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The Paycheck Protection Program

Tiles with PPP LOAN spelled out on a desk with office accessories

Editor’s note: This article was last updated on June 9, 2020. It reflects loan forgiveness changes outlined in the Payment Protection Program Flexibility Act.

If you’re like many small business owners, you may be struggling to retain employees during the COVID-19 pandemic. Fortunately, federal financial assistance programs can help. In this article, we’ll discuss the Paycheck Protection Program (PPP)

What is the Paycheck Protection Program?

The Paycheck Protection Program provides forgivable loans to small businesses. You may be wondering, how big of a loan can you get? Up to 2.5 times your average monthly payroll costs.

Ready for the great news? The entire loan amount will be forgiven if you meet the forgiveness criteria. Forgiveness means you don’t have to repay the loan.

Who can apply for the Paycheck Protection Program?

In general, small businesses with fewer than 500 employees, non profits, and veterans organizations. Sole proprietors, independent contractors, and self-employed individuals may also apply. 

In certain circumstances, businesses with more than 500 employees are eligible. Learn more about the SBA’s size standards for small businesses. 

Unlike other types of business loans, no collateral or personal guarantee is required for PPP loans. 

How must PPP funds be used? 

The primary goal of the Paycheck Protection Program is to help small business owners continue to pay their employees. 

Business owners must spend 60% of PPP funds they receive on payroll-related expenses. They must do so within 24 weeks after receiving the loan. No more than 40% of the funds can be spent on rent, mortgage interest, and utilities. 

Your loan won’t be fully forgiven if you don’t use all of your PPP funds on approved expenses. There are also restrictions on decreasing headcount or wages that may limit your ability to achieve 100% loan forgiveness. 

How do I apply for a Paycheck Protection Program loan?

Don’t delay in applying for a PPP loan. Loans are available on a first-come, first-served basis. The CARES Act initially allocated $350 billion to the Paycheck Protection Program. Later, lawmakers approved an additional $310 billion of funding.

Most lenders began accepting applications for Paycheck Protection Program loans in early April 2020. Which organizations can accept PPP applications? SBA lenders, federally insured depository institutions, and other regulated lenders approved by the Treasury. Find an approved lender here. 

First, see if you can apply with the financial institution you bank with. Some lenders will only take applications from their current customers. They may also require borrowers to meet other criteria. This may include having an existing lending relationship with them. 

If you don’t qualify, you can still apply with another lender that has different borrowing requirements. 

What if my PPP loan isn’t forgiven?

If you’re required to repay your loan, repayment starts 6 months after receiving the funds. 

Payments are deferred for 6 months. But, 1% annual interest will begin accruing immediately. Full repayment is due 5 years after receiving the loan. There is no pre-payment penalty for repaying it sooner. 

About Momentum CFO

Momentum CFO is a boutique firm specializing in outsourced Chief Financial Officer services for small to mid-size businesses. We bring the benefits of Fortune 500 financial expertise to your business without the expense of hiring a full-time CFO. 

To learn more, contact us at 858.284.0314 or schedule your free financial consultation.