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On March 27, 2020, the United States federal government signed the CARES Act into law—a coronavirus relief bill aimed at supporting small businesses through this ongoing crisis. One of the measures in the bill is the Paycheck Protection Program, which is a nearly $350-billion initiative intended to provide small businesses with eight weeks of cash-flow assistance through federally-guaranteed loans.
This includes cash infusion for essentially all small businesses, from employers to independent contractors to gig economy workers, who will receive the increased unemployment funds. There are even funds available for non-profits. Here is everything you need to know about this program and how to apply.
The Paycheck Protection Program is a new loan program under the Small Business Association (SBA). It will allow certain businesses such as banks and current SBA lenders to provide loans on behalf of the SBA to small businesses affected by COVID-19. These loans can be made during the covered period from February 15, 2020 through June 30, 2020.
Keep in mind that 75 percent of the PPP loan is meant to be used to fund payroll and employee benefits costs. The other 25 percent can be used on mortgage interest payments, rent payments, and utilities. If you keep within these guidelines, you’ll be able to have the entirety of the loan forgiven -- effectively turning it into a tax-free grant.
The loans will be available to all businesses with fewer than 500 employees, in all states and territories. Sole proprietors, independent contractors, and folks who are self-employed are also eligible to apply for a PPP loan on their own. Businesses with more than 500 employees are also eligible, in certain industries.
Payroll costs under the PPP program include salary, wages, commissions, or tips. This is capped at $100,000 at an annual basis for each employee. They also include employee benefits -- including costs for vacation and sick or personal time allowance, payments required for health care benefits, and payment of any retirement benefit.
In the case that you are a sole proprietor or independent contractor, then wages, commissions, income, or net earnings from self-employment are capped at $100,000 at an annual for each employee.
The maximum amount you can receive from your SBA-approved lender is your monthly average payroll cost in 2019, multiplied by 2.5, up to a maximum of $10 million.
There are exceptions to these loans. If you had to lay off employees during the covered period, some of the benefits are released, such as a reduction in the forgivable amount of your loan. For example, if a small business laid off half of its employees, the amount of the loan will be reduced by 50%. However, if by June 30 all employees are rehired and their full salaries restored, no loan reduction will occur.
The SBA itself doesn’t lend you the money, they just “back” the loan that the lender provides. There are thousands of banks that already participate in the SBA’s lending programs, including numerous community banks. You do not have to visit any government institution to apply for the program. To find an SBA-approved lender, you can take a look at the SBA’s Lender Match tool.
As part of your application, you’ll be asked to verify that the current economic situation makes the loan necessary to support your ongoing business and that the funds will be used to retain employees and maintain payroll or to make the mortgage, lease, and utility payments. You’ll also need to provide the lender with documentation that verifies the number of full-time employees on payroll and your payroll costs, covered mortgage interest payments, covered rent payments, and covered utilities for the eight weeks after receiving this loan. Approval for a PPP loan is expected to take around two weeks.
Here is the Paycheck Protection application form. Take this form to any qualified lender.
You may also want to read this document which goes into more detail about the Payment Protection Program.
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