The main stimulus for small businesses in the CARES Act is the Paycheck Protection Program (PPP), not to be confused with the economic theory of purchasing power parity. The $659 billion funded under the Small Business Administration (SBA)—Business Loans Program Account is intended to provide loans to businesses to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.
Understanding what the PPP business loan program is, how it works, and how to apply will help you navigate this massive federal stimulus program and possibly get the funds you need as quickly as possible.
- The PPP loan program restarted, following the appropriation of new funding on Friday, April 24, 2020.
- PPP loans are available for the lesser of $10 million or 2.5 times your average monthly payroll.
- 100% of your loan could be forgiven if you follow guidelines.
- Passage of the PPP Flexibility Act of 2020 relaxes many PPP loan guidelines.
- You can apply for both a PPP and EIDL loan.
- Check eligibility before you apply.
- You can apply through any SBA approved 7(a) lender.
Source: H.R. 748
In addition to meeting the size requirement (500 or fewer employees for most companies), you must show that your business has been negatively impacted by the coronavirus. You will do this, in part, by certifying on your PPP application that current economic uncertainty makes the loan request necessary.
Eligibility is further broken down to include:
- Any business categorized under "Accommodation or Food Services," such as restaurants and hotels that have 500 or fewer employees per location
- Tribal businesses
- Independently owned franchises
- Self-employed workers, independent contractors, gig workers, and sole proprietors. The PPP loan application for those people went live April 10, 2020, according to the SBA.
Beware of scammers offering a way to get a PPP loan; the Federal Trade Commission filed a case against one such company on April 17, 2020.
Where to Apply for PPP
As noted above, PPP loans are being administered by approved SBA lenders and are actually a new form of the existing SBA 7(a) loan program. You can apply for your PPP loan through any of the 1,800 participating SBA approved 7(a) lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution.
Other lenders will be available to make PPP loans once they are approved and enrolled in the program. Start by consulting with your local lender as to whether it is participating. If you have trouble locating a lender, try using the SBA Paycheck Protection Program lender search tool.
Do not use any other road to apply for a PPP loan; scammers are already going after small business owners, reports the Federal Trade Commission, which filed a case against one such company on April 17. Only apply by first going to the SBA website. And know that the SBA will never ask for Social Security numbers, or bank account or credit card numbers upfront, the FTC cautioned.
A recent Treasury Dept. FAQ clarifies that to qualify for a PPP loan you must have 500 or fewer total employees (full and part-time). Forgiveness, however, depends on the number of full-time equivalent employees (FTEEs).
PPP Application Deadline Extended
Following approval by the Senate and House of Representatives, President Trump signed legislation July 4, 2020, extending the deadline to apply for a Paycheck Protection Program Loan through Aug. 8, 2020. The original deadline to apply was June 30, 2020.
The newly passed legislation involves more than $130 billion left in the PPP program and makes those funds available until the new deadline at which point Congress will have to re-appropriate any remainder. Meanwhile, lawmakers continue to discuss additional small business funding as part of Phase 4 Coronavirus legislation.
How to Apply for PPP
Start by downloading and filling out the new revised application form on the SBA website. The application includes instructions and is pretty straightforward.
Be prepared to prove that your business was operational on Feb. 15, 2020; that you had employees; and the amount of your average monthly payroll costs following instructions on the application form.
Businesses that decided it was a mistake to apply for and receive a PPP loan had until May 14, 2020, to return the money and "be deemed by SBA to have made the required certification in good faith," avoiding possible government scrutiny and negative repercussions.
How PPP Loan Forgiveness Works
Important changes to PPP loan forgiveness became law with signing of the PPP Flexibility Act on June 5, 2020. All or part of the loan you receive under PPP could be forgiven provided you keep all full-time equivalent employees (FTEEs) on payroll—or rehire them within 24 weeks of receiving your loan (or by December 31, 2020, whichever comes first). Payroll costs must be 60% or more of the amount forgiven. Only 40% of the amount forgiven can be used on non-payroll expenses. The forgiveness won't happen until the end of the 24-week period of employment following receipt of your loan.
Employee payroll costs: Salary, wages, commissions, tips (capped at $100K per employee); Benefits including vacation, parental, family medical or sick leave; State and local taxes assessed on compensation.
Sole proprietors: Wages, commissions, income, or net earnings from self-employment (capped at $100K)
Seasonal businesses: Average monthly payroll between Feb. 15 and June 30 (capped at $100K per).
New businesses: Average monthly payroll from Jan. 1 to Feb. 29 (capped at $100K per employee).
Other eligible forgivable costs: Interest on mortgages; Rent under lease agreements; Utilities.
The SBA posted a revised loan forgiveness application form June 17, 2020, along with a new simplified EZ form for borrowers that meet certain conditions.
You must request forgiveness of your loan using one of two forgiveness application forms approved by the SBA. These new forms incorporate changes made by the PPP Flexibility Act of 2020 and simplify the process according to the SBA.
