The Paycheck Protection Program, PPP, may sound like something for employees, but it’s actually a program backed by the federal government to help small businesses keep paying their employees through the COVID-19 pandemic. If you are a small business whose business has been impacted by the pandemic and you are concerned about your ability to keep everyone on the payroll with reduced business, the PPP may be the right step for you.
Updates to the Program
First, know that there is still time to do a PPP loan application. The program expires at the end of May but is currently still going strong. New rules mean that sole proprietors can receive more funding and that funding is available even if they have previous convictions as long as they aren’t related to fraud. Student loan payments or failure to make payments can’t be used to deny a loan and lawful residents, even if they aren’t citizens are eligible too. Loans are administered through traditional institutions like banks and credit unions but they are backed by the Small Business Administration. Not every lender is participating so make sure your financial institution has been approved before proceeding.
What Can a PPP Loan Do Your Business?
As mentioned above PPP loans are there to help you pay your employees. If business has been slow, these funds will specifically help your employees stay off of unemployment. In fact, depending on your loan, you may actually be able to call back employees you’ve had to furlough. Your loan request can be up to 2.5 times your average monthly payroll from 2019. Thankfully, you can include in the loan any sorts of insurance payments and other benefits that were part of your payroll. The SBA has a form to help you calculate the amount of your loan. Beyond payroll, you can use the loan to pay for rent, utilities and a few other categories of business’ expenses.
How Does a PPP Loan Work?
It’s important to understand the rules of PPP loans because if you meet the requirements, the loan can be completely forgiven for a first-time loan if you maintain your level of employees and pay them the same as you did before the pandemic began, at least 60% of the loan goes to payroll and the rest goes only to approved costs. Even if for some reason you can’t meet the forgiveness requirements, these loans have interest rates as low as 1% with no collateral required. They are shorter loans paid back over five years, but it is understood that if you need this loan you may not be able to begin repayment immediately so there are deferral options for those who apply for loan forgiveness. Those who know they won’t be eligible for forgiveness can still automatically get a 10-month deferral.
Even companies that received a PPP loan in the first round can apply for a second draw loan. If you’re not sure if you qualify check out the SBA page and talk to your local financial provider who will be able to guide you.