What is the Payment Protection Program (PPP)?

A: The Paycheck Protection Program is a loan program that originated from the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This was originally a $350-billion program intended to provide American small businesses with 8 weeks of cash-flow assistance through 100% federally guaranteed loans. The loans are backed by the Small Business Administration (SBA). 

In late December 2020, Congress passed the $900 billion Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA) to help more businesses impacted by COVID-19.  

On February 22, 2021, the Biden Administration announced more changes to the PPP program to boost help for underserved small businesses. First, from February 24 through March 9, there is a two-week exclusivity period for businesses with fewer than 20 employees to apply for first- and second-draw PPP loans. Second, eligibility for PPP was increased to include non-citizens who pay taxes and those with non-fraud felonies and student loan delinquencies. Third, the SBA changed the maximum potential PPP loan amount that sole proprietors and independent contractors can apply for, basing it on gross income instead of net income. 

PPP loans are issued by private lenders and credit unions, and then they are backed by the Small Business Administration (SBA).  

Am I Eligible for a PPP loan?

A: Small businesses, sole proprietorships, independent contractors, and self-employed individuals are all eligible. 

  • Sole proprietorships will need to submit a Schedule C from their tax return filed (or to be filed) showing the net profit from the sole proprietorship. 
  • Independent contractors will need to submit Form 1099-MISC (now 1099-NEC in 2020) in addition to their Schedule C. 
  • Self-employed individuals will need to submit payroll tax filings reported to the Internal Revenue Service. 

For second draw PPP loans in 2021, businesses will need to show a 25% or greater reduction in revenue. This will be shown by comparing revenue between any quarter in 2020 with the same quarter in 2019. 

How can I apply for a first or second PPP loan?

A:  Businesses can submit applications for PPP loans to SBA-approved private lenders, credit unions, and fintech companies. Start the process by talking to any lender you are currently work with first to see if they are taking part in the PPP program. If you do not have an existing lending relationship, you may want to consider applying with a fintech company. The SBA also has a tool called Lender Match that can help businesses find an approved PPP lender. 

Are there any differences in the second-draw PPP loan?

A: To qualify for a second-draw PPP loan, businesses must 1) have previously received a PPP loan and used the full amount only for authorized uses; 2) have fewer than 300 employees; and 3) have had a 25% reduction in gross receipts during at least one quarter of 2020 versus the same quarter of 2019. The maximum loan size for a second PPP loan is $2 million, whereas it is $10 million for a first-time PPP loan. 

What are the loan terms?

A: The interest rate for all PPP loans is set at 1%. PPP loans that were issued before June 5, 2020, mature in two years. Loans issued after June 5, 2020 mature in 5 years. The maximum loan size for a first-time PPP loan is $10 million, and the maximum loan size for a second-draw loan is $2 million. No personal guarantee or collateral is required. Additionally, both the government and lenders involved with PPP are not allowed to charge small businesses any fees for processing these loans. 

PPP Main Points: 

The following is a brief overview of the PPP loan program: 

  • All small businesses are eligible 
  • The loan has a maturity rate of two years and an interest rate of 1%. 
  • Loans made after June 5, 2020 have a length of five years. 
  • The loan covers expenses for 24 weeks starting from the loan disbursement date 
  • No need to make loan payments until either your forgiveness application is processed, or 10 months after your 24-week covered period ends 
  • No collateral or personal guarantees required 
  • No fees 
  • The loan can be forgiven and essentially turn into a non-taxable grant