What is the Paycheck Protection Program (PPP)?
The Paycheck Protection Program, or PPP for short, is a unique program launched by the federal government with the aim of keeping workers employed and helping small business owners keep their doors open despite an economic decline due to the COVID-19 crisis.
The PPP is a cornerstone of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. This provision initially allocated $349 billion for small businesses, defined as those businesses with less than 500 employees, to help support payroll expenses and some other bills that business owners can’t deal with due to a decline in revenue.
PPP loans are provided by banks and other SBA approved lenders. Backed by the SBA and Treasury as completely forgivable these loans offer small businesses free aid if the money is spent on payroll and eligible non-payroll expenses.
With the passage of PPP Flexibility Act, funding and guidance were expanded to include $660 billion of total PPP funding. With the passage of the Economic Aid Act it was expanded up to $806.5 billion of total funding authority.
What is Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues?
Signed into law on December 27, 2020, the Economic Aid to Hard-Hit Small Businesses, Non-Profits and Venues Act (Economic Aid Act) extends and expands COVID-19 relief provisions defined in the CARES Act.
Chief among the provisions afforded by this law is a second round of the Paycheck Protection Program, also called PPP2. PPP2 provides up to $284 billion dollars for small businesses and extends the PPP loan application period to March 31, 2020. Along with continuing PPP the new legislations provides expanded provisions for restaurant and hospitality businesses, 501(c)(6) non-profit organizations, seasonal venues, seasonal marketing businesses, certain housing facilities, minority businesses and other hard-hit areas.
The Second PPP reopens PPP funds to businesses that already received a first PPP loan. This provision allows both first time (first draw) and second time (second draw) PPP borrowers to receive aid.
What types of businesses may be eligible for PPP loans?
Small businesses with employee count of 500 or fewer
Non-profits – 501(c)(3), 501(c)(19) and 501(c)(6)– with employee count of 500 or fewer
Franchises on a location by location basis
For more information specific to Small Business Administration business size requirements visit SBA table-size standards.
Seasonal marketing businesses
What is in PPP for First-time borrowers? (First Draw)
- Up to $10 million for first time PPP loan recipients
- Loan amounts calculated as 2.5 times monthly payroll
- Payroll taken as an average of total payroll for twelve months divided by 12
What is in PPP for Second-time borrowers? (Second Draw)
- Up to $2 million for first time PPP loan recipients
- Loan amounts calculated as 2.5 times monthly payroll
- Payroll taken as an average of total payroll for twelve months divided by 12
- Loan amounts to restaurants calculated as 3.5 times monthly payroll
What is the eligibility for first time PPP loan borrowers?
First time PPP loan borrowers, or those taking a first draw from Paycheck Protection Program (PPP) funds, are eligible for:
- Businesses with 500 or fewer employees
- Sole proprietors, independent contractors, and eligible self-employed individuals
- Nonprofits, including religious institutions
- 501(c)(6) nonprofit organizations
- Destination marketing organizations with 300 or fewer employees
- Chambers of commerce, economic development, tourism
- Subject to lobbying threshold (15% of receipts, 15% of activities, $1M)
What is the eligibility for second time PPP loan borrowers?
Second time PPP loan borrowers, or those taking a second draw from Paycheck Protection Program (PPP) funds, are eligible if:
- Generally 300 or fewer employees
- For businesses with multiple locations, not more than 300 employees per physical location
- 25 percent gross receipts* decline in any quarter in 2020 compared to same quarter in 2019
- EIDL and PPP aren’t included in gross receipts
- Appears to be based on calendar quarter (not a 3-month period or fiscal quarter). SBA/Treasury will determine.
- Has used or will use full amount of first draw funds
- Calculated at 2.5x average monthly payroll costs
- Seasonal = 12-week period Feb. 15, 2019 through Feb. 15, 2020
- New = total payroll divided by # months x 2.5
- Can use either 2019 payroll or 12 months prior to application
What does the second Paycheck Protection Program (PPP2) mean for restaurants and hotels?
The second Paycheck Protection Program (PPP2) has
- Applies to first and second draw options
- Restaurants, Hotels, etc. (NAICS Code 72) at 3.5 x average monthly payroll costs for second time borrowers
- Any business that averages less than 500 employees per physical location that has a NAICS code starting with 72 (accommodation and food services)
- Increased limit on tax deductible business lunches meant to bring more traffic, or orders, to restaurants
Learn more about PPP2 Restaurant aid in this article on Restaurant Relief.
How much money can I get from a PPP loan?
- Business owners who are eligible can receive a loan for up to 2.5x the average monthly payroll costs. , Payroll costs are calculated as the average from the previous year, to cover up to eight weeks of payroll. You can also apply for an additional 25% of what you would be borrowing for the eight weeks of payroll.
- The maximum loan amount that first time borrowers can get is capped at $10 million. The maximum loan amount that second time borrowers can get is capped at $2 million.
