
What is a PPP Loan?
As stated, the PPP stands for Paycheck Protection Program but it’s a bit misnamed. A small business can use the Paycheck Protection Program money to cover losses experienced due to the pandemic.
The funds were included in the CARES Act government response to small business owners needs. Here’s the short version of the PPP history:
The Paycheck Protection Program (PPP) is a $953-billion business loan program implemented by the Small Business Administration. It started in 2020 through the CARES Act (Coronavirus Aid, Relief and Economic Security). Funding has been aggressively continued by the Biden administration.
PPP was set up to help small businesses, including self-employed and sole proprietors, stay in business. The Paycheck Protection Program provides low-interest loans to pay for their payroll and certain other costs. PPP loans are calculated as equal to 2.5 times the applicant’s average monthly payroll costs. Plus, the loan can be used to cover rent, interest on mortgages and utilities.
The loan may be partially or fully forgiven if the business keeps its employee counts and employee wages stable. The deadline to apply for a PPP loan was initially June 30, 2020, and was later extended to August 8. The Paycheck Protection Program was reopened on January 11, 2021 and the deadline for application extended to May 31, 2021.
Then came the PPP Flexibility Act, an important tweak by the government to the program. Borrowers no longer had to spend the PPP funds within an 8-week covered period. The PPP Flexibility Act extended the “spend the money” period from 8 to 24 weeks.
Borrowers could choose. For loans made before June 5, 2020, you can choose to use either an 8-week or 24-week loan forgiveness covered period.
Is a PPP Loan Right for Your Business?
You may be reading about large chunks of money being awarded to small businesses and think – well, that’s not for me.
But maybe you’re a sole proprietor or contractor, or one of those “smaller” small businesses. And you’ve heard the loan applications process is involved. And you’re not seeking a huge amount of money.
These aren’t good reasons for not applying. The money is there. The loan applications aren’t difficult. In fact, the SBA and lenders will greatly assist you. And if you follow the guidelines set by the SBA, you won’t have to pay back the money.
A Complete Guide to PPP Loan Application
1. Choose the Loan that is Right for You: First Draw or Second Draw
First draw monies are running low but are still available. If you’ve already gotten First Draw money, you have to apply for Second Draw money. For First or Second draw loans:
a. Your business had to be in operation before February 15, 2020.
b. You have to still be open.
c. For First Draw, you must have no more than 500 employees. For Second Draw, you must have no more than 300 employees.
First Draw PPP Loans
If you don’t currently have a Paycheck Protection Program PPP Loan
The documentation required for First Draw and Second Draw is the same. You’ll need to prove payroll costs, amount of mortgage interest or your rent amounts, copies of utility bills. Payroll amount is based on gross, not net, payroll amounts. You can also count employer paid payroll costs such as employee health insurance and retirement contributions. You can add up all those costs when you’re figuring the PPP loan amount you’ll seek.
Here are some very important updates to know:
- The Small Business Administration (SBA) has revised the calculation formula for businesses or sole proprietors/individuals who are Schedule C tax filers.
- The SBA has simplified the forgiveness process for loans less than $150,000.
- In a change by the Biden administration, the size standard for businesses for adapted for special application for those with 20 or fewer employees.
Second Draw PPP Loans
If you have already received a PPP Loan
You can only get a First Draw PPP Loan once; you can’t apply for a Second Draw PPP until you’ve used up the First Draw PPP money, and you can ask for the same loan amount.
Additionally, you can also calculate Second Draw loans based on revenue. And you must have documentation to prove a 25% loss in revenue from either the previous year or from a previous quarter.
2. Find an SBA Paycheck Protection Program PPP Loan Lender
The SBA and lenders have the resources to help you make your way through the program. Both the SBA and lenders have scrambled to keep up with government tweaks of the program, and both entities want to help draw PPP money.
You can go to your local SBA participating banks or credit unions for funds, or check out our list of SBA lenders. PPP loans are offered in varieties to suit the needs of various types of businesses. It might take a couple sessions of browsing experience to find the program that’s the best fit for you. Of course understand that your search will send cookies to your computer.
There’s no dearth of funding sources and resources for borrowers. We have a list of online SBA participating lenders to aid businesses – including self employed and contractors – in the PPP loans search:
- BlueVine: Taking first and second draw loan applications from borrowers.
- Brex: Taking first and second draw, has partnered with Womply as a loan agent.
- Capital One: Must have Capital One business checking or savings.
- Centerstone: Borrowers can make PPP application can be made via Teamcenterstone.
- Cross River Bank: Partners with Divvy to take loan application.
- Fountainhead SBA: On line lender.
- Funding Circle: On line lender.
- Heartland: Has partnered with Lendio, which uses a network of online lenders.
- Independent Bank: On line lender.
- Lendistry: On line lender.
- Loan Source: Partnered with Lantern, which uses a network of on line lenders.
- Nav: Connects borrowers with lenders.
- Ready Capital: Subsidiary of Ready Cap Lending.
- Smart Biz: On line lender.
- Veem: On line lender.
3. Check Your Eligibility for the Paycheck Protection Program PPP
These are the numbers business owners should calculate – what is 2.5 times the applicant’s average monthly payroll costs. What are the costs for rent, interest on mortgages and utilities for the same time period?
