The SBA Payroll Protection Program (also known as the Paycheck Protection Program, or PPP) was recently introduced by the Small Business Administration (SBA) to provide coronavirus relief to small businesses, nonprofits, sole proprietors, and others affected by the COVID-19 situation. If you own a small business or nonprofit, or if you operate as an independent contractor, you may be eligible for the program.
This program, along with others, like the SBA Disaster Loan [See our FAQ on SBA Disaster Loans], provide 100% federally backed loans to help businesses with their payroll and other expenses during these challenging economic times.
If you have any questions, please feel free to reach out to us.
Who Can Apply For The SBA Payroll Protection Program?
In order to apply:
- You must have a small business, cooperative, veterans organization or tribal business with fewer than 500 employees (for restaurants, it’s by location);
- Be an individual who operates under a sole proprietorship, with or without employees, or as an independent contractor; or
- Have a private nonprofit or small agricultural cooperative.
- Your business must be directly affected by COVID-19, meaning you are unable to cover payroll and other overhead costs as the result of the global pandemic.
- Your business must have been in operation before February 15, 2020 and had employees who you paid salaries and payroll taxes (the Paycheck Protection Program defines “employees” as both full- and part-time workers).
How To Apply For A Paycheck Protection Program Loan
The SBA made the Payroll Protection Program available to businesses and lenders on April 3 and the program will only be available through June 30, 2020 on a first-come, first-served basis.
If you’re a small business owner, you can apply through your existing SBA 7(a) lender, or through any approved federally insured depository institution, credit union or participating Farm Credit System. You can fill out a free application on the SBA website.
The funding for the SBA Payroll Protection Program will come directly from the lenders, which will be reimbursed by the SBA. The SBA will not review your application; that responsibility will be allocated to the local lender.
When you apply, you’ll be asked to provide:
- Your basic business information (business name, address and tax ID number)
- Your average monthly payroll
- A purpose for the loan (payroll, rent/mortgage interest, utilities, all of the above)
- Answers to questions about your ownership background, previous and/or current federal loans, and citizen status
- Documentation regarding how you’ve been affected by the COVID-19 pandemic
Loan Amounts For The SBA Payroll Protection Program
Because the goal of the loan is to help your business cover payroll and other overhead costs during the pandemic, your loan could amount to up to 2.5 times your business’s average monthly payroll costs, not exceeding $10 million (whichever is lower).
The U.S. Chamber of Commerce has created a guide to help you calculate payroll costs and maintain your loan forgiveness.
Loan Details And Forgiveness
Your SBA Payroll Protection Loan will be fully forgiven if the funds are used for:
- Payroll costs
- Continuation of group health care benefits during periods of paid sick, medical, or family leave, along with insurance premiums
- Employee salaries, commissions, or other similar compensations
- Interest on any mortgage requirements (not to be used for principal payments or prepaying a mortgage)
- Rent (including lease agreements)
- Interest on any debt obligations that were incurred before the covered period
- Refinancing an SBA Disaster Loan made between January 31, 2020 and April 3, 2020
All loan payments will be deferred for 6 months, and businesses that keep employees on payroll for the first 8 weeks and use the money only for payroll costs, rent, utilities, and mortgage interest may have their loans forgiven upon providing certain documentation to the lender.
At least 75% of the forgiven amount must have been used for payroll. No collateral or personal guarantees are required. Neither the government nor lenders will charge small businesses any fees.
Forgiveness of your SBA Paycheck Protection Loan will be based on your maintaining or quickly rehiring employees and maintaining salary levels. Decreased salaries, wages or number of employees will reduce forgiveness.
The loan has a maturity of 2 years and an interest rate of 1%.
“Help With Payroll” – Small Business Coronavirus Relief
On March 27, the President signed the Coronavirus Aid, Relief and Economic Security (CARES) Act into law as a way of alleviating the economic uproar that occurred as a result of the coronavirus.
The outbreak has paralyzed millions of small businesses, forcing them to work under public health restrictions with limited staff and fewer customers. The SBA Payroll Protection Program is part of the government’s efforts to mitigate the economic downturn and keep small businesses in operation.
The CARES Act gave the SBA $350 billion in funds for Payroll Protection and other programs. The money will be used to finance thousands of loans made by local lenders on behalf of the SBA’s disaster assistance programs.
The SBA has a history of offering small businesses ways to find low-cost financing on advantageous terms. It’s safe to say that even on that account, the SBA Paycheck Protection Program loans will be very favorable to small business owners, especially because COVID-19 has rendered so many of them powerless.
The harsh reality facing small businesses right now is not just the difficulty of this situation, but more significantly, the uncertainty of its timetable. Luckily, if you have a small business dealing with the fallout of the coronavirus, relief is available.
If you have any more questions, we’d love to help. Please feel free to contact us today.
We have gathered all the current information about the SBA Payroll Protection Program, the most relevant SBA sources and materials, but there is a chance that things could change. We will be doing our best to keep this page updated.
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