The new regular full forgiveness application has been reduced to 5 pages (from 11) and the new EZ version is for you if you meet certain qualifications:
- Are self-employed and have no employees; OR
- Did not reduce the salaries or wages of your employees by more than 25%, and did not reduce the number or hours of your employees; OR
- Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of your employees by more than 25%.16
The SBA says the EZ application requires fewer calculations and less documentation. Both applications note that you have the option to use the original 8-week covered period (if your loan was made before June 5, 2020) or the extended 24-week covered period, if that is your preference.
Your lender has 60 days to reply to your forgiveness application.
But what happens to the loan if laid-off employees receiving that extra $600/week on unemployment insurance refuse to return to work when they are offered their jobs back under the PPP? SBA and Treasury issued a new rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the loan forgiveness reduction calculation spelled out in the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136."
Further, the PPP Flexibility Act of 2020 added two new exceptions that let borrowers achieve full forgiveness even if they don't fully restore their workforce: Borrowers can reduce workforce requirements based on the inability to find qualified employees or if they were unable to restore operations to Feb. 15, 2020, levels due to COVID-19 restrictions.
PPP vs. EIDL
The Paycheck Protection Program is one of two programs designed to help small businesses during the coronavirus crisis. The other is the Economic Injury Disaster Loan (EIDL) program. While both programs are designed to help struggling businesses get back on their feet financially, they have slightly different goals which are suggested by the names of the two programs.
The Paycheck Protection Program business loans account is a new stimulus package designed to help companies retain workers by covering eight weeks of payroll plus some other costs of remaining in business. This loan is 100% forgivable if you follow forgiveness guidelines.
The Economic Injury Disaster Loan program is an established program that helps small businesses overcome the loss of revenue during a declared disaster such as a hurricane, major fire, or, in this case, the COVID-19 pandemic. This loan includes an up-to-$10,000 advance (if you apply) that is automatically forgiven.
The EIDL loan program reopened to all eligible borrowers June 15, 2020. Previously the program was open to agricultural businesses only. Previously submitted applications "will be processed on a first-come, first-serve basis."
You Can Get Both
Many small business owners do not know they can apply for both an EIDL loan and a PPP loan for the same COVID-19 disaster. There are rules, including the key requirement that you can't use money from both loans for the same thing. For example, if you use the proceeds from a PPP loan for payroll, you can't use an EIDL loan for payroll also.
Before you apply for a PPP loan, you may want to look more closely at the EIDL program to see if it might be a better fit or to decide if applying for both loans makes sense in your case. The table below provides a basic comparison of the two programs. Both loan programs apply to small businesses of 500 or fewer employees (more in certain industries).
|PPP Loan||EIDL Loan|
|Loan Administrator||SBA approved lenders||SBA|
|Max Amount||Lesser of $10 million or 2.5 times average monthly payroll||Up to $2 million|
|Term||5 years||Up to 30 years|
|Deferral||Until SBA sends forgiveness amount to lender or for 10 months after end of covered period (interest accrues)||1 year (interest accrues)|
|Can Be Used For||Payroll, benefits, mortgage interest, rent, utilities, other debt||Payroll, benefits, accounts payable, other expenses|
|Refinance Debt?||Yes for EIDL||No|
|Collateral Required?||No||For loans over $25,000|
|Forgiveness||Yes, if 60% payroll||Yes, for $10,000 advance|
|Guarantee Required?||None||No for loans under $200K|
Source: H.R. 748
U.S. Congress. "H.R. 748." Accessed Apr. 8, 2020.
SBA. "Paycheck Protection Program Application Form." Accessed Apr. 8, 2020
U.S. Chamber of Commerce. "Coronavirus Emergency Loans." Accessed Apr. 8, 2020.
Federal Trade Commission. "Alert for small business owners needing PPP loans." Accessed April 17, 2020.
Treasury Dept. "Paycheck Protection Program Frequently Asked Questions: Question 36." Accessed May 12, 2020.
Whitehouse.gov. "Bill Announcement." Accessed July 5, 2020.
U.S. Senate. "S.4116." Accessed Jul. 1, 2020.
SBA. "COVID-19 Relief for Small Businesses." Accessed Apr. 8, 2020.
Treasury Dept. "Paycheck Protection Program Loans: Frequently Asked Questions (FAQs)," Question 43. Accessed May 6, 2020.
U.S. Congress. "H.R. 7010." Accessed Jun 8, 2020.
SBA. "SBA and Treasury Announce New EZ and Revised Full Forgiveness Applications for the Paycheck Protection Program." Accessed Jun 17, 2020.
Journal of Accountancy. "SBA issues PPP guidance on laid-off employees who refuse to be rehired. Accessed May 5, 2020.
U.S. Congress. "H.R. 7010." Accessed Jun 9, 2020.
SBA. "Cornonavirus (COVID-19)." Accessed April 17, 2020.
SBA. "Interim Final Rule." Accessed Apr. 8, 2020.