Small Business Services

What is the Paycheck Protection Program?

A Summary on Coronavirus Relief Programs

Due to the Coronavirus (COVID-19) pandemic, the government has stepped in to help combat the major economic toll of the virus. Small businesses, especially, have been hard hit by the pandemic, forcing owners to question their next steps.

In March 2020, the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was passed to help business owners who were impacted financially by the Coronavirus outbreak.

A significant provision of the CARES Act is the Paycheck Protection Program, or PPP, a type of loan for small businesses granted by the Small Business Administration (SBA).

What is the Payroll Protection Program Used For?

The Payroll Protection Program can be used for employee salaries (up to $100,000 per employee), employee health benefits (like insurance premiums or paid sick leave), real estate expenses (like mortgage interest, rent, and utilities), and interest on other business debts.

With the PPP, businesses can borrow up to 2.5 times their average monthly payroll, up to $10 million. You can visit the U.S. Small Business Administration website to calculate your potential loan amount.

(Note: Employers who apply for the PPP loan can’t lay off any employees, or they must offer to rehire employees they’ve already laid off by June 30, 2020.)

Who Qualifies for the Loan?

Small businesses qualify for a Paycheck Protection Loan if one of the following conditions is met:

  • Your business has 500 or fewer employees.
  • Your business must meet the definition of a small business concern under the Small Business Act.
  • As of March 27, 2020, your business’ tangible net worth is not valued at more than $15 million and its average net income after federal income taxes for the previous two fiscal years is not more than $5 million.

How Does The PPP Benefit Businesses?

The PPP loan helps cover small business costs, including payroll costs and interest payments on current debt. The loan term maximum is two years, and the first six months of payments are deferred.

There are many benefits of receiving the Paycheck Protection Program loan, including the following:

  • Unlike many traditional business loans, PPP loans are 100% guaranteed, even without collateral or a personal guarantee. This means that the business owner doesn’t need to assume the debt obligation if they default on the loan.
  • The loan will be forgiven if at least 75% of the proceeds are used for payroll and the rest is used for mortgage interest, rent, and utilities.
  • The interest rate for PPP loans is fixed at 1% with a two-year maturity date. Most Small Business Administration loans have an interest rate of between 2.25% and 8%, on top of the prime.
  • All payments are deferred for six months, but interest will continue to accrue throughout the deferment period.
  • The balance of PPP loans may be forgivable, meaning the entirety (or a portion of the loan) is forgiven or deferred for a period of time by the lender when certain conditions are met.

What’s the Status of Issuing Loans?

There have been two waves of funding for the Paycheck Protection Program. The first wave quickly depleted, as millions of small businesses applied and were granted funds through the PPP. As of April 27, the SBA resumed accepting Paycheck Protection Program applications from participating lenders, so you can continue to apply.

Check with the Small Business Administration for availability updates.

Who Can Apply for the Loan?

Many traditional business entities, including sole proprietors, partnerships, corporations, S corporations, and non-profit organizations may qualify for the PPP loan. Many self-employed people can apply as well.

Anyone applying for the loan must have been in business prior to February 15, 2020.

What is the Paycheck Protection Program Application Process Like?

Download and complete the PPP application at SBA.gov. Loan applications can also be submitted with banks and approved financial lenders, including PayPal and Square.

Although funds are currently available it’s best to get your application filled out, signed, and ready to go so you can submit it as soon as possible.

More Help with Small Business Taxes

While you can’t work with Block Advisors to apply for the PPP loan, your taxes will be greatly impacted by the loans and financial support you choose each year.

And, taxes shouldn’t be a point of stress, especially when you have help an arm’s length away. If you need help with your small business taxes, we’re here to help. Block Advisors can aid you in small business taxes, no matter your situation.

Insights Icon

Get Matched Today

Find Your Advisor