Paycheck Protection Program – A Small Business Owners Guidebook
Times are tough. The economy is shrinking and businesses are going down. If that’s not enough, the COVID-19 pandemic is adding salt to an already badly wounded business environment. In an effort to boost the economy and save business from going under, the US Small Business Administration (SBA) is offering PPP loans. While the procedure and application process are pretty much straightforward, there are a few tweaks that can help you succeed in your PPP loan application.
The introduction of Payment Protection has been a breath of fresh air to most if not all businesses. Getting the loan means you can get the much-needed funds, reorganize your finances, keep your employees and most importantly, get through another month or quarter.
Here is your ultimate guide to Paycheck Protection Program popularly known as PPP loans;
First and foremost, lets tackle the big elephant in the room; who gets to qualify for PPP? The US Small Business Administration, with collaboration lenders countrywide are offering cheap loans to business. The main aim is to help business get by during the current pandemic while keeping their workforce. Generally, businesses apply for the PPP and when they meet the set rules, they get the funds to cater for their payroll and other eligible expenses. Here are the categories of all those who qualify;
- Self-employed people, sole proprietors and independent contractors
- Small business that meets the SBA industrial size or alternative size standards
- Any business in the Accommodations & food services industry whose code start with 72, employs three hundred people. If it has multiple locations, each location should not exceed 300 employees.
- Any business, non-profit organization, veteran organization or Tribal business concern that has; 500 employees or meets the SBA industrial standards if they exceed that number.
For those of us who are code with the codes, here goes; 1099, 501(c)(19), 501(c)(3), all NAICS that start with 72, all those who file 940, 941/944, schedule C, among others.
Application for PPP loans
SBA is accepting 1st time loan applicants from 11th January 2020 up to 31st March 2020. For the second PPP draw, application is open from 13th January and will be closed on 31ST March. Who qualifies for the second PPP loan? Well, below is the criteria used for 2nd loan applicants;
Pro tip: To increase your chances of getting the PPP loan, ensure all your documentation is in order.
The requirements for the first and second PPP Draws
Now that you know who qualifies for both the first and second PPP draws, lets’ see what you need to get the loans. For first timers, here is what is needed;
- The business is up and running
- It has been in existence from 15th Feb 2020
- You have not more than 500 employees
- If you are located in more than one physical location, each place should have not more than 500 employees.
if you are looking for the second round PPP loan, here is what is needed;
- Received the first loan and used it only on the authorized expenses
- Has a maximum of 300 employees
- Not more than 300 employees per location if you have multiple locations.
- Can clearly show a 25% or more reduction in gross receipts compared to previous year
Can you get a PPP loan without employees?
By now you have figured that PPP loans is mainly designed to help businesses maintain their workforce. But there is a common question that most self-employed people ask, can you get a PPP loan without employees? The answer is yes, self-employed persons, independent contractors, and freelancers qualify for a PPP loan.
When it comes to the self-employed, confusion reigns as it is not yet clearly understood as to who gets to qualify for the PPP loans. We’ve done a few checkers to help out bringing some clarity;
- Self-contractors can also receive one or more 1099s
- They file schedule C together with their 1040
- You can have LLC but still be self-employed
- If you pay workers with 1099 does not necessary mean you have employees. A W2 would be a better fit if you want the government to consider you an employer.
Restaurants have more reasons to smile
Accommodations and Food Services have been the biggest benefactor COVID Relief Bill. While other sectors are only getting 2.5X their payroll, restaurants are getting 3.5X their payroll expense in the second round PPP draws. On top of this, while other industries are getting a maximum of 300 employees in all locations, Accommodations and Food services are getting 300 employees per location.
How can you use the PPP money?
SBA makes it absolutely clear the funds gotten from the incentives goes into payroll expenses and a few others. The first-round funds can be used to; payroll costs and the benefits, employee protection costs especially those related to Corona Virus Disease, mortgage, utilities, rent, and suppliers’ cost. Property damages incurred from looting and vandalism in 2020 are also covered and so are operational costs.
What happens if the forgiveness application is not approved?
One of the best things about PPP loans is that they have a forgiveness plan. When, under certain circumstances, you fail to repay the loan in due time, you can always apply for a forgiveness plan. What do you need to apply for a forgiveness plan? Here are a few pointers;
- Maintain your employees
- Don’t cut payroll spending by more than 25%
- Safely keep all your documents
- Talk to your lender
- Apply for a forgiveness plan
When your forgiveness application hits a wall, you can always negotiate with your lender and see if you can reapply for forgiveness. If that’s not forthcoming, your loan will accrual interests of 1%. However, no PPP loan attracts additional penalties or fees. You only get to repay the remaining balance.
Above all, commit to repaying the loan and as this will increase your chances of getting another loan in future.
All borrowers are eligible for loan forgiveness if;
- Use the loan for the intended purposes
- Don’t retrench their employees
- Safely keep all the documents
- The employee wages are not reduced by over 25%
- Apply for a loan forgiveness program
The Terms for the first-round loans
In a nutshell, here are some of the terms for 1st PPP loan draw;
- The interest rate is charged at 1%
- The maturity period of all loans applied before 5th June 2020 is 2 years while those applied after 5th June 2020 is 5 years.
- There is no need for personal guarantees
- All the PPP loans are collateral-free
- The government and the lenders don’t charge small businesses any fees
Now that you have an idea about the PPP loans for both the first and second draws, go ahead and apply. You can find the 1ST PPP loan application form here and the second one here. You can also find the PPP forgiveness application here and your nearest lender can be found here.