A Lifeline for Small Businesses – The PPP Loan

The Paycheck Protection Program (PPP) provides loans of up to $10 million to qualified small businesses. The PPP loans will be forgiven if a business meets certain criteria.

Who Qualifies

If your business was open on or before February 15, 2020 and has 500 or fewer employees or independent contractors for whom the business paid salaries, compensation and payroll taxes, you qualify. Businesses with more than 500 employees are eligible in certain industries. One such example is the hospitality and food sectors that have multiple locations. These companies can have up to 500 employees per physical location.

Good faith certification required

In order to participate in the PPP program, a business must certify the following:

• That the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations of the eligible recipient;
• Acknowledging funds are to retain workers. As well as maintain payroll or make mortgage payments, lease payments and utility payments;
• That the business does not have an SBA 7(a) loan pending for the same purpose and duplicative of amounts applied for or received under a covered loan;
• During the period beginning on February 15, 2020 and ending on December 31, 2020, the business has not received amounts under the Paycheck Protection Program for the same purpose or duplicative amounts applied for or received under a covered loan.

Attractive loan provisions

This loan has very few strings attached compared to other SBA loans.

• No collateral is required.
• No personal guarantees required.
• Also no up-front or back-end loan fees are applied.
• If you keep your employees on payroll, some or all of the loan is forgiven.
• The forgiven portion of the loan is NOT considered taxable.
• For the portion of the loan that is not forgiven, repayment terms are up to 10 years at not more than 4% interest.
• Initial loan payments are deferred for a period of six months to one year.
• There is no prepayment penalty.
• You can borrow up to 2.5 times your average monthly payroll costs, excluding pay over $100,000 to any one person.

How the funds are used is important

These loans are to help your business stay afloat during the pandemic. In addition to using the funds for payroll you can use them for:

• Health care benefits; paid sick, medical or family leave; and insurance premiums;
• payments of interest on any mortgage obligation;
• rent;
• utilities and
• interest on any other debt obligations that incurred before the covered period.

Loan forgiveness is the key

What makes this loan unique is that if you keep your employees hired, some or all of the loan will be forgiven. There are many parts to the calculation of the forgiveness, but the primary two are employee retention and at least 75% of the forgiven loan amount must be used for payroll.

But even if you lay off employees, there are clauses that allow you to rehire those employees.

Check with the source!

The rules and application of the rules is rapidly changing. So check with your bank and visit Small Business Administration paycheck program for more up-to-date information.