What Is the SBA Paycheck Protection Program (PPP)?

The Paycheck Protection Program (PPP) is a Small Business Administration (SBA) loan program established under the Coronavirus Aid, Relief, and Economic Security (CARES) Act to help small businesses keep workers on their payrolls.

The initiative provided forgivable loans to small businesses in exchange for not laying off employees during the COVID-19 pandemic. It gave small business owners much-needed funds and optimism and safeguarded hundreds of thousands of jobs. MIT’s early evaluation report showed the program also boosted employment by 2% to 4.5% at eligible firms and improved U.S. employment to 3.2 million jobs.

The program ended on Aug. 8, 2020, with the SBA no longer accepting applications. Reports of a spike in jobless claims triggered talks of a PPP extension; however, reauthorizing the program has been stymied because Republicans and Democrats cannot agree on another coronavirus relief package.

Let’s take a closer look at the SBA Paycheck Protection Program (PPP).

 

PPP Loan Terms

Small businesses accepted into the SBA program prior to the deadline may be eligible for loans equal to two and a half times their monthly payroll costs — up to a maximum of $10 million. These loans were provided by banks and other lenders and backed by the federal government’s SBA.

The SBA administers current PPP loans according to the following terms and conditions:

  • Loans approved before Jun. 5, 2020, must be paid back within two years. The PPP Flexibility Act allows loans approved after this date to be paid back in five years.
  • The PPP loan interest rate is 1%.
  • No personal guarantees or collateral are required for qualification.
  • No loan fees can be charged by the lenders or the government when setting up these loans.
  • No loan payments are due within the first six months.

 

Business Eligibility for PPP Loans

To be qualified for an SBA PPP loan, a business must have been impacted by the COVID-19 economic shut-down and meet at least one of the following criteria:

  • Employ fewer than 500 full-time and part-time workers, or meet SBA industry size standards.
  • It must be run by independent contractors, sole-proprietors, or is a self-employed company.
  • For 503(c)3 non-profit organizations — it must have 500 or fewer employees.
  • For 501(c)19 veteran organizations — it must meet SBA size standards.
  • For tribal businesses — it must meet SBA size standards.

 

Loan Forgiveness Spending Criteria

As we stated above, one of the main program objectives is to incentivize business owners to keep their workers employed. Because of this, small businesses must follow specific spending criteria to be eligible to have part of their obligations forgiven. Criteria include:

  • Payroll — At least 60% of the PPP funds must be used on eligible payroll costs. This can include salaries, retirement benefits, health insurance costs, local and state taxes on employee compensation, paid time off, and paid leave for employees.
  • Rent — If the company leases office, retail, or manufacturing space, those rent payments can be made using PPP funds.
  • Mortgage interest — Mortgage principal is not an eligible expense, but businesses can spend PPP loan proceeds on mortgage interest.
  • Utilities — Payments on utilities must have been made in the 24 weeks after loan origination.
  • Debt interest — PPP funds can be used to pay interest on debt incurred prior to Feb. 15, 2020. Interest on debt originating after that date is not an eligible use of funds to calculate loan forgiveness.

 

Loan Forgiveness Staffing Criteria

To receive loan forgiveness benefits, you must maintain your full-time employee headcount or rehire workers and sustain salary levels. If not, the SBA will reduce the amount of forgiveness eligibility.

The full-time headcount and maintained wages criteria are based on the following time periods chosen by the loan applicant:

  • The average number of full-time workers on the monthly payroll between Feb.15, 2019 and Jun. 30, 2019.
  • The average number of full-time employees on the monthly payroll between Jan. 1, 2020, and Feb. 29, 2020.
  • Seasonal companies are also allowed to indicate full-time employee averages from their monthly payrolls 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.

 

PPP Loan Forgiveness Timeline

The PPP loan forgiveness window is an eight- to 24-week period following loan approval. During this interval, the business should maintain meticulous accounting of how the funds are being spent. Initially, program guidelines held PPP loan applicants to an eight-week loan forgiveness window. The government extended the window to 24 weeks following changes approved on Jun. 5, 2020.

After the 24-week window closes, the borrower has 10 months to reach out to the loan issuer and submit proof of how they spent the money. Once the lender processes this request, the SBA will issue a determination. The SBA’s decision usually comes within 60 days of the forgiveness application. The loan holder will not have to pay on the debt during these 10 months; however, interest will begin accruing.

If a business owner does not apply for forgiveness or is denied for any reason, he or she must make their loan payments and applicable interest after the 10 months have elapsed. If partial forgiveness is granted, the loan payment amount and interest are based on the unforgiven portion.

Learn More About PPP Loans and Loan Forgiveness

The federal government created the PPP as a short-term SBA initiative to help small businesses outlast the economic shut-down without scores of layoffs and dramatic increases in unemployment claims nationwide. Congress allotted nearly $650 billion for this program in the spring of 2020.

Though the SBA is no longer accepting new applications, small businesses can apply for forgiveness on loans approved before the August 2020 cutoff. Contact the SBA or your loan servicing partner for more details on how to have your PPP loan forgiven.

Fill out our online form to be added to the Revenued PPP waitlist and become one of the first to learn about the SBA’s next potential round of COVID-19 funding. We’ll email you with information as soon as it becomes available, or call (855) 943-5363 for more information.

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