Paycheck Protection Program Loans (PPP Loans)

What Are SBA Paycheck Protection Program (PPP) Loans?

As part of the Coronavirus Response and Relief Supplemental Appropriations Act, Congress renewed the Paycheck Protection Program and PPP loans. This will offer expanded qualifying standards to provide targeted funding to smaller businesses. These loans will have the same low rates, limited SBA requirements and loan forgiveness for qualified payroll expenses as the original PPP loans in the CARES Act. Forgivable payroll costs include compensation, benefits, rent, and utilities, providing critical funding to struggling businesses.

Paycheck Protection Program Loans: What’s Next

Though the Paycheck Protection Program (PPP) is coming to a close, forgiveness applications and getting additional funding are still on the minds of business owners. Here’s what you need to know.

If you applied and received a Paycheck Protection Program Loan

If you have applied and received a Paycheck Protection Program Loan, your next step will likely be applying for loan forgiveness. It is important to remember that forgiveness for PPP loans is not automatic. You must complete the PPP forgiveness application from the Small Business Administration to verify that you used the loan for qualified expenses. The loan forgiveness application includes a worksheet to help you determine how much of your loan amount is eligible for forgiveness. If you have questions, reach out to your lender or financial advisor.

If you did not use your Paycheck Protection Program loan for qualifying expenses, the loan will need to be repaid. However, the PPP Flexibility Act guarantees that you will not have to make payments until 10 months after the program closes.

If you have already received a PPP loan, learn more about applying for PPP loan forgiveness.

If you applied and have not yet received a Paycheck Protection Program Loan

If you have previously applied for a PPP loan, you should reach out to your lender (or potential lender) to ask about the status of the application and if it will be processed before the program closes. If your application will not be processed before the program closes, you may want to start considering other funding options, such as an SBA Disaster Loan or a traditional term loan.

If you have not yet applied for a Paycheck Protection Program Loan

At this time, Credibly and many other lenders are no longer able to accept Paycheck Protection Program loans. If you need additional or alternative pandemic relief funds, discuss your options with your accountant or bank. One alternative is Economic Injury Disaster Loans (EIDL), which the SBA is offering to business owners who have been affected by COVID-19. Any business in all 50 states, Washington D.C. and U.S. territories can apply for an EIDL.

You may also want to consider applying for a loan or other type of financing. While you may not be able to get funding through the SBA, there are still plenty of financing options available. Learn more about Credibly’s small business loans today.

FAQ About PPP Loans

How are Paycheck Protection Program Loan Amounts Calculated?

PPP loan amounts will be calculated in the same way as the original Paycheck Protection Program: 2.5 times your business’s monthly payroll costs with a maximum of $2,000,000.*

Payroll costs include compensation and other related costs like retirement payments, state and local taxes on payroll, payment for vacation or paid leave, group healthcare costs, and allowances for separation or dismissal.

How Can I Use PPP Loan Funds?

PPP loans are designed to help small businesses and private nonprofits maintain payrolls and related payments. Therefore, 60% of the loan must be used for qualified expenses:

• Compensation in the form of salaries, wages, commissions or similar compensation, cash tip payments or equivalents
• Healthcare costs and any expenses related to the continuation of group healthcare benefits (including insurance premiums)
• Additional group benefits including life, disability, vision, or dental insurance

The remaining 40% of the loan may be used on qualifying non-payroll expenses, including:

• Rent, utilities, and mortgage interest payments (not including payments on the mortgage principal)
• Payments for business software or cloud computing services that help your business operate
• Property damage caused by vandalism or looting due to public disturbances in 2020
• Supplier costs that are essential to the business
• Expenses for worker protections that are in line with CDC, HHS or OSHA recommendations, such as hand sanitizer, sneeze guards and air filtration systems
• Interest on any other debt obligations incurred before February 15, 2020

This list of qualifying non-payroll expenses has been expanded to accommodate for unique expenses incurred by businesses operating during the pandemic. This expanded list of qualifying expenses applies to all PPP loans except for those already forgiven.

How Do You Calculate PPP Loan Forgiveness Amount?

No more than 40% of the forgiven amount can be used for non-payroll costs like mortgage interest, rent, and utilities. If your business has laid off employees, that will also affect how much your loan can be forgiven.

To receive loan forgiveness, a borrower must apply to their lender with documents verifying payments and payroll details (number of employees, pay rates including IRS payroll tax filings and state income, payroll, and unemployment insurance filings). These documents must be certified from a representative of the business that the information is true.

When Do Paycheck Protection Program Loan Payments Start?

PPP loan payments that are not forgiven are deferred for the first 6 months. Payments can be deferred up to 12 months for borrowers who qualify.

Can You Get a PPP Loan If You Have Other Existing Loans?

Yes. You can qualify for a PPP loan even if you already have existing financing (including other SBA loans). That said, you cannot use the funds from PPP loans and other loans for the same use, at the same time. For example, if you use a disaster loan (EIDL or loan advance) to pay your business’s rent in a given month, you cannot also apply for a PPP loan to cover that month’s rent.

Do You Have to Prove Economic Injury for PPP Loans?

With the new qualifying standards for the Paycheck Protection Program, business owners do need to prove that their business has experienced a 25% revenue drop for at least one quarter in 2020 compared to the same quarter in 2019. This “drop in revenue” is calculated based on gross receipts before expenses (aka, every dime your business made during the quarter in question).

Important Note: If you were not in business during the second or third quarter of 2019, you can compare any 2020 quarter to the fourth quarter of 2019. If you were not in business at all in 2019, you can compare the second, third or fourth quarter of 2020 to the first quarter in 2020. You need to have been in business by February 15, 2020 to qualify for any PPP loan.

Can You Take Employee Retention Credit and a PPP Loan?

No. According to the IRS, an employer cannot receive a PPP loan and claim Employee Retention Credit. Therefore, recipients of the Employee Retention Credit may not be eligible for the second round of PPP loans.

Talk to a Credibly Lending Partner about alternate loan options today.