How to Get a Paycheck Protection Program Loan

 In Finance

The coronavirus pandemic has small business owners and entrepreneurs scrambling to figure out how to survive. It’s not fun, and it’s definitely not what any of us had in mind for 2020. But here we are.

While it’s going to be a struggle no matter what, there is some hope. Congress’ Phase 3 relief bill set aside $350 billion for small businesses to access forgivable loans to keep their employees on the payroll, in an effort known as the Paycheck Protection Program (PPP). But then that money ran out quickly due to huge demand. Great.

Fortunately, legislators followed it up with an expansion of another $310 billion to fund loans for small businesses. Now we’re back in business!

If you haven’t applied for a loan yet, what are you waiting for? The application deadline is June 30th, or whenever the money runs out — whatever comes first.

You down with PPP? We are. Here are answers to all your questions about the program.

A Quick Note: This blog is intended to be an overview of the Paycheck Protection Program rules. For explicit details, please refer to the PPP Interim Final Rule Handbook issued by the SBA, available here: Download the PPP Interim Final Rule Handbook >

How Does a Paycheck Protection Program Loan Work?

A PPP loan is intended to cover your business’ payroll expenses for up to eight weeks so you can keep your staff on the payroll. The idea is that even if there’s little to no work to do right now, you’ll be able to retain your talent so they can get right back to work when things pick back up.

This loan is partially to entirely forgivable, with a few caveats:

  • You must maintain your payroll — the amount of the loan that equals your payroll costs for 8 weeks is forgivable.
  • If you already furloughed workers or cut wages, as long as you rehire or replace them or bring their wages back up to pre-pandemic levels (within 8 weeks of receiving your loan), the portion of the loan that corresponds to payroll will be forgiven.
  • Up to 25% of the PPP loan can be used for other business expenses beyond payroll, like rent or utility bills, and still be forgiven.

Keep in mind that you can actually apply for more than you are eligible to forgive. We go into this in detail below, under ‘How Big of a Loan Can You Get?’. And of course, you don’t have to follow the above rules if you are ok with paying back the loan.

Any amount that is not forgiven must be paid back within 2 years, with a very low-interest rate of just 1%. Repayments will be deferred for 6 months after receiving the loan.

Is Your Business Eligible for a PPP Loan?

If your business employs fewer than 500 people, you’re eligible for a loan through the Paycheck Protection Program. Freelancers, tax-exempt non-profits, sole proprietorships, and independent contractors are all eligible, too.

Larger chain operations are also eligible to get loans for each location of the business, as long as that location employs fewer than 500 people.

Note that your business had to be in operation prior to the pandemic — February 15th, 2020.

There are a few ways your business could be deemed ineligible, specifically if your company engages in illegal activity or if a previous business of yours has received Federal or SBA aid in the past and then went on to default or delinquency in the last seven years.

How Big of a Loan Can You Get?

PPP loans can be for as much as $10 million to cover wages, up to $100,000 in annual payroll per employee.

How much is your business eligible for? Take your average monthly payroll costs from before the pandemic (the start date of which is designated as February 15th, 2020, unless your business is seasonal, in which case you can use a different date), then multiply by 2.5.

Your payroll costs include salary, wages, tips, commissions, benefits (including paid leave and health insurance premiums), and local and state payroll taxes. That’s for full-time or part-time employees.

Independent contractors can’t be included in your payroll costs. They have to file for their own small business loans from the government. So send them a link to this blog, they’ll appreciate it.

If you are your business’ only employee, operating as a sole proprietor or independent contractor, then you can claim payroll costs associated with a yearly salary of up to $100,000 (assuming that’s how much you were making before all of this went down).

Does It Make Sense for Your Business to Apply for a PPP Loan?

The short answer? Yes. The PPP loan is super cheap capital. A 1% interest rate with a 2 year repayment? That’s insane.

Take it, take as much as you can. Your business needs cash — use this to bolter your reserves with free (at best) and freakin’ cheap (at worst) capital.

How to Get Business Loans through the Paycheck Protection Program

This has been a bit of a confusing matter from the get-go. You don’t apply for a PPP loan through the Small Business Administration or any government entity.

Instead, you can get your loan through a bank. Start with whatever bank you currently have your business account at. Their website should have information, and maybe even a way to apply online. Otherwise, you can call.

If you don’t have an existing relationship with a bank, there are some lenders who are working with new customers, including Kabbage, Ready Capital, and Fountainhead.

Remember: there’s a lot of competition for these loans, and the money will run out. Don’t sit on your laurels. Apply ASAP and stay on your banker to make sure your application goes through. Yes, the system has flaws and yes the folks working at your bank are probably losing their minds, but you need to push to make sure you get what your business needs to survive.

One bit of good news: Requirements for these bank loans are relatively loose, and you don’t need to provide collateral. In times like these, easy money is good money, so get after it.

Other Options for Financial Support

A loan through the Paycheck Protection Program is just one way you can obtain government support to help keep your business afloat.

There’s the Federal Reserve’s Main Street Lending Program, which is still in the works but is being designed to provide more financing options for small businesses (get updates on the Fed’s website).

There’s also the Small Business Administration’s Economic Injury Disaster Loans (EIDL), the first $10,000 of which is offered in the form of a grant (that means you don’t have to pay it back). Read our blog on how to apply here >

Finally, one of the best ways to survive this crisis is to step up your cash management game. There are many ways to maximize your cash on hand to help you weather the current downturn.

You can defer payments on your debts, cut spending left and right, speed up payments owed to you, and if you’re eligible for a tax refund, get it as soon as possible.

Last but not least, you can educate yourself with online finance classes. And what do you know? We’re offering a totally free online course on cash management right now.

Learn more about our free Cash Management in a Crisis online course >

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