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Paycheck Protection Program: How Your Business Can Benefit in 2020

As COVID-19 sweeps across the nation, businesses, big and small, are scrambling to stay afloat. Fortunately, the U.S. government is throwing a lifeline to help keep these businesses, well, in business.

As part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, the Paycheck Protection Program (PPP) is a provision that provides relief to small businesses and self-employed individuals through federally backed loans. The PPP is administered by the Small Business Administration (SBA) and, unlike other SBA loans, it’s 100% guaranteed by the federal government, meaning generous terms for those who are eligible, and doesn’t require any collateral.

The fundamental goal of the PPP is to help provide quick capital for small business’s short-term expenses during the peak of the pandemic while also incentivizing them to retain their employees.

So how does it work and who is eligible for the program? In this article, we’re going to discuss the ins and outs of this brand new, COVID-19 loan so you or your company can get some much-needed relief.

Paycheck Protection Program Key Points

If you’re a business looking for financial relief to get you through this unprecedented pandemic, you’re probably looking at a variety of small business grants, business loans, and emergency loans to see what you qualify for. Here’s are some quick highlights and features about the Paycheck Protection Act to jump-start your search:

• SBA loan guaranteed by the government
• Offers business loan forgiveness of the amount spent on expenses for the first 8 weeks after acquiring the loan (loan forgiveness amount is reduced if there is a reduction in employees or more than a 25% drop in wages paid to employees)
• 0.5% fixed interest, due in two years
• Covered expenses include your typical operating costs like rent and utilities, payroll, health care benefits, and mortgage interest
• Borrowers are given six months to a year of deferred fee waivers and repayment
• Lenders will not require collateral or a personal guarantee for the loan

The key feature of this program — small business loan forgiveness— makes the program act similar to a small business grant. Businesses who qualify won’t be encumbered by a significant amount of additional debt.

It’s also worth noting that the main difference between the PPP and the SBA administered Economic Injury Disaster Loan (EIDL) is that the PPP offers loan forgiveness and doesn’t require any collateral.

Another major difference is the loan amount. The EIDL only offers borrowers up to $2 million, whereas the PPP offers up to $10 million. There are more differences, but these are the big ones.

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Who is Eligible

So we’ve already run through the gist of this emergency business loan — it’s 100% backed by the government and primarily for small businesses who are most in need of a disaster business loan, including non-profits, self-employed individuals, independent contractors, veterans organizations, and so on. The only stipulation is that the business must have 500 or fewer employees to qualify (which also includes employees who are part-time).

With that said, there are a few exceptions to this rule, namely businesses in certain industries. As long as those businesses meet the required SBA standards when it comes to employee size for their industry, they can apply.

How to Apply for the PPP Loan

Businesses will need to fill out the Payment Protection Act loan application and submit any necessary documentation, like tax filings and payroll documents. They can use any lender offering SBA loans or apply with other federally insured financial institutions, like banks or credit unions.

Lenders will require a “good faith certification” which basically surmises that the loan is essential due to financial hardships as a consequence of the pandemic, and that the funding will be used to retain employees.

For applicants who are self-employed or sole proprietors, they will be required to submit additional documents like 1099 forms or tax return filings.

Businesses have the opportunity to apply until June 30th, 2020, but are advised to apply as soon as possible due to the program’s loan cap.

Here are just a few details you’ll need to provide when submitting your application:

• What type of business you have (LLC, Sole proprietor, etc)
• Business name, address, and contact information
• Business tax information (TIN, EIN, SSN)
• Average monthly payroll
• Number of employees
• Purpose of the loan (Payroll, utilities, lease or mortgage, etc)
• Applicant ownership (20% or more)

Applicants will also be presented with a series of questions that will further determine eligibility.

How Much You Can Borrow

The loan amount can be up to 2.5x the business’s average monthly payroll costs, but cannot exceed $10 million. For employers, payroll costs include any kind of employee compensation, like salary, commission, cash tips, employee benefits, and state or local taxes on the compensation.

For self-employed individuals, sole proprietors, and independent contractors, payroll costs include total payments of any compensation to their income that doesn’t exceed $100,000 a year.

So if your company averages $500,000 in eligible payroll costs each month, you can secure a loan up to $1,250,000.

How Much is Forgiven

As mentioned earlier, a key feature of this small business administration loan is that it offers partial or full loan forgiveness equal to the amount a business spent on qualifying expenses during the first 8 weeks after the loan was taken out.

Expenses include the following:

• Payroll costs
• Mortgage interest
• Rent and utilities
• Additional wages for businesses with tipped employees

The amount of forgiveness can be reduced if employees are let go or if employees’ wages are reduced by more than 25%.

Conclusion

For small businesses looking for financial relief to make it through the COVID-19 pandemic, the PPP is part of the new, $350 billion initiative meant to help small businesses. Any business can apply, as long as it has 500 employees or fewer.

Unlike other SBA loans, this emergency loan offers partial or full loan forgiveness, no collateral, and a 0.5% fixed interest rate. The program is open for submission until June 30th, 2020, so submit your application today.

The Paycheck Protection Program is implemented by the Small Business Administration with support from the Department of the Treasury. Lenders should also visit www.sba.gov or www.coronavirus.gov for more information.