How do I calculate my "average payroll costs" for PPP?
Your average payroll costs are calculated as your average monthly payroll costs in the previous calendar year (in this case, 2019). If you are a newly formed business not formed after February 12th, 2020, you will use the average payroll costs between January 1 and February 29th, 2020. This may differ if you are a seasonal business
Seasonal Business Calculation: Seasonal business owners should calculate their average monthly payroll costs using data from February 15, 2019, or March 1, 2019, and June 30, 2019.
When making your calculations, keep in mind that payroll costs are capped at $100,000 on an annualized basis for each employee (this only includes cash compensation, not non-cash benefits like retirement contributions). This limitation is applied to all types of businesses.
The standard payroll calculation could include any of the following pieces of information:
- Salaries, wages, tips, commissions, bonuses, and even severance pay that would be on a W3
- Paid family leave or sick leave outside of paid leave through the Families First Coronavirus Response Act (FFCRA) that would be found in 940 or 944 forms
- Employee-paid state and local taxes found on a W3
- Employee paid retirement and group health benefit contributions
- For employees who are abroad and/or make more than $100,000 in a year, provide a W2
If you are a seasonal business, you would adjust the above pieces of information to monthly documentation. For example, salary, wage, tip, commission, bonus, and severance pay information will be found in 941s (quarterly federal tax returns). Information for paid leave can be found in 940s or 944s but could also be found in monthly payroll statements. State and local tax information could be found in state returns or monthly payroll statements.
For sole proprietorships, single-member LLCs, and those who are self-employed, you will use the information on your 1040 schedule C and any applicable payroll statements.
Independent contractors should use all 1099s received for work and back them up with documentation like paid invoices.
Are there any payroll costs that are excluded?
There are a number of payroll costs that aren’t eligible through the PPP. We’ve touched on a few already, but we’ll list them out here for clarity:
- Payments made to independent contractors (any issued 1099s)
- Payroll reimbursements
- Workers compensation fees
- Fringe and ancillary benefits like commuter benefits, health savings accounts (HSAs), and short-term and long-term disability
- Compensation for an individual employee past an initial $100,000 annualized salary (or $8,333 per month)
- Compensation for an employee whose principal place of residence is outside of the United States
- Federal employment taxes paid or withheld between February 15th, 2020 and June 30th, 2020
- Sick and family leave wages that are covered under the FFCRA
What are the loan terms? Are they different for different types of businesses?
According to the Small Business Administration (SBA), the loan terms that apply to PPP funding are the “same for everyone”. So, the terms that we’ll outline below will apply no matter what type of business you run, as long as you are eligible for funding, of course.
Interest Rate: Loans through the PPP program will have an interest rate of 1%.
Repayment Terms: The loan is due two years from the time that you receive it. However, there are no prepayment penalties or fees.
Repayment Deferral: Repayment of the loan can be deferred for up to 6 months, but interest will accrue over this period.
Collateral Requirements: There are no collateral requirements for these loans.
Personal Guarantees: There are no personal guarantee requirements for these loans.
Loan Forgiveness: Though we’ll get into more detail with this later, PPP loans are eligible for total forgiveness if certain conditions are met.
Can single worker businesses apply for PPP?
Self-employed individuals, contractors, other sole-proprietors or businesses with an owner and no employees all may apply for PPP loans.
IRS Form 1040 Schedule C businesses with no employees do not need to file their 2019 taxes, but they must complete the form to determine the amount of assistance they may qualify for.
Are Franchises Eligible?
Franchises and hospitality businesses may apply on a per location basis. Locations with 500 employees or fewer may be eligible for PPP loans.
Is there a credit requirement for PPP?
No. There is no credit requirement to apply for PPP. The qualifying criteria regards number of employees and payroll expenses.
What documents may be needed to apply for PPP?
Documentation required to apply for PPP loans may vary based on type of business. For a complete list of documents needed access the Biz2Credit PPP documentation checklist.
Common Technical Questions
Don’t get stuck on a tricky tech issue – we’ve answered the most frequently asked technology questions about the PPP below
I have made a mistake on my application how can I re-upload my documents?
You can modify a supporting document you’ve uploaded into your application at any time by accessing the documents page in your Biz2Credit account and clicking edit on the document in question.
I can’t log into my account and I am blocked.
The fastest way to reset a lost or forgotten password is by clicking “forgot password” on the login screen. If you do not receive an email, in either your email inbox or the spam folder, contact email@example.com and our technical support team will help you reset your password and get access to your account again.
I do not have an EIN, may I use my social security number?
Individual and business security is the most important aspect of Biz2Credit’s PPP solutions. Biz2Credit is also ready to help sole proprietors and other businesses that may not have these details.
To progress through the application process without an EIN please select “I don’t have an EIN number.” Follow the prompts in the portal and it will allow you to add your social security number in a secure way.
