How Does the SBA Paycheck Protection Program (PPP) Work?

How Does the SBA Paycheck Protection Program (PPP) Work

Note: Due to funding no longer being available through the US Small Business Administration (SBA) for the Paycheck Protection Program (PPP), Revenued is no longer accepting applications.

The SBA Paycheck Protection Program (PPP) is a $659 billion initiative created within the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small businesses with payroll and bills. The SBA will pardon some or all of the loan if businesses meet specific criteria.

The program provides up to $10 million in SBA emergency 7(a) small business loans to company owners with 500 workers or less, including independent contractors, affected by the pandemic. Loans are issued for up to 24 months based on last year’s average monthly payroll costs plus another 25% of that amount. 

Though the SBA stopped accepting PPP applications as of Aug. 8, 2020, Congress is working to put out a new relief bill, with each side proposing to extend the program and eliminate the payroll requirement. 

If and when Congress breaks the current impasse in negotiations, we want you to know how the SBA Paycheck Protection Program works. 

This article will tell you what you can use PPP for, how it works for self-employed individuals, how it can be forgiven, and how to apply for the PPP once the program is up and running again.


What Can Your Business Use the PPP For?

With other types of business loans or alternative financing, you as the business owner have the freedom to spend the funds on expenditures of your choosing. Because the PPP is a subsidized low-interest government loan with built-in forgiveness benefits (essentially turning the loan into a grant), the SBA mandates how your business can spend the money once you receive it. 

Though the following information is based on the Paycheck Protection Program Flexibility Act signed on June 5, 2020, there will most likely be similarities in requirements for the act that replaces it. 

To be considered for loan forgiveness under the PPP Flexibility Act, you need to demonstrate that your company utilized up to 60% of the funds to cover payroll costs for your U.S-based employees. These payroll costs include:

    • Salaries, bonuses, commissions, and hourly wages — Based on the annual compensation of no more than $100,000 per employee.
    • Paid time off — Vacation time and sick, medical, or family leaves.
    • Benefits — Group health care benefits.
    • Retirement — Retirement benefits, including 401k contributions.
  • Severance pay and hazard pay
  • Employee comp taxes — Payment of taxes levied on employee compensation.

The PPP Flexibility Act also states your company can employ no more than 40% of the money for other business expenses. These expenditures must be related to service and contracts entered before Feb. 15, 2020:

  • Mortgage interest — Mortgage interest on real estate used for business purposes
  • Rent — Rent or lease obligations for buildings, vehicles, and equipment
  • Utilities — Business-related utility charges for services including gas, electricity, phone service, water, and internet


Applying for PPP Loan Forgiveness

One of the PPP’s most attractive features is the chance to essentially turn it into a grant. In September 2020, banks were in the early stages of receiving PPP Loan Forgiveness applications. 

There are currently two Forgiveness application types: 

  • SBA Form 3508
  • SBA Form 3508EZ

The EZ form is for business owners that:

  • Did not decrease the wages or salaries of their workers in excess of 25% and did not scale back their hours; or
  • Have no employees or are self-employed; or
  • Encountered business activity reductions due to COVID-19 health directives and did not decrease their workers’ wages or salaries over 25%.

The EZ form necessitates less borrower documentation and fewer calculations than Form 3508. Determine if you are eligible for the EZ application by reviewing the Form 3508EZ Instructions for Borrowers. Form 3508 has Salary/Hourly Wage Reduction and Full-Time Equivalency (FTE) calculations.


Loan Forgiveness Requirements

Maintaining your full-time worker headcount or rehiring employees and maintaining salary levels is vital for receiving benefits. The SBA will reduce your forgiveness eligibility amount if you do not meet staffing requirements. 

You must base your staffing and wages criteria on a time period that you chose:

  • Between Feb.15, 2019 and Jun. 30, 2019 for the average number of full-time employees on the monthly payroll.
  • Between Jan. 1, 2020, and Feb. 29, 2020 for the average number of full-time employees on the monthly payroll.
  • Between Feb. 15, 2019 and Jun. 30, 2019; Jan. 1, 2020, and Feb. 29, 2020; or any consecutive 12-week span between May 1, 2019, and Sept. 15, 2019, for seasonal workers.


PPP Loan Forgiveness Window

Following your loan approval, you have a 24-week PPP loan forgiveness window. 

After this window closes, you have 10 months to contact your loan issuer and show proof of how your business spent the money. The borrower will not have to pay for the loan during these 10 months; however, interest will begin accruing.

Further, the CARES Act stipulates that once your PPP loan amount is forgiven, you will not be required to pay taxes on it. 


Choose Revenued for Your PPP Loan

Revenued knows PPP loans and cares about its clients. We take pride in our more than 300 five-star reviews — because to us, you are more than a number. We are here to help you and your business during this difficult time. 

  • Apply with confidence — Our funding partner, Cross River Bank, is dedicated to assisting the hardest-hit U.S. small businesses, those with a loan size under $35,000. 
  • Seamless application process — Revenued’s step-by-step online PPP application procedure is easy to follow and even has a video tutorial to help you through it. If you still have questions, one of our advisors can walk you through the process. 
  • Exceptional customer service — Revenued’s unmatched customer service members go above and beyond to provide a personable experience to get you funded as soon as possible. 
  • High-speed application decision — At Revenued, we know every second counts, and the sooner you get your funding, the better. We will analyze and decide on your PPP application within two days of receiving your SBA E-Tran number. 

With more than 130,000 PPP loan applications processed in 1,000 different industries and more than $1.3 billion in loans issued, Revenued will help you get the money you need. 

Note: Due to funding no longer being available through the US Small Business Administration (SBA) for the Paycheck Protection Program (PPP), Revenued is no longer accepting applications.


Check the links below for Paycheck Protection information and updates. Please consult with a CPA, financial advisor, or attorney before making any financial decisions.


Small Business Administration — Paycheck Protection Program — Everything You Need to Know About the Paycheck Protection Program

U.S. Department of the Treasury — CARES Act

U.S. Congress — PPP Bills

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