April 27, 2020
As of May 28, 2021, the Paycheck Protection Program has run out of funding. You can learn more about the PPP with our COVID-19 resource hub.
COVID-19 has threatened the economic security of millions of small businesses (and small business owners) across the country. And when the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) was passed in late March, it included significant aid for those businesses in the form of the Paycheck Protection Program.
The Paycheck Protection Program is an unprecedented emergency lending program administered by the Small Business Association (SBA) that is overseeing billions in loans for small businesses impacted by the current coronavirus health and economic crisis. And while the approximately $349 billion in funds originally allocated for the PPP small business loans were exhausted in 13 days (as a result, the Paycheck Protection Program is not currently accepting applications), it’s expected that the federal government will pass legislation to add an additional $310 billion in funding to the loan program before the end of the week.
Because PPP loans are first come, first served, it’s imperative that you take the steps to prepare your business and your PPP loan application now—so that when the Paycheck Protection Program is refunded and begins accepting and processing additional applications, you’re ready to submit your application immediately.
But what steps do you need to take before you apply for a Small Business Administration PPP loan?
The very first step to take before you apply for a Paycheck Protection Program loan is confirming you qualify.
There are a number of eligibility requirements for PPP loans, including:
Once you confirm your eligibility, you can move forward with gathering the necessary information to complete your PPP application.
Paycheck Protection Program Loans are backed by the SBA, but they’re being processed by independent banks, credit unions, and other lenders. The requirements for all PPP loans are the same, so the SBA Paycheck Protection Program Borrower Loan Application will give you guidance on the documentation you’ll need and the steps you’ll need to take to ready your application form.
Your lender, however, may have additional requirements for how and when to submit your application—so it’s also important to check your lender’s website or connect with a representative to get clarity on any additional or specific steps you’ll need to take to submit your application.
Once you have the Paycheck Protection Program loan application in hand, the next step is to start gathering the necessary information and documentation for your small business and any owners who are applying for the loan.
The basic information and documentation you’ll need for your business to apply for a PPP loan includes:
The amount you can borrow through the Paycheck Protection Program is based on your average monthly payroll costs for the past 12 months—and you’ll need relevant documentation to verify those payroll costs.
The payroll and financial documents you’ll need for your PPP loan application include:
If you offer retirement, health insurance, or other benefits for your employees, you’ll also need documentation verifying those benefits.
Before you calculate your loan amount, it’s important to understand which employees to include in your calculation—which is especially important if you employ independent contractors.
Under the current guidelines, payments to independent contractors are not to be included when calculating payroll costs for PPP loans. Independent contractors have the ability to apply for PPP loans independently—and because they’re eligible for their own PPP funds, they shouldn’t be included in your business’ loan calculations.
All other employees, including full-time, part-time, and hourly employees, may be included in your payroll costs.
Under the Paycheck Protection Program, the maximum loan amount small businesses can apply for is equal to 2.5x their average monthly payroll costs. (Remember—payroll costs are inclusive of wages, salaries, commissions, group healthcare benefits, insurance premiums, retirement benefits and contributions, paid vacation, paid sick leave, and payroll taxes.)
Keep in mind that the PPP has a salary cap of $100,000, so the maximum salary you can use per individual when calculating your loan amount is $100K—even if the salary levels for some of your employees are actually higher.
PPP loans also cap out at $10 million per business entity—so businesses aren’t eligible to apply for more than $10 million in loans through the Payroll Protection Program (even if 2.5x your average monthly payroll costs were above $10 million).
If your lender has their loan application available online, print it out and fill it out. Even though the PPP isn’t currently accepting new loan applications, filling out the application can act as a checklist to make sure you have everything you need to submit your application when time comes. And if you don’t, going through and filling out the application will clue you in to any information or required documents you’re missing—so that when the time does come to apply, you’ll be prepared.
It may also be helpful to read through your lenders FAQs and familiarize yourself with their application process; that way, when you’re ready to submit your application, you know exactly what to do to get your loan submitted quickly and without any unforeseen issues.
Again, the Paycheck Protection Program isn’t currently accepting any new loan applications. But legislation is expected to pass later this week that will increase funding to the Paycheck Protection Program and reopen the application process. And because PPP loans are first come, first served, it’s important that you have all of your application requirements completed, organized, and ready for submission.
The more organized you are, the more quickly you can submit when the Paycheck Protection Program starts accepting applications again—and the higher the likelihood you’ll get approved for a PPP loan and get the funds you need to get your business through this pandemic.
