How to Apply for Small Business 'Paycheck Protection Program' Loans

by Covid-19 Health Resource Center | 4.6.20

The Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law by President Donald Trump on March 27, 2020, and one of its key provisions aimed at helping small businesses amid the coronavirus (COVID-19) pandemic is the creation of forgivable Paycheck Protection Program (PPP) loans. Small businesses can apply for PPP loans beginning on Friday, April 3, 2020. Here’s what you need to know about the Paycheck Protection Program.

What small businesses are eligible?

• Any small business with less than 500 employees, including private non-profit organizations, some 501(c)(19) veterans organizations, select businesses with fewer than 1,500 employees that meet SBA size standards for their industry, sole proprietors, independent contractors, self-employed individuals, and “gig economy” workers.
• Businesses are only eligible if they were operational as of February 15, 2020.
• Small businesses are eligible to apply starting on April 3rd, while independent contractors & self-employed individuals can do so beginning on April 10th.

How do the loans work?

• PPP loans cover 250% of an employer’s monthly payroll, up to a maximum of $10 million. PPP loans have a 100% federal guarantee, with no collateral or personal guarantee required.
• Loan amounts spent on covered payroll costs & certain overhead expenses during the 8 weeks after the loan’s origination can be forgiven. Due to likely high participation rates, the Treasury Dept. has advised that no more than 25% of the forgiven amount can be for non-payroll costs.
• Loan forgiveness amounts are to be reduced proportionally by any reduction in employees retained compared to the prior year, and reduced by the reduction in pay of any employee beyond 25% of their prior year compensation. 
• To encourage employers to rehire employees who have already been laid off due to the COVID-19 pandemic, borrowers that rehire workers won’t be penalized for having a reduced payroll at the beginning of the loan period.
• Covered payroll expenses eligible for forgiveness include salary, wages, and cash tips (excluding individual compensation over $100,000 annually); employee group healthcare benefits, including insurance premiums; retirement contributions; and covered family & medical leave.
• Covered overhead expenses include interest payments on any mortgage incurred prior to February 15, 2020, rent payments on a lease in force prior to that date, and utility payments for service which began prior to that date.
• PPP loan amounts that aren’t forgiven after one year will be carried forward as a loan with a maturity of 2 years, an interest rate of 1%, and the 100% federal loan guarantee would remain intact. PPP loan payments can be completely deferred for at least 6 months but no more than one year.

Where can small businesses get PPP loans?

• The Paycheck Protection Program is financed by $350 billion in funding provided under the CARES Act that will be loaned out by federally insured banks, credit unions, and Farm Credit System institutions.
• Existing Small Business Administration (SBA) lenders that participate in its 7(a) loan program are eligible to immediately opt-in to the Paycheck Protection Program & originate loans. There are over 800 existing SBA-certified lending institutions that meet this standard, and all loans will have the same terms regardless of the lender.
• Small businesses apply for the Paycheck Protection Program through a participating lender, and you should consult with your local lender as to whether it’s participating. The SBA has made a sample form available if you wish to see what information will be requested.
• Banks, credit unions, and other financial institutions that aren’t certified SBA lenders may be able to participate in the PPP soon, as the SBA & Treasury Dept. are streamlining a process for those lenders to participate in the weeks to come.

RESOURCES

• Small Business Administration - Paycheck Protection Program
• Small Business Administration - Sample Application Form
• Treasury Dept. - Borrower Information Sheet
• U.S. Chamber of Commerce - Coronavirus Emergency Loan Guide & Checklist
• U.S. Chamber of Commerce - Small Business Guide to the CARES Act

— Eric Revell

(Photo Credit: iStock.com / mangostock)