What You Need to Know About the Paycheck Protection Program

April 16, 2020
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As the country comes together to try to slow the spread of the coronavirus, many businesses have been forced to suspend operations, while many others have experienced a sharp decline in revenue. To encourage businesses to continue paying furloughed employees and workers who have had their hours reduced, the government has created the Paycheck Protection Program (PPP). 

The PPP authorizes up to $349 billion in potentially forgivable loans through the Small Business Administration (SBA), and it also has provisions in place to help self-employed people and independent contractors. Here's a look at the details. 

 

Which Businesses Can Apply for PPP Loans?

Businesses, nonprofits, veteran’s organizations, tribal businesses, sole proprietors, independent contractors, and self-employed people can apply for PPP loans, as long as they have 500 or fewer employees. 

 

How Can Businesses Use These Loans?

The loans should be used to cover payroll costs including salary, wages, commissions, and employee benefits. Businesses can also use these funds to cover mortgage interest, rent, and utilities. The payroll costs are capped at $100,000 per employee, on an annualized basis. 

 

When Can You Apply?

SBA lenders plan to start accepting applications for sole proprietors and small businesses on April 3, 2020, and independent contractors and self-employed people can apply starting April 10, 2020. You can apply until June 30, 2020. 

 

How Much Can You Borrow?

Qualifying businesses can borrow up to two month’s worth of their average monthly payroll costs from the last year plus an extra 25%, up to $10 million. For instance, if a business's average monthly payroll last year was $10,000. It can borrow $25,000. That is $10,000 times two, plus an additional 25%. Seasonal businesses get to use a different time frame for their calculations. 

 

What Information Do You Need on the Loan Application?

When you apply for a PPP loan, you have to certify that the following points are true:

  • You need the loan to continue operations.
  • You're using the funds to retain workers, maintain payroll costs, or cover mortgage, lease, and utility expenses. 
  • You haven't received any other loans through this program. 

After you get the loan, you must provide the lender with information about how many full-time employees you have, your payroll costs, and your covered expenses (mortgage interest, rent, and utilities) for the eight weeks after receiving the loan. 

 

When Is the Loan Due?

You don't have to make any payments for six months, but then, you must repay the loan within two years. The interest rate is fixed at 0.50%. 

 

How Does Loan Forgiveness Work?

You can qualify for loan forgiveness if you use the loan funds for payroll or other eligible expenses during the eight weeks after the loan was funded. The forgiveness amount will be reduced if you decrease your number of full-time staff or if you drop salaries or wages by more than 25% for people earning less than $100,000 per year. If you let people go between February 15, 2020 and April 26, 2020, you have to rehire them by June 30, 2020 to qualify for forgiveness. 

 

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