Paycheck Protection Program

What is the Paycheck Protection Program?

The Paycheck Protection Program is a 2020 program that offered forgivable loans to small businesses during the COVID-19 pandemic, providing funds to maintain payrolls, hire back laid-off employees, and cover expenses such as rent, mortgage interest, and utility bills. The program was initially included in the CARES Act, granting the U.S. Small Business Administration (SBA) permission to lend money to eligible businesses in need.

The PPP was updated multiple times since its initial introduction in the CARES Act in March 2020. Here is a brief look at its history:

• April 24, 2020: the Paycheck Protection Program and Health Care Enhancement provided additional funding to the PPP.
• June 5, 2020: the Paycheck Protection Program Flexibility (PPPF) Act H.R. came into law, which made substantial revisions to the PPP.
• July 4, 2020: the PPP application period was extended from June 30, 2020, to August 8, 2020.
• December 27, 2020: the Consolidated Appropriations Act, 2021, extended and expanded the PPP until March 31, 2021. The CAA permits certain smaller businesses that received a PPP loan and experienced a 25% reduction in gross receipts to take a Second Draw PPP loan of up to $2 million.
• March 11, 2021: the American Rescue Plan Act (ARPA) increased funding to the PPP.
• March 30, 2021: the PPP Extension Act of 2021 extended the PPP application deadline to May 31, 2021, and extended the PPP authorization period through June 30, 2021.
• August 5, 2022: President Biden signed the PPP and Bank Fraud Enforcement Harmonization Act of 2022 (HR7352) that establishes a 10-year statute of limitations for criminal charges and civil enforcement against a borrower who engages in fraud with respect to a Paycheck Protection Program loan.

How does the Paycheck Protection Program work?

The Paycheck Protection Program works by allowing existing SBA lenders, federally insured banks and credit unions, and other SBA-approved lenders to make PPP loans available to both new recipients who have not received a First Draw PPP loan as well as those seeking a Second Draw PPP loan. The loan program has closed now, and borrowers can apply for loan forgiveness.

What amount was available per borrower?

The available maximum PPP loan amounts per borrower were:

• First draw: Maximum up to 10 million dollars or 2.5 times a company’s average monthly payroll cost in 2019.
• Second draw: Maximum up to 2 million dollars or 2.5 times a company’s average monthly payroll cost in either 2019 or 2020.

The actual amount granted is based on a 24-week average payroll.

Is the Paycheck Protection Program still available?

No, PPP loans are no longer available. The last PPP draw was in May 2021, and all funds of the PPP program have been depleted. Existing borrowers may be eligible for full loan forgiveness through a loan forgiveness application, including both principal and interest payments. Improperly forgiven paycheck protection loans are considered taxable income. 

Who is eligible for a PPP loan?

Small businesses with 500 or fewer employees — or, in certain cases, those that meet SBA employee-based size standards — are eligible for PPP loans, including:

• Nonprofits
• Veterans’ organizations
• Faith-based organizations
• Tribal concerns
• Self-employed individuals
• Sole proprietorships
• Independent contractors

Different eligibility requirements exist for first-time and second-draw loans; second-draw loans are more restrictive.

Eligibility was specifically expanded to include:

• Nonprofits with no more than 500 employees per physical location.
• Small agricultural cooperatives.
• Section 501(c)(6) organizations with no more than 300 employees per physical location.
• Housing cooperatives employing no more than 300 employees.
• Business concern assigned a North American Industry Classification System (NAICS) code beginning with 72 — accommodation and food services — employing no more than 500 employees per physical location.
• Certain news stations employing no more than 500 employees or the SBA size standard in number of employees for the industry per location.
• Direct marketing organizations employing no more than 300 employees per physical location.
• Section 501(c) organizations not already eligible, other than Section 501(c)(4) organizations employing no more than 300 employees per physical location.
• Internet-only news and periodical publishers employing no more than 500 employees or the SBA size standard in number of employees for NAICS code 519130.

The CARES Act provides that if a PPP loan recipient utilizes the loan for payroll and other listed expenses, the loan may be forgiven in an amount equal to those costs. 

On August 5, 2022, President Biden signed the PPP and Bank Fraud Enforcement Harmonization Act of 2022 (HR7352) that establishes a 10-year statute of limitations for criminal charges and civil enforcement against a borrower who engages in fraud with respect to a Paycheck Protection Program loan.

Who is not eligible for a PPP loan?

An applicant is not eligible for a PPP loan if, at the time of application submission or at any time before loan dispersal, an applicant or an owner with 20% or more equity in the applicant’s business is the debtor in a bankruptcy proceeding.

What are the Paycheck Protection Program loan terms?

With certain changes, PPP loan terms, conditions, and processes are the same as other Section 7(a) loans. The guaranteed percentage for a PPP loan is 100%, no collateral or personal guarantees are required, the interest rate is 1% — calculated on a non-compounding, non-adjustable basis — and lenders can rely on borrower certifications to determine eligibility and the use of proceeds in processing PPP loans under delegated authority.

The SBA originally established a maturity of two years for PPP loans, but the Paycheck Protection Program Flexibility Act of 2020, signed on June 5, 2020, provided for a minimum maturity of five years for loans made on or after that date. The act also allowed a borrower and lender that entered a PPP loan before June 5, 2020, to mutually agree to extend the term to five years.

How do I apply for a Paycheck Protection Program loan?

You can no longer apply for a Paycheck Protection Program loan. Applications for a first-time or second-draw PPP loan closed on May 31, 2021. The SBA had until June 30, 2021, to process lender applications submitted before June 1, 2021. An authorized representative of the applicant had to submit a Paycheck Protection Program Borrower Application Form — SBA Form 2483 — or lender equivalent form and payroll documentation to an SBA participating lender. An applicant for a second-draw PPP loan had to submit to the lender a Paycheck Protection Program Second-Draw Borrower Application Form — SBA Form 2483-SD — or lender equivalent form, including the required certifications and the required documentation.

The SBA developed a new borrower application form for Schedule C PPP loan borrowers who elected to use gross income to calculate their owner replacement amount. First-time PPP loan borrowers used SBA Form 2483-C and second-draw PPP loan borrowers used SBA Form 2483-SD-C. Borrowers were required to disclose their total gross income on the form.

Does the PPP loan have to be paid back?

The PPP loan does not have to be paid back and is entirely forgivable if the proceeds were used to cover payroll costs, including salaries and employee benefits and certain other non-payroll costs. The CARES Act provides that if a PPP loan recipient utilized the loan for payroll and other listed expenses, the loan may be forgiven in an amount equal to those costs. Borrowers must apply for forgiveness within 10 months after the last day of the covered period; otherwise, the PPP loan payments are no longer deferred, and borrowers will begin making loan payments to their PPP lender.

How do I apply for Paycheck Protection Program loan forgiveness?

You can apply for PPP loan forgiveness through the SBA’s Direct Forgiveness portal, which allows borrowers with Paycheck Protection Program loans of $150,000 and under to submit their forgiveness applications on the SBA’s web portal or another lender. The SBA has also released Interim Final Rules (IFR) explaining the direct borrower forgiveness process, appeals deferment, and the COVID Revenue Reduction Score — SBA Release No. 21-58.

What are the steps to apply for PPP loan forgiveness?

• Identify the correct PPP forgiveness forms for your business — for example, Form 3508S, Form 3508EZ, or Form 3508.
• Compile all required documents, including tax forms, bank statements, and payment receipts.
• Submit the application through the SBA web portal or the lender’s portal.

Ensure you receive confirmation of your PPP forgiveness application and stay in contact with your lender