Everything You Need to Know About Payment Protection Program Loans

What is the Payment Protection Program?
The Payment Protection Program (PPP) provides cash- flow assistance through 100 percent federally guaranteed loans to employers who maintain their payroll during the COVID-19 emergency. If employers maintain their payroll, the loans will be forgiven. It will help workers remain employed, as well as help affected small businesses and our economy to snap-back quicker after the crisis.

How do I apply for a PPP loan?

To apply, contact your banker or a bank that provides SBA loans.

How can a PPP loan help me?

PPP has a host of attractive features, such as forgiveness of up to 8 weeks of payroll based on employee retention and salary levels, no SBA fees, and at least six months of deferral with maximum deferrals of up to a year. Small businesses and other eligible entities will be able to apply if they were harmed by COVID-19 between February 15, 2020 and June 30, 2020. This program would be retroactive to February 15, 2020, in order to help bring workers who may have already been laid off back onto payrolls. Loans are available through June 30, 2020.

What types of businesses and entities are eligible for a PPP loan?

• Businesses and entities must have been in operation on February 15, 2020.
• Small business concerns, as well as any business concern, a 501(c)(3) nonprofit organization, a 501(c)(19) veterans organization, or Tribal business concern described in section 31(b)(2)(C) that has fewer than 500 employees or fewer employees than established by the relevant industry code.
• Individuals who operate a sole proprietorship or as an independent contractor and eligible self-employed individuals.
• Any business concern that employs not more than 500 employees per physical location of the business concern and that is assigned a North American Industry Classification System code beginning with 72, for which the affiliation rules are waived.
• Affiliation rules are also waived for any business concern operating as a franchise that is assigned a franchise identifier code by the Administration, and company that receives funding through a Small Business Investment Company.

What are affiliation rules?

They become important when SBA is deciding whether a business’s affiliations preclude them from being considered “small.” Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses. Please see this resource for more on these rules and how they can impact your business’s eligibility.

What types of nonprofits are eligible?

All 501(c)(3) nonprofits with 500 employees or fewer, or more if SBA’s size standards for the nonprofit allows. Please visit this resource to find out your nonprofit's SBA size standards by number of employees. For example, churches and museums with fewer than 500 employees are eligible. You will need the 6-digit North American Industry Classification Code for your business.

How is the loan size determined?

Depending on your business’s situation, the loan size will be calculated in different ways (see below). The maximum loan size is always $10 million.

• If you were in business February 15, 2019 – June 30, 2019:

Your max loan is equal to 250 percent of your average monthly payroll costs during that time period. If your business employs seasonal workers, you can opt to choose March 1, 2019 as your time period start date.

• If you were not in business February 15, 2019 – June 30, 2019:

Your max loan is equal to 250 percent of your average monthly payroll costs between January 1, 2020 and February 29, 2020.

• If you took out an Economic Injury Disaster Loan (EIDL) between February 15, 2020 and June 30, 2020 and you want to refinance that loan into a PPP loan, you would add the outstanding loan amount to the payroll sum.

What costs are eligible for payroll?

• Compensation (salary, wage, commission, or similar compensation, payment of cash tip or equivalent)
• Payment for vacation, parental, family, medical, or sick leave
• Allowance for dismissal or separation
• Payment required for the provisions of group health care benefits, including insurance premiums
• Payment of any retirement benefit
• Payment of State or local tax assessed on the compensation of employees

What costs are not eligible for payroll?

• Employee/owner compensation over $100,000
• Taxes imposed or withheld under chapters 21, 22, and 24 of the IRS code
• Compensation of employees whose principal place of residence is outside of the U.S

Qualified sick and family leave for which a credit is allowed under sections 7001 and 7003 of the Families First Coronavirus Response Act.

What are allowable uses of loan proceeds?

• Payroll costs (as noted above)

• Costs related to the continuation of group health care benefits during periods of paid sick, medical, or family leave, and insurance premiums
• Employee salaries, commissions, or similar compensations (see exclusions above)
• Payments of interest on any mortgage obligation (which shall not include any prepayment of or payment of principal on a mortgage obligation)
• Rent (including rent under a lease agreement)
• Utilities
• Interest on any other debt obligations that were incurred before the covered period

What are the loan term, interest rate, and fees?

The maximum term is 10 years, the maximum interest rate is 4 percent, zero loan fees, zero prepayment fee (SBA will establish application fees caps for lenders that charge).

How is the forgiveness amount calculated?

Forgiveness on a covered loan is equal to the sum of the following payroll costs incurred during the covered 8 week period compared to the previous year or time period, proportionate to maintaining employees and wages (excluding compensation over $100,000):

Payroll costs plus any payment of interest on any covered mortgage obligation (not including any prepayment or payment of principal on a covered mortgage obligation) plus any payment on any covered rent obligation plus any covered utility payment.

How do I get forgiveness on my PPP loan?

You must apply through your lender for forgiveness on your loan. In this application, you must include:

• Documentation verifying the number of employees on payroll and pay rates, including IRS payroll tax filings and State income, payroll and unemployment insurance filings
• Documentation verifying payments on covered mortgage obligations, lease obligations, and utilities.
• Certification from a representative of your business or organization that is authorized to certify that the documentation provided is true and that the amount that is being forgiven was used in accordance with the program’s guidelines for use

What happens after the forgiveness period?

Any loan amount not forgiven at the end of one year is carried forward as an ongoing loan with max terms of 10 years, at 4% max interest. Principal and interest will continue to be deferred, for a total of 6 months to a year after disbursement of the loan. The clock does not start again.

Can I get more than one PPP loan?

No, an entity is limited to one PPP loan. Each loan will be registered under a Taxpayer Identification Number at SBA to prevent multiple loans to the same entity.

What kind of lender can I get a PPP loan from?

All current SBA 7(a) lenders are eligible lenders for PPP. The Department of Treasury will also be in charge of authorizing new lenders, including non-bank lenders, to help meet the needs of small business owners.

How does the PPP loan coordinate with SBA’s existing loans?

Borrowers may apply for PPP loans and other SBA financial assistance, including Economic Injury Disaster Loans (EIDLs), 7(a) loans, 504 loans, and microloans, and also receive investment capital from Small Business Investment Corporations (SBICs)

How does the PPP loan work with the temporary Emergency Economic Injury Grants and the Small Business Debt Relief program?

Emergency Economic Injury Grant recipients and those who receive loan payment relief through the Small Business Debt Relief Program may apply for and take out a PPP loan. Refer to those sections for more information.

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