What is the Paycheck Protection Program(PPP)?

What is the Paycheck Protection Program(PPP)?

The Paycheck Protection Program is a loan program that originated from the CARES Act. It was originally a $350-billion program and it was provided to American small businesses with eight weeks of cash-flow programs through 100 percent guaranteed loans. The loans are provided by the Small Business Administration (SBA). The Small Business Administration will manage the loans. The business owners can apply for loans at SBA-approved banks, credit unions, and financial technology lenders. 

The Paycheck Protection Program Flexibility Act made some important changes in the program and allowing more time to spend the funds and make it easier to get a loan.

Important points of Paycheck Protection Program

  • All small businesses are eligible for PPP
  • The loan has a maturity rate of two years and an interest rate of 1%.
  • Loans made after June 5, 2020, have a length of five years.
  • The loan covers expenses for 24 weeks starting from the loan disbursement date
  • No need to make loan payments until either your forgiveness application is processed, or 10 months after your 24-week covered period ends
  • No personal guarantees required
  • No fees will be charged
  • The loan can be forgiven and essentially turn into a non-taxable grant

Eligibility for Paycheck Protection Program

  • A small business which are having less than 500 employees
  • A small business that otherwise meets the SBA’s size standard
  • A 501(c)(3) with fewer than 500 employees
  • An individual who operates as a sole proprietor
  • An individual who operates as an independent contractor
  • An individual who is self-employed who regularly carries on any trade or business

How PPP loan can be used 

At least 60 percent of the PPP loan must be used to fund payroll and for the employee’s benefits costs and the remaining 40 percent can be spent on:

  • Mortgage interest payments
  • Rent and lease payments
  • Utilities
  • Operations expenditures such as software and accounting needs 
  • Property damage costs due to public disturbances not covered by insurance
  • Supplier costs such as cost of goods sold
  • Worker protection expenditures to be COVID compliant

How do apply for a PPP 

The SBA itself doesn’t provide you the money, they just the meditators, they just back the loan which is provided by the PPP loan companies. You can check out the SBA’s Lender Match tool to find an eligible SBA 7(a) lender. Your application is also processed apart from that you will need to verify few things:

  • Current economic uncertainty makes the loan necessary to support your ongoing operations.
  • The funds will be used to retain workers and maintain payroll or to make the mortgage, lease, and utility payments.
  • Documentation that verifies the number of full-time equivalent employees on payroll and the dollar amounts of payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the 24 weeks after getting this loan.
  • You acknowledge that the lender will calculate the eligible loan amount using the tax documents you submitted. You affirm that the tax documents are identical to those you submitted to the IRS.
  • If you are applying for your second draw PPP loan, you have already used up the funds from your first draw PPP loan.

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