SBA Paycheck Protection Program

As of April 27, 2020, the United States government made available an additional $484 billion in support of a second round of Covid-19 stimulus to assist small businesses. Two types of forgivable loan programs are available, the Paycheck Protection Program (PPP) and the Economic Injury Disaster Loan (EIDL) program. If you own a small business that has been negatively impacted by the coronavirus, you may be eligible for one or even both of these programs. However, you will need to act quickly.  The first round of small business stimulus money ran out pretty quickly, and this latest round of funding is expected to go just as fast.   

The Paycheck Protection Program is a new business loan stimulus package designed to help companies avoid furloughs or layoffs by covering up to eight weeks of payroll as well as some other costs of staying in business. PPP loans are 100% forgivable if at least 75% of the loan is used for payroll costs. Funds may also be used to assist with interest on mortgages, rent, or utilities. 

The Economic Injury Disaster Loan (EIDL) program helps small businesses stay afloat during declared disasters such as hurricanes, fires, or pandemics like    Covid-19. This type of loan includes an advance of up to $10,000 (if eligible) that is automatically forgiven. Note: At the time of this writing, the EIDL web page still states these loans are not available due to a “lapse of appropriations,” even though Congress recently approved additional funding that was set to be available as of 10:30 a.m. EDT on Monday, April 27, 2020.  

Business owners can apply for both PPP and EIDL, but funds from both programs cannot be used for the same purpose. For example, EIDL funds cannot be used to cover payroll if a PPP loan is also being used for that expense.  

Who is eligible? 

Almost anyone who owns a small business, including self-employed, sole proprietors, gig workers, and independent contractors, may be eligible to apply.  Additional requirements for eligibility include: 

  • Employs no more than 500 people (exceptions apply) whose principal place of residence is within the US. 
  • Was in operation on February 15, 2020 (see exceptions for seasonal businesses) and had employees or paid independent contractors. 
  • Can demonstrate that the business was negatively impacted by the coronavirus such that current economic conditions make the loan application necessary.  

How much can my business borrow? 

Under PPP, business owners can borrow up to the lesser of $10,000,000 or 2.5 times average monthly payroll. This amount is further capped at $100,000 annualized for each employee.

The EIDL program provides up to $2 million in financial assistance, limited to the amount of actual economic injury experienced by the business. Although business owners can qualify for both programs, they should carefully evaluate which of the two programs might be more beneficial and apply for that one first. Keep in mind, funds will be distributed to eligible businesses on a first come, first served basis. The US Treasury Department provides further guidelines to help businesses calculate potential PPP loan amounts.  

How do these forgivable loan programs work? 

PPP loans are fully forgiven by the Small Business Administration (SBA) as long as employees are retained on the payroll for at least eight weeks. The money must also be restricted for use toward payroll (75%) and rent, utilities, or mortgage interest. Under EIDL, a $10,000 loan advance is provided and does not have to be repaid, even if the EIDL does not get approved.   

When to apply 

In a word – Now. Since loan applications are processed in the order in which received, and we saw how quickly the first round of small business disaster assistance was snapped up, time is of the essence. The official deadline for PPP loans is June 30, 2020, and the EIDL application deadline is December 16, 2020. However, it is widely believed available funds may be exhausted well ahead of these dates.  

Where to apply 

You can apply for a PPP loan through any SBA approved 7(a) lender or through any participating federally insured depositary institution, federally insured credit union or Farm Credit System institution.  A good place to start would be a bank or credit union where you already have an existing business relationship, which might help speed along the application process.  

The Small Business Administration also created a PPP lender search tool to help you locate approved SBA lenders in your area. A summary of all SBA Coronavirus Relief Options is also available.  


Sources: 

AICPA  https://www.aicpa.org/interestareas/privatecompaniespracticesection/qualityservicesdelivery/sba-paycheck-protection-program-resources-for-cpas/sba-payroll-protection-program-faqs.html 

Investopedia:  Paycheck Protection Program (PPP): What Is It and How to Apply (including EIDL) https://www.investopedia.com/your-guide-to-the-paycheck-protection-program-ppp-and-how-to-apply-4802195

Investopedia:  How to Navigate the New Small Business Relief Plan and Get a PPP Loan  https://www.investopedia.com/how-to-navigate-the-new-stimulus-plan-and-get-a-ppp-loan-4843031  

Govloans.gov – Economic Injury Disaster Loans  https://www.govloans.gov/loans/loan-details/1504 

Small Business Administration – https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program

Treasury.gov:  Paycheck Protection Program Information Sheet – https://home.treasury.gov/system/files/136/PPP%20Borrower%20Information%20Fact%20Sheet.pdf

Treasury.gov:  Paycheck Protection Program – How to Calculate Maximum Loan Amounts – By Business Type  https://home.treasury.gov/system/files/136/How-to-Calculate-Loan-Amounts.pdf  

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