Paycheck Protection Program (PPP): What Is It and How to Apply

The main stimulus for small businesses in the CARES Act is the Paycheck Protection Program (PPP). The $659 billion funded under the Small Business Administration (SBA)—Business Loans Program Account is intended to provide loans to businesses to guarantee eight weeks of payroll and other costs to help those businesses remain viable and allow their workers to pay their bills.

Understanding what the PPP business loan program is, how it works, and how to apply will help you navigate this massive federal stimulus program and possibly get the funds you need as quickly as possible.

Source: H.R. 748

PPP Eligibility

In addition to meeting the size requirement (500 or fewer employees for most companies), you must show that your business has been negatively impacted by the coronavirus. You will do this, in part, by certifying on your PPP application that current economic uncertainty makes the loan request necessary.

Eligibility is further broken down to include:

• Any business categorized under “Accommodation or Food Services,” such as restaurants and hotels that have 500 or fewer employees per location
• Tribal businesses
• Independently owned franchises
• Self-employed workers, independent contractors, gig workers, and sole proprietors. The PPP loan application for those people went live April 10, 2020, according to the SBA.

Where to Apply for PPP

As noted above, PPP loans are being administered by approved SBA lenders and are actually a new form of the existing SBA 7(a) loan program. You can apply for your PPP loan through any of the 1,800 participating SBA approved 7(a) lenders or through any participating federally insured depository institution, federally insured credit union, and Farm Credit System institution.

Other lenders will be available to make PPP loans once they are approved and enrolled in the program. Start by consulting with your local lender as to whether it is participating. If you have trouble locating a lender, try using the SBA Paycheck Protection Program lender search tool.

Do not use any other road to apply for a PPP loan; scammers are already going after small business owners, reports the Federal Trade Commission, which filed a case against one such company on April 17.  Only apply by first going to the SBA website. And know that the SBA will never ask for Social Security numbers, or bank account or credit card numbers upfront, the FTC cautioned.

PPP Application Deadline Extended

Following approval by the Senate and House of Representatives, President Trump signed legislation July 4, 2020, extending the deadline to apply for a Paycheck Protection Program Loan through Aug. 8, 2020. The original deadline to apply was June 30, 2020. 

The newly passed legislation involves more than $130 billion left in the PPP program and makes those funds available until the new deadline at which point Congress will have to re-appropriate any remainder. Meanwhile, lawmakers continue to discuss additional small business funding as part of Phase 4 Coronavirus legislation. 

How to Apply for PPP

Start by downloading and filling out the new revised application form on the SBA website. The application includes instructions and is pretty straightforward.

Be prepared to prove that your business was operational on Feb. 15, 2020; that you had employees; and the amount of your average monthly payroll costs following instructions on the application form.

How PPP Loan Forgiveness Works

Important changes to PPP loan forgiveness became law with signing of the PPP Flexibility Act on June 5, 2020. All or part of the loan you receive under PPP could be forgiven provided you keep all full-time equivalent employees (FTEEs) on payroll—or rehire them within 24 weeks of receiving your loan (or by December 31, 2020, whichever comes first). Payroll costs must be 60% or more of the amount forgiven. Only 40% of the amount forgiven can be used on non-payroll expenses. The forgiveness won’t happen until the end of the 24-week period of employment following receipt of your loan. 

Employee payroll costs: Salary, wages, commissions, tips (capped at $100K per employee); Benefits including vacation, parental, family medical or sick leave; State and local taxes assessed on compensation.

Sole proprietors: Wages, commissions, income, or net earnings from self-employment (capped at $100K)

Seasonal businesses: Average monthly payroll between Feb. 15 and June 30 (capped at $100K per).

New businesses: Average monthly payroll from Jan. 1 to Feb. 29 (capped at $100K per employee).

Other eligible forgivable costs: Interest on mortgages; Rent under lease agreements; Utilities.

You must request forgiveness of your loan using one of two forgiveness application forms approved by the SBA. These new forms incorporate changes made by the PPP Flexibility Act of 2020 and simplify the process according to the SBA.

The new regular full forgiveness application has been reduced to 5 pages (from 11) and the new EZ version is for you if you meet certain qualifications:

• Are self-employed and have no employees; OR
• Did not reduce the salaries or wages of your employees by more than 25%, and did not reduce the number or hours of your employees; OR
• Experienced reductions in business activity as a result of health directives related to COVID-19, and did not reduce the salaries or wages of your employees by more than 25%.16

The SBA says the EZ application requires fewer calculations and less documentation. Both applications note that you have the option to use the original 8-week covered period (if your loan was made before June 5, 2020) or the extended 24-week covered period, if that is your preference.

PPP Loan Forgiveness Application Form 3508EZ (PDF)

PPP Full Loan Forgiveness Application Revised June 16, 2020 (PDF)

Your lender has 60 days to reply to your forgiveness application.

But what happens to the loan if laid-off employees receiving that extra $600/week on unemployment insurance refuse to return to work when they are offered their jobs back under the PPP? SBA and Treasury issued a new rule excluding laid-off employees whom the borrower offered to rehire (for the same salary/wages and same number of hours) from the loan forgiveness reduction calculation spelled out in the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, P.L. 116-136.” 

Further, the PPP Flexibility Act of 2020 added two new exceptions that let borrowers achieve full forgiveness even if they don’t fully restore their workforce: Borrowers can reduce workforce requirements based on the inability to find qualified employees or if they were unable to restore operations to Feb. 15, 2020, levels due to COVID-19 restrictions.

PPP vs. EIDL

The Paycheck Protection Program is one of two programs designed to help small businesses during the coronavirus crisis. The other is the Economic Injury Disaster Loan (EIDL) program. While both programs are designed to help struggling businesses get back on their feet financially, they have slightly different goals which are suggested by the names of the two programs.

The Paycheck Protection Program business loans account is a new stimulus package designed to help companies retain workers by covering eight weeks of payroll plus some other costs of remaining in business. This loan is 100% forgivable if you follow forgiveness guidelines.

The Economic Injury Disaster Loan program is an established program that helps small businesses overcome the loss of revenue during a declared disaster such as a hurricane, major fire, or, in this case, the COVID-19 pandemic. This loan includes an up-to-$10,000 advance (if you apply) that is automatically forgiven.

The EIDL loan program reopened to all eligible borrowers June 15, 2020. Previously the program was open to agricultural businesses only. Previously submitted applications “will be processed on a first-come, first-serve basis.” 

You Can Get Both

Many small business owners do not know they can apply for both an EIDL loan and a PPP loan for the same COVID-19 disaster. There are rules, including the key requirement that you can’t use money from both loans for the same thing. For example, if you use the proceeds from a PPP loan for payroll, you can’t use an EIDL loan for payroll also.

Before you apply for a PPP loan, you may want to look more closely at the EIDL program to see if it might be a better fit or to decide if applying for both loans makes sense in your case. The table below provides a basic comparison of the two programs. Both loan programs apply to small businesses of 500 or fewer employees (more in certain industries).

Source: H.R. 748