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Small Business Guide to Paycheck Protection Program (PPP) in 2020


These are trying times for many small businesses. 

And the government recently announced its Paycheck Protection Program (PPP), which is designed to support small businesses during the COVID-19 outbreak.

But what is the Paycheck Protection Program and how does it work? More importantly, can your business use this program to stay afloat?

In this guide, you’re going to learn everything you need to know about PPP and how you might be able to utilize it — including when to apply, where to apply, how you can get the loan forgiven, and answers to tons of other common questions.

But first thing first…

What is the Paycheck Protection Program (“PPP”)?

The Paycheck Protection Program (“PPP”) authorizes up to $349 billion in forgivable loans to small businesses to pay their employees during the COVID-19 crisis. All loan terms will be the same for everyone.

The loan amounts will be forgiven as long as:

  • The loan proceeds are used to cover payroll costs, and most mortgage interest, rent, and utility costs over the 8 week period after the loan is made; and
  • Employee and compensation levels are maintained.

Payroll costs are capped at $100,000 on an annualized basis for each employee. Due to the likelihood of high subscription, it is anticipated that no more than 25% of the forgiven amount may be for non-payroll costs. Loan payments will be deferred for 6 months.

The Paycheck Protection Program (“PPP”) Key Highlights

Video Summary

What we will cover in this guide…

  1. When can I apply?
  2. Where can I apply?
  3. Who can apply?
  4. What do I need to apply?
  5. What other documents will I need to include?
  6. What funds are required?
  7. How long will this program last?
  8. How many loans can I take out?
  9. What can I use these loans for?
  10. How large can a loan be?
  11. How much of my loan will be forgiven?
  12. How can I request loan forgiveness?
  13. What is my interest rate?
  14. When do I need to start paying interest on my loan?
  15. When is my loan due?
  16. Can I pay my loan earlier than 2 years?
  17. Do I need to pledge any collateral for these loans?
  18. Do I need to personally guarantee this loan?
  19. What do I need to certify?

Everything You Need To Know About The Paycheck Protection Program

When can I apply?

  • April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
  • Other regulated lenders will be available to make these loans as soon as they are approved and enrolled in the program.

Where can I apply?

You can apply through any existing SBA lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating. Other regulated lenders will be available to make these loans once they are approved and enrolled in the program. You should consult with your local lender as to whether it is participating. Visit www.sba.gov for a list of SBA lenders.

Who can apply?

All businesses – including nonprofits, veterans organizations, Tribal business concerns, sole proprietorships, self-employed individuals, and independent contractors – with 500 or fewer employees can apply. Businesses in certain industries can have more than 500 employees if they meet applicable SBA employee-based size standards for those industries.

For this program, the SBA’s affiliation standards are waived for small businesses:

  1. In the hotel and food services industries
  2. that are franchises in the SBA’s Franchise Directory
  3. that receive financial assistance from small business investment companies licensed by the SBA.

What do I need to apply?

You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by June 30, 2020. Click HERE for the application.

What other documents will I need to include in my application?

You will need to provide your lender with payroll documentation.

Do I need to first look for other funds before applying to this program?

No. We are waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., we are waiving the Credit Elsewhere requirement).

How long will this program last?

Although the program is open until June 30, 2020, we encourage you to apply as quickly as you can because there is a funding cap and lenders need time to process your loan.

How many loans can I take out under this program?

Only one.

What can I use these loans for?

You should use the proceeds from these loans on your:

  • Payroll costs, including benefits
  • Interest on mortgage obligations, incurred before February 15, 2020
  • Rent, under lease agreements in force before February 15, 2020
  • Utilities, for which service began before February 15, 2020

What counts as payroll costs? Payroll costs include:

  • Salary, wages, commissions, or tips (capped at $100,000 on an annualized basis for each employee).
  • Employee benefits including costs for vacation, parental, family, medical, or sick leave; allowance for separation or dismissal; payments required for the provisions of group health care benefits including insurance premiums; and payment of any retirement benefit.
  • State and local taxes assessed on compensation.
  • For a sole proprietor or independent contractor: wages, commissions, income, or net earnings from self-employment, capped at $100,000 on an annualized basis for each employee.

How large can my loan be?

Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap. If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs will be capped at $100,000 annualized for each employee.

How much of my loan will be forgiven? 

You will owe money when your loan is due if you use the loan amount for anything other than payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks after getting the loan. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs.
You will also owe money if you do not maintain your staff and payroll.

  • Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
  • Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
  • Re-Hiring: You have until June 30, 2020 to restore your full-time employment and salary levels for any changes made between February 15, 2020 and April 26, 2020.

How can I request loan forgiveness?

You can submit a request to the lender that is servicing the loan. The request will include documents that verify the number of full-time equivalent employees and pay rates, as well as the payments on eligible mortgage, lease, and utility obligations. You must certify that the documents are true and that you used the forgiveness amount to keep employees and make eligible mortgage interest, rent, and utility payments. The lender must make a decision on the forgiveness within 60 days. 

What is my interest rate?

0.50% fixed rate.

When do I need to start paying interest on my loan?

All payments are deferred for 6 months; however, interest will continue to accrue over this period.

When is my loan due?

In 2 years.

Can I pay my loan earlier than 2 years?

Yes. There are no prepayment penalties or fees.

Do I need to pledge any collateral for these loans?

No. No collateral is required.

Do I need to personally guarantee this loan?

No. There is no personal guarantee requirement.

What do I need to certify?

As part of your application, you need to certify in good faith that:

  • Current economic uncertainty makes the loan necessary to support your ongoing operations. 
  • The funds will be used to retain workers and maintain payroll or to make mortgage, lease, and utility payments. 
  • You have not and will not receive another loan under this program. 
  • You will provide documentation to the lender that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after getting this loan. 
  • Loan forgiveness will be provided for the sum of documented payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities. Due to likely high subscription, it is anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. 
  • All the information you provided in your application and in all supporting documents and forms is true and accurate. Knowingly making a false statement to get a loan under this program is punishable by law
  • You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS. And you also understand, acknowledge, and agree that the lender can share the tax information with the SBA’s authorized representatives, including authorized representatives of the SBA Office of Inspector General, for the purpose of compliance with SBA Loan Program Requirements and all SBA reviews.

What are the next steps?

If you want to apply for a loan from the Paycheck Protection Program, then go here to get your application. And we recommend that you apply as soon as possible at a SBA lender or through any federally insured depository institution, federally insured credit union, or Farm Credit System institution that is participating.

But please let us know if you have any questions in the comments. 

As always, we’re here to support you and your business during these uncertain times. 🙂

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