Editor’s Note: Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly. Please refer to the latest guidance from SBA and Treasury to confirm current program rules. The information contained in this article only applies to certain small businesses and other eligible organizations. For example, effective April 20, 2020, if you filed or will file a 2019 IRS Form 1040 Schedule C, other rules apply.
The Paycheck Protection Program (PPP) is part of the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The government recently authorized an additional $310 billion in government-backed loans (bringing the total to $659 billion) to help small businesses continue paying payroll costs and certain operating expenses.
Business owners can apply for a loan of 2.5 times their average qualified monthly payroll expenses, up to $10 million to be used for eligible payroll costs, rent, mortgage interest, utilities, interest on certain other debt obligations, and refinancing an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020 (through at least 60% of the loan proceeds must be used for eligible payroll costs). Loans through the Paycheck Protection Program may be forgivable, in whole or in part, if certain criteria are met.
In general, small businesses with fewer than 500 employees are eligible to apply for PPP loans. Small businesses in hospitality and food service with more than 500 employees may be eligible if they have multiple locations and less than 500 employees per location.
- Small businesses as defined by the Small Business Administration
- Sole proprietors, independent contractors, and self-employed individuals (including “gig workers”)
- Any business or organization with fewer than 500 employees, including 501(c)(3) nonprofit organizations
- 501(c)(19) veterans’ organizations
- Tribal business concerns (sec. 31(b)(2)(C) of the Small Business Act), or faith-based organizations
- Businesses with more than 500 employees that meet the SBA’s employee-based size standards
- Hospitality and food service businesses with fewer than 500 employees per location
- Business with more than 500 employees that do not meet the Small Business Administration’s employee-based size standards
- Businesses currently delinquent or have defaulted on a Small Business Administration or federal agency loan in the last 7 years
- Businesses presently involved in bankruptcy
- Borrowers presently suspended, debarred, declared ineligible, or voluntarily excluded by any federal department or agency
- Businesses engaged in illegal activities as defined by federal guidelines
- Business owners who are over 60 days delinquent on child support obligations
- Establishments that receive illegal gaming revenue
For additional information about eligibility, please refer to the latest guidance from the SBA and Treasury.
The Small Business Administration (SBA) is allowing more small businesses to apply for the funding they need.
To be eligible for a PPP loan, borrowers must:
- Have been in business on or before February 15, 2020
- Certify that current economic uncertainty makes the loan necessary to support ongoing operations
- Meet other eligibility requirements and make other necessary certifications
The SBA will not require any collateral or personal guarantees from potential PPP borrowers. It has also waived the Credit Elsewhere requirement that says borrowers must try to obtain loan funds from other sources (although larger companies with easy access to funds from capital markets may have their necessity for a PPP loan more closely scrutinized).
SBA affiliation standards are waived for:
- Businesses in the hospitality and food service industries with fewer than 500 employees
- Franchises in the SBA’s Franchise Directory
- Businesses that receive financial assistance from small business investment companies licensed by the SBA
As part of the application, business owners will need to certify in good faith that:
- Current economic uncertainty makes the loan necessary to support the applicant’s ongoing operations
- PPP funds will be used to retain employees and maintain payroll
- PPP funds will be used to make mortgage interest, rent, and utility payments
- They understand that no more than 40% of the forgiven amount will be for non-payroll costs
- They will not receive another loan under this program between February 15, 2020 and December 31, 2020
- They will provide documentation to their lender verifying the number of full-time equivalent employees on their payroll as well as the dollar amounts of payroll costs and other expenses for the loan forgiveness covered period.
- Their tax documents are identical to those submitted to the IRS
If your business meets the above qualifications, you may be eligible to apply for a PPP loan. Apply for free through a participating lender.
The resources described above are made available to businesses within the United States of America.
Given the large demand for additional authorized Paycheck Protection Program funds, not every qualified Paycheck Protection Program applicant will receive a loan.
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