Paycheck Protection Program

First and Second Draw Loans –
Eligible Businesses Can Qualify
for Loan Forgiveness

Applications for the Paycheck Protection Program are no longer open

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PPP Alert:

The SBA is reporting that funding for the Paycheck Protection Program in the agency's general fund is no longer available and that new applications have ended at this time. You may be able to secure funding from a Community Financial institution (CFI) by using the Lender Match tool on SBA.gov.

PPP LOANS INFO

The United States Congress passed the 2020 CARES Act in March 2020 which made up to $659 billion in loans available to small businesses impacted by Coronavirus in the Paycheck Protection Program. In December 2020, the government passed a second round of the Paycheck Protection Program that includes another $284.5 billion for new loans, split between first time (first draw) and second time (second draw) loans.

Loan forgiveness for these loans is available for businesses that meet the requirements of the Paycheck Protection Program and maintain or restore their payroll volumes to pre-crisis levels.

These loans are meant for businesses trying to maintain payroll levels. Companies are able to receive up to 2.5x their average monthly payroll amount (3.5x for restaurants and hotels taking a second draw loan). Businesses without employees are eligible for up to 2.5x their monthly personal salary capped at $8,333 per month.

For those who qualify, first draw loans can range up to $10 million and second draw loans can range up to $2 million. Applications must be submitted by March 31st.

BE PREPARED TO APPLY

Loans under the Paycheck Protection Program have unique documentation requirements that business owners must meet. Please be prepared to provide the following before you apply.

Businesses with Employees
  • IRS Form 940
  • IRS Form 941 (payroll)
  • Business Tax Returns
  • Payroll Summary Report
  • Entity Formation Documents
Contractors and other Businesses without Employees
  • Tax Return
  • Invoice, Bank Statement, or Other Records showing business was operating as of 2/15/2020
To Show Revenue Reduction for Second Draw Loans
  • Annual Tax Return (for full-year declines)
  • Bank Statements (for applicable quarters)
  • Quarterly Financial Statements

The Paycheck Protection Program Loan Process with Biz2Credit

Step 1

You Fill Out the
PPP Application
Online

Step 2

Our SBA-Approved
Lender Verifies
Information

Step 3

Upload Required
Supporting
Documentation

Step 4

The SBA Accepts
Your Application

Step 5

Get Funds in Your Account

After 8 Weeks

Loan Forgiveness Eligibility Can Be Verified

Fast Online Process

Complete a loan application for the Paycheck Protection Program online. Upload your required documents and fill in a short questionnaire about your business to determine your eligibility. It's fast and secure. You can complete the whole process online in just a few minutes.

Disclaimer: Your Paycheck Protection Program (PPP) loan application is subject to our Business Finance Terms and Conditions. Please note that your proposed PPP loan is also subject to SBA eligibility and other requirements including documentation and size requirements, and subject to the availability of PPP funds and overall demand for PPP funding. PPP loans are issued at the sole discretion of the lender and the SBA in accordance with their respective rules and other federal guidelines. Approved PPP loans are governed by definitive documentation of the lender, which incorporate PPP terms and conditions. Biz2Credit is not a lender.

The Paycheck Protection Program and Small Business Relief in 2020

When the coronavirus pandemic hit the United States in March 2020, the federal government worked to prepare a first of its kind relief package that would support people and businesses across the country. The $2.2 trillion economic stimulus package, known as the CARES Act, was signed into law on March 27, 2020. One of the signature programs introduced in the package was the Paycheck Protection Program (PPP), run by the U.S. Small Business Administration (SBA), which provides low-interest forgivable loans for small businesses to use on payroll and other business costs.

In the nine months since, there have been updates, changes, and new legislation that determine how the PPP loan program works. Here are all of the main things to know about applying for, using, and receiving forgiveness on these PPP loans.

How It Began

In March, when the Coronavirus Aid, Relief, and Economic Security Act, was passed, a $350 billion forgivable loan program was established. A month later, on April 24, $319 billion more funding was added for the program for a total of $669 billion for small businesses to use. The program was designed to help certain small businesses, self-employed workers, sole proprietors, certain nonprofit organizations, and tribal businesses continue to pay their workers and their related bills while shut down due to local and state COVID-19 guidance.

Originally, funds were available for loans between February 15 and June 30; that was later extended. (The newly announced funding deadline is March 31, 2021.) The program focused on businesses with less than 500 employees, however, larger corporations were able to take advantage of funding for a number of months. (Data later specified that "600 mostly larger companies, including dozens of national chains" received up to $10 million each.)

Some Fast Facts:

In the first month of the PPP:

  • 4.48 million loans were made,
  • 5,454 lenders processed the loans,
  • and the average loan amount was $114,000.

A total of $510 billion was disbursed by the end of May to businesses across the country. The majority of loans went to

  • California,
  • Florida,
  • New York,
  • Pennsylvania,
  • Illinois,
  • and Texas.

The top industries that benefited from PPP loans:

  • Health Care and Social Assistance.
  • Professional, Scientific, and Technical Services.
  • Construction.
  • Manufacturing.
  • Accommodation and Food Services.
  • Retail Trade.

