After months of waiting, lawmakers recently authorized a refreshed Paycheck Protection Program that is already accepting applications. Eligible small business owners can now claim a portion of the $284 billion allocated to keep employees on the payroll and respond to the challenges posed by the ongoing pandemic.
But how is the program different from previous rounds of PPP? And who is eligible for a loan? Follow along as we walk through the answers to some common questions.
What is the Paycheck Protection Program?
PPP launched in April 2020 to support small businesses affected by the ongoing pandemic. By extending forgivable loans to cover payroll costs, lawmakers designed the program to help companies pay their bills and keep staff employed.
Who Is Eligible?
To qualify for a first-time PPP loan, you must: have been in operation as of February 15, 2020; be an independent contractor, sole proprietor, or business/organization that retains employees or independent contractors; and certify that the business has sustained economic damage due to COVID-19. You can review the full requirements for first-time borrowers on Page 13 of this document.
If you’ve already applied and received a PPP loan during previous rounds, you might be eligible for another round of funding. Those able to demonstrate a 25% revenue drop in any one quarter in 2020 compared with 2019 should qualify for a second loan. You must also have used the full amount of your initial PPP loan and have fewer than 300 employees (down from 500 in previous rounds). Second draw borrowers can review the full requirements on Page 5 of this document.
How Much Money Will I Get?
For the current version of PPP, loans are capped at $2 million. Most businesses will be eligible for a loan equal to 2.5x their pre-pandemic monthly payroll costs. Certain industries, including hotels, restaurants, and live entertainment, may receive 3.5x pre-pandemic payroll costs. You will learn how to calculate your exact monthly payroll costs for a PPP loan during the application process.
How Can I Spend My PPP Funds?
You must spend at least 60% on payroll expenses. The remaining 40% can devoted to other “eligible expenses,” which include rent, utilities, mortgage interest, personal protective equipment, software, heat lamps, and other adaptive investments that help comply with health and safety guidelines related to COVID-19. Any deviations from this formula will reduce the potential amount forgiven.
So This Loan Is Forgivable?
Yes! In many cases, the PPP loan is effectively a grant, with 100% of debt forgiven as long as the borrower follows the guidelines outlined above.
Sounds Great! How Do I Apply?
In response to criticism of the distribution process for earlier rounds of PPP loans, the SBA will initially open lending to only community financial institutions, which include Community Development Financial Institutions (CDFIs), Minority Depository Institutions (MDIs), Certified Development Companies (CDCs) and Microloan Intermediaries. These lenders can start issuing PPP loans to first-time recipients on Monday, Jan. 11; those same lenders will be able to offer new loans to companies that previously received PPP loans starting two days later on Wednesday, Jan. 13.
The SBA has not announced when big banks will be able to start distributing PPP loans. When that happens, business owners can apply via a lender such as their bank or credit union (check out a sample application here).
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What If I Have More Questions?
Hello Alice is here to help! If you’re looking for a step-by-step walkthrough of how PPP works in 2021, we’ve put together an interactive Learn About the New Paycheck Protection Program (PPP) Loans Guide. We promise to keep it up-to-date with all the latest information as it becomes available.
Just remember to pay attention to deadlines — applications for this new round of PPP funding close March 31, 2021!