Paycheck Protection Program

The Paycheck Protection Program (PPP) is part of the CARES (Coronavirus Aid, Relief, and Economic Security) Act, designed by Congress to help small businesses maintain their payroll during the Coronavirus Pandemic by way of forgivable federally guaranteed loans.

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What is the Paycheck Protection Program?

The Paycheck Protection Program was introduced in 2020 to provide COVID-19 pandemic relief to small businesses – primarily to maintain their payroll, hire back employees who have been laid off, and cover other expenses like rent, interest on mortgages and utilities. The program was initially included in the CARES Act by granting the U.S. Small Business Administration (SBA) permissions to lend money to eligible businesses in need.

Amounts available per borrower:

  • First draw: Max. up to $10 million dollars or 2.5 times a company’s average monthly payroll cost in 2019
  • Second draw: Max. 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 24-week average payroll.

Since its inception in April 2020 the program has been extended multiple times, extended applications until May 31, 2021, and authorizations until June 30, 2021. All funds of the PPP program have been depleted and businesses who received a loan can apply for loan forgiveness. If guidelines are followed correctly, 100% of the loan could be forgiven.

What is the current status of the Paycheck Protection Program?

The PPP has been updated multiple times since its initial introduction in the CARES Act in March 2020.

  • April 24, 2020: The Paycheck Protection Program and Health Care Enhancement provided additional funding to the PPP
  • June 5, 2020: Paycheck Protection Program Flexibility (PPPF) Act H.R. into law which made substantial revisions to the PPP.
  • July 4, 2020: PPP application period extended from June 30, 2020, to August 8, 2020.
  • December 27, 2020: Consolidated Appropriations Act, 2021 extended and expanded the PPP until March 31, 2021. The CAA permits certain smaller businesses who 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 PPP authorization period through June 30, 2021.

How does the Paycheck Protection Program work?

Loans can be made by existing SBA lenders, federally insured banks and credit unions, and other SBA approved lenders. PPP loans are available to both new recipients who have not received a First Draw PPP loan as well as those seeking a Second Draw loan. The loan program has closed now, and borrowers can ask for loan forgiveness.

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 —including nonprofits, veterans' organizations, faith-based organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors. Different eligibility requirements exist for first-draw and second-draw loans, the second-draw loans are more restrictive.

Eligibility has been specifically expanded to include nonprofits with no more than 500 employees per physical location, small agricultural cooperatives, Section 501(c)(6) organizations (employing no more than 300 employees per physical location), housing cooperatives (employing no more than 300 employees), a 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, if applicable, 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), and 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. 

Who is not eligible for a PPP loan?

 An applicant is ineligible to receive the PPP loan if, at the time of application submission, or at any time prior to loan dispersal, an applicant or an owner who has 20% or more equity in the applicant’s business, is the debtor in a bankruptcy proceeding.

What are the Paycheck Protection Program loan terms?

Loans are guaranteed under the PPP under the same terms, conditions and processes as other Section 7(a) loans, with certain changes. The guarantee 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 and allowed a borrower and lender that entered into 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?

Applications for a first-time or second-draw PPP loan closed on May 31, 2021. The SBA had through 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 has developed a new borrower application form for Schedule C PPP loan borrowers that elect to use gross income to calculate their owner replacement amount. First-time PPP loan borrowers use SBA Form 2483-C and second-draw PPP loan borrowers use SBA Form 2483-SD-C. Borrowers will be required to disclose their total amount of gross income on the form.

Does the PPP loan have to be paid back?

A PPP loan is fully forgivable if the proceeds are used to pay payroll costs, including salaries and employee benefits, and certain other non-payroll costs. 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. 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?

The U.S. Small Business Administration has released details on a SBA’s Direct Forgiveness portal that allows borrowers with Paycheck Protection Program (PPP) 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 the PPP loan forgiveness?

  1. Identify the right PPP forgiveness forms for your business, e.g. Form 3508S, Form 3508EZ, or Form 3508.
  2. Compile all required documents, including tax forms, bank statements, payment receipts.
  3. Submit the application through the SBA web portal or the lender’s portal.
  4. Ensure you receive confirmation of your PPP forgiveness application and stay in contact with your lender.

This information was last updated on 01/10/2022.

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