Covered Expenses: Payroll and Non-Payroll

The basics to determine what is covered under the loan is the 60/40 rule: 60 percent for payroll costs and 40 percent for qualifying non-payroll costs. This is because the PPP loan amount is based on average monthly payroll costs multiplied by 2.5

Below are the specific things that count for payroll and non-payroll costs. Borrowers should make sure that they are using their SBA loans for things that are covered or else it is not eligible for loan forgiveness.

Payroll Costs

According to the SBA, payroll costs consist of:

  • compensation to employees: salary, hourly wages, commissions, or similar compensation,
  • ”payment for vacation, parental, family, medical, or sick leave,”
  • severance packages,
  • employee benefits including health insurance coverage and insurance premiums, as well as retirement benefits,
  • payment of state and local taxes, including any necessary payroll taxes, payroll tax filings, and income taxes,
  • ”and for an independent contractor or sole proprietor: wages, commissions, income, or net earnings from self-employment or similar compensation.”

Non-Payroll Costs

The SBA also outlines non-payroll costs, which consists of:

  • Covered mortgage obligations
    • Includes mortgage interest payments on ”property incurred before February 15, 2020”
    • Does not include ”prepayment or payment of principal” on a business mortgage
  • Covered business rent obligations
    • Includes lease payments or rent payments for properties ”in force before February 15, 2020”
    • These are pursuant to lease agreements for the property
  • Covered utility payments
    • Payments for ”electricity, gas, water, transportation, telephone, or internet access, ” that began before February 15, 2020
  • ”An eligible non-payroll cost must be paid during the Covered Period or incurred during the Covered Period and paid on or before the next regular billing date, even if the billing date is after the Covered Period.”

There are also new covered costs that were passed within the Consolidated Appropriations Act of 2021:

  • Covered operations expenditures
    • Business software, cloud computing service, or other human resources and accounting needs that help the business function.
  • Covered property damage cost
    • Property damage and vandalism, or looting relating to the 2020 protests that was not covered previously or by insurance.
  • Covered supplier cost
    • Purchasing essential goods for the business and purchases made pursuant to a contract prior to taking out the PPP loan.
  • Covered worker protection expenditure
    • Personal protective equipment and any adaptive investments to help comply with health regulations.

Covered Period and Loan Forgiveness

Covered periods are the length of time the loan encompasses and the expenses that can be included in forgiveness during that time. There are two things to know about covered periods:

  • The original covered period was defined by the Small Business Administration (SBA), as ”either
    • The 24-week (168-day) period beginning on the PPP loan disbursement date, or
    • If the borrower received its PPP loan before June 5, 2020, the borrower may elect to use an eight-week (56-day) Covered Period."
  • With the recent passage of coronavirus relief, the covered period is changed to mean
    • The period begins with the loan’s origination and ends on a date chosen by the borrower either 8 weeks or 24 weeks after the loan's origination.

The recent legislation extended the loan period to March 31, 2021. Borrowers could have their covered period end 24 weeks after March 31, 2021, if they get their loan at the end of the program.

For small business owners during the COVID-19 pandemic, PPP loans have been able to help their businesses stay afloat without any debt obligations. This is because PPP loans, unlike most business loans, can be fully forgivable. The SBA would forgive loans if ”all employee retention criteria are met, and the funds are used for eligible expenses” – which means that the loan forgiveness amount could be the full amount of the loan.

There may be changes to this loan forgiveness process when it comes to second-draw loans. A lot of that is up to the discretion of the SBA Administrator who will announce guidelines in the new year.

Evolution and Extension of the Program

The first major change in the program came on June 5 when the Paycheck Protection Program Flexibility Act of 2020 was signed into law. The law did four main things:

  • Expanded the loan forgiveness covered period to 24 weeks or until December 31, 2020, whichever was earlier.
  • Extended the PPP loan term to five years instead of two years.
  • Created the 60/40 rule for covered expenses (it was previously 75/25).
  • Noted that loan forgiveness will not decrease if businesses cannot return to previous levels due to coronavirus guidelines and compliance.

The second change was the December 21 passage of the Economic Aid to Hard-Hit Small Businesses, Nonprofits, and Venues Act. This $908 billion coronavirus pandemic relief package includes targeted economic injury disaster loans (EIDLs), increased loan eligibility, and $284 billion for another round of PPP loans. The legislation was signed into law on December 27. It extended the program to March 31, 2021.

The second draw program allows “smaller and harder-hit businesses” who have already used (or plan to use) the full amount of their first loan to apply for more additional PPP funds, up to $2 million. To be eligible for a second draw PPP loan (PPP2) businesses must not employ more than 300 people and demonstrate ”at least a 25 percent reduction in gross receipts in the first, second, or third quarter of 2020 relative to the same 2019 quarter,” according to the House Appropriations Committee.

How to Apply and Where the Program Could Go from Here

There are five steps in the application process for the Paycheck Protection Program:

  • Fill out the PPP application.
  • Upload required documentation (payroll costs, proof of business…)
  • The lender will verify your information and eligibility
  • The SBA will accept your application (if everything is in order)
  • Funds are received in your account!

The previous PPP loan program deadline of August 8, 2020 has been extended to March 31, 2021.

More relief may be coming in the new year with the 177th Congress and President Joe Biden. Until then, the new program is scheduled to start in the coming weeks with the SBA and Treasury authorizing funds and restarting the Paycheck Protection Program.