What do I Need to Know About the Paycheck Protection Program?


What do I Need to Know About the Paycheck Protection Program?

Due to the outbreak of the Coronavirus, the Small Business Administration (SBA) issued a rule regarding the Coronavirus Aid, Relief, and Economic Security (the CARES Act). This is a piece of federal legislation that provides about $2 trillion in an effort to help the economic crisis impacting people and businesses throughout the country. Part of the relief package includes the Paycheck Protection Program (PPP), which will give $349 billion in small business loans. 

What is PPP?

Small businesses and sole proprietorships were able to begin applying and receiving PPP loans through existing SBA lenders starting on April 3, 2020. Independent contractors’ and self employed individuals’ eligibility began on April 10, 2020. The loans exists to cover their payroll and certain other expenses. 

What is the Maximum Amount I Can Borrow?

Small businesses are able to borrow 250 percent of their average monthly payroll expenses up to  a total of $10 million. This designated amount is intended to cover eight weeks of payroll expenses and any other amounts for making payments towards debt obligations. It may be applied to any time between February 15, 2020 and June 30, 2020. 

How Can I Use the Money So That the Loan Will be Forgiven?

The amount of principal that can be forgiven from the loan is equal to the sum of the following expenses:

  • Payroll, including salaries up to an annual rate of pay of $100,000, hourly wages and cash tips, paid sick or medical leave, and group health insurance premiums.
  • Existing interest payments on mortgages
  • Rent payments
  • Leases
  • Utility service agreements

Businesses are able to use PPP loans for other business-related expenses if they wish to do so.  However, the loan will not be forgiven if this is the case. Loans will be forgiven at the end of the eight week period after the business takes out the loan. If the full principal is forgiven, the borrower is not responsible for the interest accrued within the covered period. The remainder of a loan that is not forgiven will be paid according to what was agreed upon by the business and the lender. 

When is the Deadline to Apply?

Technically, the deadline to apply for PPP loans is June 30, 2020. While this is true, businesses are encouraged by the PPP Guidance to apply as soon as possible. This is because there are concerns that high demand for the loans will cause the PPP to reach its funding capacity before this date.

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