How to Apply for a PPP Loan: Everything You Need to Know
The global economy is in peril due to the coronavirus pandemic. Across the United States, businesses are closing their doors at the government’s request. How can American businesses expect to survive without revenue?
There is a sliver of hope during these distressing times. The United States government authorized the Paycheck Protection Program (PPP) to bailout business owners and their employees. While the program has been ongoing, there is currently $130 billion in remaining funds.
Read on to learn how you can apply for a PPP loan. Explore everything you need to know about the PPP and how it can save your business.
What Is the PPP?
The PPP is a loan from the United States federal government. It provides businesses across the country with an incentive to keep their employees on the payroll.
What makes PPP different than ordinary government loans is that every business is eligible for forgiveness. Loan forgiveness is awarded to each business that meets the employee retention criteria.
The loan is forgiven if a company uses at least 60% of it on payroll costs. Collateral is not required and loan payments do not begin until six months after the funds are received.
Funds can also be used on non-payroll expenses. Examples include utilities and interest on the mortgage or rent.
However, the percentage of the loan forgiven depends on how the company handles payroll expenses. If a business reduces salary or cuts hours, partial loan forgiveness is calculated.
There are a few exemptions from the loan forgiveness reduction. One such example would be if you make a good faith attempt to rehire workers and they decline.
Why Is the PPP Necessary?
American businesses did not close on their own accord. The United States government declared a public health emergency.
In order to keep the general public safe, state governments issued stay-at-home orders. These executive orders issued by a state’s Governor mandated that non-essential businesses close their doors.
At the same time, the government recognized the severe impact that stay-at-home orders would have on the American worker.
Under normal circumstances, a business that is not earning revenue would look to trim payroll. These businesses would have no choice but to lay off or furlough their employees.
Therefore, Congress passed the PPP to keep businesses afloat and employees on the payroll. The PPP is intended to be a temporary measure until the coronavirus pandemic is under control.
Does the PPP Work?
The PPP has been successful and prevented a much deeper economic recession in the United States. Thus far, the United States has doled out more than $500 billion in loans via the PPP.
There is no question it has saved jobs.
Despite historic unemployment of nearly 15% in April, small businesses are rehiring their employees. The unemployment rate is now 11% in June and the PPP is credited with saving 16 million jobs in total.
The bottom line is that the PPP is an unquestioned success. For this reason, Congress recently extended the program out to August 8th.
Can My Business Apply for the PPP?
There are some eligibility requirements to apply for the PPP. This program was designed specifically for small businesses that were directly affected by the coronavirus pandemic.
For starters, your company needs to meet the size criteria defined by the U.S. Small Business Administration (SBA). Depending on what industry you are in, the SBA is going to verify that your company qualifies as a small business.
There are a few other entities that may qualify for a government loan. For example, accommodations and food services companies with more than one physical location may apply. This is true as long as they have less than 500 employees at each location.
Other entities that are eligible include 501(c)(3) non-profit organizations and veterans organizations. Businesses with a Tribal designation under the Small Business Act may also be eligible.
Finally, the government recognizes the growing freelance and self-employment workforce. For this reason, independent contractors, sole proprietors, and self-employed workers may be eligible for the PPP.
How do you Apply for a PPP Loan?
Now that you understand the basics of the PPP, it is time to submit your application. The first thing you need to do is find a bank that processes SBA loans which can be accomplished by running a search using your zip code.
The PPP application is easy to fill out. There is a list of yes or no questions. You then have to initial next to a series of certifications.
In total, the application is only two pages long. Continue reading here for some guidance on the application.
The first section is going to ask for some contact information. In general, the SBA wants to know the name of your business and where it is located. They will also ask for information on any owner with more than a 20% stake in the company.
In addition, the SBA wants phone numbers and e-mail addresses where you can be reached. You will also have to identify your business type and tax identification number.
PPP Loan – Specific Information
Next, the application asks for some information about your business. For starters, how many employees do you have and what is your average monthly payroll?
The application is going to ask you to multiply your average monthly payroll by 2.5. The result of this simple calculation is your loan amount request.
You will also see a reference to adding EIDL to your average monthly payroll. This applies to businesses that have an outstanding balance from an Economic Injury Disaster Loan.
Finally, this section is going to ask for the purpose of your loan. This is verification that you are using the loan for payroll, mortgage/rent interest, or utilities.
Next, there is a serious of eight yes or no questions. The objective of these questions is primarily to ensure the government is not loaning to an undeserving person. They will ask questions about any criminal history or if the business has defaulted on a prior federal loan.
They also want to know if your employees work and reside in the United States. Another question asks whether you received an SBA EIDL between January and April 2020. Finally, the government also asks if your business is listed in the SBA Franchise Directory.
The final section is a list of certifications and authorizations in which you need to add your initials. Here, you will certify that you have employees on payroll and reported on IRS Form 1099-MISC. The SBA also certifies that your business is in distress and needs financial support.
You will also have to indicate your understanding of liability in the event funds are used for unauthorized reasons. The government wants to make it abundantly clear that loan funds are to be used for payroll, utilities, and mortgage or rent interest. This includes the future provision of any supporting documentation for these expenses.
Another acknowledge is of the programs 60% to 40% split for payroll vs. non-payroll items. More than 40% of the loan cannot be used for non-payroll expenses.
It is important to indicate your understanding that you will not be eligible for additional PPP funds for the remainder of the calendar year. Lastly, you agree to share your company’s tax information with the SBA.
How to Submit a PPP Loan Forgiveness Application?
Once you are approved for PPP, the next step is applying for loan forgiveness. This application is actually longer than the loan version.
The reason for the additional length is that there are separate forms included as an appendix to the primary application. Some of the requested information is the same, but the emphasis is now on incurred costs.
On Schedule A, you are calculating any applicable reductions to the loan forgiveness amount. This occurs if your company reduced the number of full-time equivalents or cut salary during the covered period. The calculations on Schedule A are carried up to the primary application.
On the first page, you begin a forgiveness amount calculation. It will ask how much money your company spent on payroll, utilities, and mortgage/rent interest.
Next, the primary application will ask you to adjust your payroll values based on Schedule A. This leads you to a modified total for a potential forgiveness amount.
Lastly, you will select the loan forgiveness amount. This is the smallest of three potential forgiveness amounts. Of the three, there is a modified total described above.
The other two are the loan amount and the 60% payroll threshold. You get this by dividing your payroll expenses by 0.6.
A Recap of Applying for a PPP Loan
PPP is a means to save your company from financial ruin due to the coronavirus pandemic. It can also help retain your workforce and ensure they can continue to provide for their families.
The key takeaway is that funds must be used for authorized expenses, with the bulk going towards payroll. You will be asked to document this during the loan application and later for loan forgiveness.
If you are interested in applying for a PPP loan, contact us today for assistance or to submit an online application for other types of funding for your business.