The Paycheck Protection Program is part of the 2.2 trillion CARES (Coronavirus Aid, Relief and Economic Security) Act passed on March 27, 2020. The CARES Act provides immediate cash relief for individual citizens, loan programs for small businesses, support for hospitals and other medical providers, and various types of economic relief for impacted businesses and industries.

What is the Paycheck Protection Program

Also known as the PPP loan, the Paycheck Protection Program is a forgivable loan designed to provide an incentive for small businesses to keep their workers on the payroll during the COVID-19 shutdowns. As long as employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest or utilities, the SBA (U.S. Small Business Association) will forgive loans.

Lenders began processing loan applications as of April 3, 2020. The Paycheck Protection Program will be available through June 30, 2020. Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will be reduced if full-time staff declines, or if salaries and wages decrease. This loan has a maturity of 2 years and an interest rate of 1%.

What is a Forgivable loan?

A forgivable loan is a form of loan that, in part or in whole, can be forgiven or deferred for a period of time (6 months for the PPP loan) by the lender when certain conditions are met. In this case, the conditions for the forgivable loan are that the loan is specifically spent on payroll costs, interest on mortgages, rent, and utilities with at least 75% of the forgiven amount being used for payroll.

Who can apply for the Paycheck Protection Program loan?

Any small business concern that meets SBA’s size standards (less than 500 employees, including sole proprietorships, independent contractors and self-employed persons).

Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business concern (sec. 31(b)(2)(C) of the Small Business Act) with the greater of 500 employees or that meets the SBA industry size standard if more than 500.

Any business with a NAICS Code that begins with 72 (Accommodations and Food Services) that has more than one physical location and employs less than 500 per location.

How much money can I get for my small business?

The Paycheck Protection Program loan will grant loans equal to 2.5 times the average monthly payroll costs, up to $10 million, for the previous calendar year. But payroll costs only apply to salaries up to $100,000 annually.

Any amount beyond $100,000 cannot be included in the calculations. And only employees whose principal residence within the United States qualify. This calculator will give an estimate of what you may be able to receive.

What costs are covered?

A surprising number of things are covered by the PPP loan like:

• Salary, wages, commissions, and tips up to $100,000 per year for each employee
• Costs of benefits including vacation, parental, family, medical and sick leave
• Allowance for separation or dismissal of employees
• Payments for retirement benefits
• Payments for health care benefits
• State and local taxes on compensation
• Sole proprietors and independent contractors’ wages, commissions, income or net earnings from self-employment can be covered by loan funds, up to $100,000 per year for each worker.

Where can I apply?

In the short time that the Paycheck Protection Program loans have been available, most banks have already met or have nearly met their lending limits and another round of funds have been added to the CARES act. Check with the bank you do business with to learn how to apply. With banks processing so many loans another solution may be found in fintech firms.

A fintech firm is a company that uses technology to provide financial services to businesses or companies, like PayPal and Intuit who have both already become approved lenders and are now accepting applications for their current users. They are reporting a quick turnaround time on loan payouts since they already have access to payroll information for many companies and individuals.

Additionally, Kabbage, Fundera, and Lendio have all taken steps to become the middlemen by connecting applicants to lenders.

Links to Forms

PPP borrower application form
Disaster assistance Enhanced Debt Relief