What is the Paycheck Protection Program?

Earlier this year, the Coronavirus Aid, Relief, and Economics Security (CARES) Act was signed by President Trump in order to provide emergency assistance and healthcare response to individuals, families, and businesses that were affected by the COVID-19 pandemic. The Small Business Administration (SBA) was given the funding and authority to modify existing loan programs to assist small businesses nationwide.

The PPP provides the financial resources for owners to stay afloat and continue their payments on payroll costs.

The Paycheck Protection Program (PPP) provides loans granted 100% by the SBA until August 8, 2020 — originally the program was supposed to stay in place until June 30, 2020, but an extension was granted. The main intent of the CARES Act is to provide relief to America's small businesses. For that reason, the SBA will allow lenders to rely solely on certifications made by the borrower on specified documents to determine loan amount and eligibility for the loan forgiveness.

There are certain requirements you need to meet to become eligible for the PPP, and it is extremely important that you understand their guidelines before applying for the loan. One of the key requirements is you must have 500 or less employees whose principal place of residence is in the United States, or you are a business that operates in a certain industry and meets the applicable SBA employee-based size standards for that industry. In order to be eligible, you need to prove you were in operation on February 15, 2020 and had employees whom you paid salaries to as well as payroll taxes. You are also eligible if you are an individual who operates under a sole proprietorship, an independent contractor, or self-employed on February 15, 2020. To establish said eligibility, you must submit the required documentation, such as payroll processor records, payroll tax filings, or income and expenses from a sole proprietorship as proof.

The PPP is a great opportunity for businesses who found themselves facing difficulties due to the Coronavirus pandemic.

If you are engaged in any activity that is illegal under federal, state, or local law, you are not eligible to receive a loan under the PPP. The same would apply if you are a household employer — meaning you employ nannies or housekeepers — or if you are the owner of 20% or more of the equity of an applicant who is incarcerated, on probation, on parole, or has been convicted of a felony within the last five years. If you or any business you own have ever obtained a direct or guaranteed loan from SBA or any other federal agency that is currently delinquent or has defaulted within the last seven years and caused a loss to the government, you will not be eligible.

Under the PPP, the maximum loan amount you may be granted is $10 million or the calculation of a payroll-based formula specified in the CARES Act. In order to do this calculation, you will need to understand the payroll cost. This involves compensations to employees in form of salary, wages, commissions, or similar compensations.

When it comes to the PPP, the interest rate will be 100 basis points or 1%, and its maturity will be two years. Even though under the CARES Act a loan will have a maximum maturity of up to ten years from the date the borrower applies for loan forgiveness, the SBA determined that a two-year loan term is sufficient in light of the temporary economic dislocations caused by the Coronavirus. The payments are deferred six months from the date of disbursement. However, interest will continue to accrue during that period.

The main intent of the CARES Act is to provide relief to America's small businesses.

The PPP is a great opportunity for businesses who found themselves facing difficulties due to the Coronavirus pandemic. It provides the financial resources for owners to stay afloat and continue their payments on payroll costs. Each business can apply for one PPP loan, so it is advisable they apply for the maximum amount possible. This way, they know the amount they receive will be good to cover their expenses and help them face these new challenges.