Am I able to e-sign my pre-application? I do not see a form.
Biz2Credit is allowing businesses to get a head start on the second Paycheck Protection Program (PPP2) loan application by pre-applying. These are provisional applications that may be signed and submitted no earlier than this Second Paycheck Protection Program is opened with SBA guidance.
Business owners should complete the provisional application and upload all supporting documents. We will send an email notifying you when PPP2 has been opened by SBA. At that time you may sign and submit your application.
NOT SEEING AN ANSWER TO YOUR QUESTION? Send your question or issue to firstname.lastname@example.org for fast assistance from our friendly tech team!
Paycheck Protection Program
Loan Forgiveness FAQs
What is PPP Loan Forgiveness?
The PPP loan program is a one-of-its-kind forgivable SBA loan program under the SBA 7(a) program which was created by the CARES Act that became law March 27, 2020. To qualify for PPP loan forgiveness you are required to spend your funds on eligible expenses within the 8 to 24 weeks following loan disbursement (known as the covered period).
What does payroll include?
- Salary, wage or similar compensation,
- Payment of cash tips or equivalent
- Payment for vacation, parental, family, medical, or sick leave;
- Allowance for dismissal or separation;
- Payment required for the provisions of group health care benefits, including insurance premiums;
- Payment of any retirement benefit;
- Payment of State or local tax assessed on the compensation of employees; plus
- The sum of payments of any compensation or income that is a wage, commission, income, net earnings from self-employment, or similar compensation and that is in an amount that is not more than $100,000 in 1 year, as prorated for the covered period
It does not include:
- Compensation of full and part time employees in excess of $100,0000 per year.
- Compensation for contractors or 1099 workers.
- Certain taxes imposed or withheld during the time period
- Any compensation of an employee whose principal place of residence is outside the United States
What are some examples of Non-payroll Expenses?
- Business mortgage interest payments or Business rent or lease payments
- Business utility payments
- Qualified family leave wages for which a credit is allowed under section 7003 of the Families First Coronavirus Response Act (Public Law 116–12 127)
- Certain types of qualified expenses such as personal protective equipment and renovations to ensure places of work are compliant with government-required social distancing measures
What if some employees have salary over $100,000?
The PPP salary cap of $100,000 will provide for up to that amount for employees. While the PPP will not provide funds for the difference, all employees regardless of salary above 100,000 are eligible to be counted in PPP.
Total paid compensation $125,000
Do I count contractors in my payroll?
No, contractors or other 1099 workers do not count toward the payroll of your business. 1099 workers can apply for PPP independently
Do part-time employees count?
Yes, part-time employees do count toward total payroll for PPP calculations. To attain the compensation amount for part-time employees take the average of hours worked multiplied by the employee’s hourly rate.
What if employees have already been laid off?
Employees who may have been laid off or furloughed can be rehired and counted toward payroll expenses. If you reduced employment or wages between February 15 and April 26, then you are eligible to avoid a reduction in loan forgiveness by increasing payroll and, or rehiring employees.
How much time do I have to rehire employees?
Employees must be rehired by March 31st.
Do I have to rehire the same people?
No. You do not have to rehire the same people. However, the total payroll amount used and requested must match to qualify for the maximum loan forgiveness.
How and when can I apply for Loan Forgiveness?
Small business borrowers can apply for forgiveness with the lender that issued their loan once all the money from the loan for which the borrower is requesting forgiveness have been spent. Borrowers can apply for forgiveness any time up to the maturity date of the loan.
If borrowers do not apply for forgiveness within 10 months after the last day of the covered period, then PPP loan payments will no longer be deferred, and borrowers will begin making loan repayments to their PPP lender.
Small business owners or their CPAs/accountants can prepare an application for loan forgiveness to take to their PPP lender by using AICPA’s free online platform PPPForgivenessTool.com
What Happens if You’re Not Approved for Loan Forgiveness?
Business owners whose PPP forgiveness requests are denied will have the right to appeal certain SBA loan review decisions. All final forgiveness decisions are at the discretion of the SBA. Your lender is responsible for notifying you of the forgiveness amount paid by SBA and the date on which your first payment will be due, if applicable.
Advice for business owners
government-backed small business loans under the
Paycheck Protection Program
Apply for PPP online – Get started by completing Biz2Credit’s online application for PPP loans.
PPP Documentation checklist – prepare for your PPP application with
COVID-19 Webcast Center – Access instructional content or register for Biz2Credit’s next webinar. Get to know COVID 19 response programs including PPP, Economic Injury Disaster Loan.
Small Business Checkup – small business economic health analysis provided weekly by Biz2Credit
Coronavirus response programs continue to evolve. Biz2Credit’s analysis and resources are subject to change based on the growth of COVID-19 relief efforts. For up-to-date information check the COVID-19 Small Business Resource Hub.