The Paycheck Protection Program officially ended on May 31, 2021. While lenders have until June 30 to finish processing approved loans, new PPP loan applications are no longer being accepted.
Congress has approved $284.5 billion in new Paycheck Protection Program funding. The types of businesses and industries that are eligible for PPP loans have been expanded under the new relief package. Additionally, businesses that can demonstrate at least 25% reduction in gross receipts year over year and meet other requirements may be eligible for a second PPP loan.
The Paycheck Protection Program (also known as PPP) is a program that was unveiled by the Small Business Administration to help supply funding to small businesses, nonprofits, sole proprietors, and business entities affected by the coronavirus pandemic.
This program provides 100% federally guaranteed loans to help businesses with their payroll and other operating expenses. The SBA will forgive the PPP loan proceeds that are used to cover the proceeding eight or 24 weeks of payroll costs, rent, utilities, mortgage interest, and other approved costs.
According to the terms of the program, small business owners can apply through existing SBA 7(a) lenders or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating in the PPP program. Funding for these loans will come directly from these lenders, which in turn will be reimbursed by the SBA.
Each lender may have a different application process, though most will ask for similar information. The SBA has provided a copy of its official Paycheck Protection Program application form, which will likely be a part of many lenders’ application processes.
Per that application form, business owners will need to provide:
When applying, business owners should prepare to upload or otherwise share the following documents with their lender:
In order to qualify for a first-time PPP loan, you must be a small business (including nonprofits, veterans organizations, Tribal concerns, sole proprietorships, self-employed individuals, and independent contractors) with 500 or fewer employees, or no greater than the number of employees set by the SBA as the size standard for certain industries.
In order to qualify for a second PPP loan, businesses must meet the following requirements:
Your business must also have been operational prior to February 15, 2020.
Loans disbursed under this program will have the following terms:
Business owners who take out these loans are eligible for full loan forgiveness, provided they spend at least 60% of the loan on payroll costs and the remaining 40% on other allowable costs.
What do payroll costs mean? The following compensation is considered eligible payroll costs under this program:
As for what payroll costs are not included: Compensation of an individual employee in excess of $100,000 annual salary; payroll taxes, railroad retirement taxes, and income taxes; compensating an employee that lives outside the U.S.; qualified sick leave or family leave, wages for which a credit is allowed under the Families First Coronavirus Response Act.
Sole proprietors, independent contractors, and self-employed workers will also be able to take out a PPP loan for compensation or income that is not more than $100,000 in one year, as prorated for the covered period.
Other allowable uses for PPP loan proceeds are:
You’ll need to demonstrate how you’ve used your funds to finance payroll and other eligible costs in order to receive PPP loan forgiveness.
The “covered period” for these loans is eight or 24 weeks after receiving the loan funds. Borrowers can chose the covered period length that they prefer.
The goal of this loan is to help businesses pay for their payroll and other overhead costs. Therefore, loan amounts can be up to 2.5x the business owner’s average monthly payroll costs, not exceeding $10 million for a first-time PPP loan.
Certain hard-hit businesses are eligible for a second-draw PPP loan of 2.5x average monthly payroll costs, up to $2 million.
The U.S. Chamber of Commerce created a helpful guide on how to calculate payroll costs.
Eric Goldschein is the partnerships editor at Fundera.
Eric has nearly a decade of experience in digital media, writing and reporting on entrepreneurship, finance, business lending, marketing, and small business trends.