As part of the CARES Act, the Congressional Small Business Task Force unveiled a $367B Emergency Coronavirus Relief Package. Paycheck Protection Program loans have low rates and limited SBA requirements, as well as loan forgiveness for qualified payroll expenses to help businesses retain employees and weather the coronavirus storm.
The Paycheck Protection Program is also unique to other disaster loans because business owners do not need to prove that their business suffered economic or physical damage to qualify. In addition, forgivable payroll costs include compensation, benefits, rent, and utilities, providing critical funding to struggling businesses.
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 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. The PPP expiration date is currently August 8th, which would mean no payments are due until June 8, 2021.
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.
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 began offering on June 15th for 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. While EIDLs do not include the same forgiveness provision as the PPP loan, you can apply for an advance of up to $10,000 that does not need to be repaid.
PPP loan maximums are calculated based on 250% of your business’s monthly payroll costs with a maximum of $10,000,000.
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.
PPP loans will help small businesses and private nonprofits maintain payrolls and related payments. Qualified loan uses include:
No more than 25% 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.
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.
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.
For Economic Injury Disaster Loans (EIDL), small businesses need to prove they’ve experienced “substantial economic injury.” Unlike disaster loans, Paycheck Protection Program loans provided under the CARES Act are funded with the understanding that your business has experienced the negative impact of COVID-19. While PPP loans are easier to qualify for, they are not tied directly to economic losses suffered as a result of the disaster.
If you’re unsure whether you qualify for a PPP loan our portal can help. Fill out our online prequalification form and if you don’t qualify for everything you need, we have funding solutions that can help stabilize your cash flow.
Subject to approval.
*Loan forgiveness is subject to providing follow-up supporting documentation for use of funds. At least 75% must be used for payroll during 8 week period after funding.
Certain products may not be available in all states.
Certain business loan products are made available through Retail Capital LLC, a licensed California Finance Lender.
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