Applications Eligible for a PPP Loan
- Sole proprietors, independent contractors, and self-employed persons
- Any small business concern that meets SBA’s size standards (either the industry size standard or the alternative size standard)
- Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of: 500 workers, or that meets the SBA industry size standard if more than 500
- Any business with a NAICS code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs doesn’t employ more than 500 per location.
- The program was expanded to include additional business types, such as news organizations, destination marketing organizations (which promote communities), and qualifying nonprofit organizations.
Applications Not Eligible for a PPP Loan
The program is not available for businesses that weren’t in operation before Feb. 15, 2020.
If a person who owns 20% or more of the business has a fraud-related criminal record, you can’t participate in the program.
You can’t use the program to pay household employees such as cooks, house cleaners or nannies.
If you’ve been able to draw PPP money through the program, you aren’t eligible for a second draw until you’ve spent the first draw.
4. Gather the Correct Documents
You’ll need documentation to prove expenses related to payroll and other costs to support applications for PPP loans. This can include annual or quarterly tax filings. It can also include paperwork such as mortgage payments (you can claim only the interest amount) and utility bills.
5. Start the PPP Loan Application Process
Once you’ve chosen a lender and gathered the documents, submit the application. You may be able to do this through a website. Stay on top of the process and be ready to submit any other documentation that the lender requests.
What if I’m not approved?
You may be declined for loans because of a missing paperwork, easily rectified. Or you may simply be denied for a PPP loan for another reason.
You may be turned down because of affiliation rules – the content of those rules is complicated. As a basic definition, a business may not qualify if there are more than 500 employees, such as a business that operates branches in various areas. A franchise may qualify as a separate entity, if it operates under its own franchise identifier code.
The SBA has a process for contesting such a decision, but with time running out (May 31) to submit an application, that may not be a route unless the application deadline is again extended.
Still need a loan to catch up? The SBA has a myriad of loans available for small businesses. The SBA is a good place to start.
Terms of the Paycheck Protection Program
The interest rate on PPP loans is 1%. The repayment period is either 2 or 5 years, depending on when the funds were disbursed for the draw PPP loan.
Payment can be deferred until the SBA remits the amount to the lender. If the loan forgiveness amount the SBA remits to the lender is less than the amount of the loan, the business owes the remainder of the loan funds. Interest will be “backdated” or applied from the date of the disbursement of funds. Loan payments will be due on any amounts that are not approved for forgiveness.
Where to Apply for a PPP Loan
Would-be borrowers can apply through any SBA approved lender. SBA approved lenders can be local banks or credit unions, or online lenders. To be approved by an online lender, you typically must be subscribers to the service.
What Can a PPP Loan be Used for?
Borrowers must use 60% of PPP funds for payroll expenses. Payroll is based on gross pay, not net pay. You can add the costs of health insurance and retirement if those are paid by the employer for the employee.
Here are other costs that count:
- Mortgage Interest and Rent Expenses
- Expenses Used for Employees Protection and Payroll Costs
- Specific Operations Expenses
- Property Damage Costs Not Covered By Insurance – includes 2020 damages from looting/vandalism.
- Software – Use of Cloud computing services can qualify, as these resources were needed to support people working remotely.
- COVID-19 Costs – if you paid employees while they took time off to get vaccinated for Covid or battled Covid symptoms, you can include those costs as worker protection expenses as part of payroll costs.
- Essential Supplier Costs
Is the PPP loan still available?
Yes. Hurry though. The application period ends May 31, 2021.
How does the SBA PPP loan work?
The PPP loans may seem complicated, but it’s really straightforward. The SBA is your best source for information.
Here’s how it works: Covid caused a business to lose money. The Biden administration has funded a PPP program. You apply, and get money to pay your workforce. You prove that you’ve used the PPP money appropriately, and the amount is forgiven.
What are the Requirements for a PPP Loan?
To apply, you need to provide the documentation required by your lender. Information about what’s required is available through the Small Business Administration.
Is a small business owner eligible for PPP?
Yes. Small businesses of up to 500 workers are eligible. PPP is also available for sole proprietors and contractors and various other organizations.
Are PPP loans really going to be forgiven?
Yes. A basic requirement is that you retain the same number of workers. But if the size of the workforce can’t be maintained, the loan may still be forgiven if certain conditions are proven.
For example, the employer extends an employment offer, but it is refused. The offer and refusal need to be in writing. There are many other conditions that can be used to get loan forgiveness. Additional information is available through the SBA.
What are the rules for PPP loan forgiveness?
Here are the basic steps for PPP loan forgiveness. Detailed content about each step is available via the SBA.
- Contact your lender and get the correct form.
- Compile your documentation, including paperwork to support payroll and nonpayroll costs.
- Submit the forgiveness application to your lender.
- Stay on top of it, making sure to provide any additional information in a timely manner as requested by the lender.
Where Can I Apply for a PPP?
You can apply through any SBA approved bank, credit union or online lender. For information on approved PPP lenders, check the SBA website.
Get more information about PPP from the rest of the FAQs.
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