Paycheck Protection Program (PPP) A Small Business Loan Program

The $2.2 Trillion stimulus package which is formally known as the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” for short is a 880 page law which provides benefits / relief in numerous economic, medical and supply chain areas in response to the Covid-19 Pandemic.  This article will discuss Section 1102, “PAYCHECK PROTECTION PROGRAM” (PPP) of the CARES Act, which begins on page 9 of the bill.

In general, the PPP is an amendment to Section 7(a) of the Small Business Act (SBA) which provides loans to small businesses, non-profit organizations qualifying under 501(c)(3), veterans organizations, or Tribal businesses that have 500 employees or less impacted by Covid-19. In addition, it applies to sole proprietors, independent contractors, and eligible self-employed individuals. The PPP loan can be used for payroll costs, mortgage interest, rent or utility expenses. 

The maximum amount of the loan under the PPP is calculated by taking the average total monthly payroll costs incurred for 2019 multiplied by 2.5 plus the outstanding amount of an Economic Injury Disaster Loan (EIDL) unless the EIDL’s loan proceeds were also for payroll.  The PPP is limited to $10,000,000 per business entity.  Payroll costs are defined as salary, wages, tips, commission, vacation, sick and other type of leave, group health insurance, and retirement benefits.  Compensation is limited to $100,000 per individual.

The PPP loan is a loan that small businesses can obtain from those financial institutions who participate in the SBA lending process.  Applications can be submitted beginning April 3, through June 30, 2020; although, if interested in the loan I wouldn’t wait to apply, as $349 Billion has been appropriated and when the funds are depleted the loan process is complete. Based on the SBA’s website the loan has a maturity of 2 years and a 1% interest rate with no fees.  For the loan to be forgiven, at least 75% of the loan must be used for payroll costs and is based upon the business retaining or quickly rehiring their employees at the same pay rate as prior to the pandemic.   

In order to get started on your loan application, we have inserted a link to the SBA loan application for the PPP loan.  Click here for an application that you can prepare to submit for a PPP loan.

Here are the key takeaways for the PPP loan program:

  • SBA shall require no personal guarantee or collateral requirements and no recourse against the borrower unless the borrower uses the funds for unauthorized purposes.
  • Funds can only be used for payroll costs including identified employee benefits, mortgage interest payments, rent or utilities. 
  • Loan Maturity is 2 years at a 1% Interest Rate.  Payments are deferred for 6 months. (The loan may be forgiven within that 6-month period.)
  • For the loan to be forgiven, at least 75% of the loan must be used for payroll costs.
  • For loan forgiveness, the full-time employee “head count” must be retained or rehired at the pre emergency pay rate by June 30, 2020.

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Eric & Ashley Bremers
CFO 4 Your Biz
Accountants & Business Advisors