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. PPP loans are intended to help small businesses continue paying payroll costs and certain operating expenses during the coronavirus pandemic.
Business owners can apply for a loan of 2.5 times their average monthly payroll expenses to be used for eligible payroll costs, rent, mortgage interest, utilities, operations expenditures, property damage costs, supplier costs, worker protection expenditures, interest on certain other debt obligations, and refinancing an Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020.
At least 60% of the loan proceeds must be used for eligible payroll costs, and no more than 40% of loan proceeds may be used for eligible non payroll costs. Loans through the Paycheck Protection Program may be forgivable, in whole or in part, if certain criteria are met.
Paycheck Protection Program-eligible businesses include:
In general, small businesses with fewer than 500 employees are eligible to apply for a first Paycheck Protection Program loan, and second time borrowers with 300 or fewer employees are eligible to apply for a second loan (among other requirements). Businesses must have been in operation on February 15, 2020 and experienced economic uncertainty to be eligible to apply.
For first PPP loans, eligible small businesses and organizations include:
- Small businesses, 501 (c)(3) nonprofits, 501(c)(19) veterans’ organizations, and Tribal businesses (as described in sec. 31(b)(2)(C) of Small Business Act) that employ no more than 500 employees
- Certain news organizations or nonprofit public broadcasting entities that employ no more than 500 employees per location
- Housing cooperatives, eligible section 501(c)(6) organizations, or eligible destination marketing organizations that employ no more than 300 employees
- Independent contractors, eligible self-employed individuals, and sole proprietors
Note: employees of an organization are counted together with any affiliates, if applicable.
SBA affiliation standards are waived for:
For purposes of meeting the 500-employee, 300-employee, or applicable SBA size threshold, some businesses are exempted from applying the SBA’s affiliation rules. Those are:
- Businesses in the accommodation and food service industries with fewer than 500 employees (or fewer than 300 employees for second draw loans)
- Franchises that have been assigned a franchise identifier code by the SBA
- Businesses that have received financial assistance from a Small Business Investment Company (SBIC)
- Any nonprofit assigned a North American Industry Classification System (“NAICS”) code beginning with 5151 (Television and Radio Broadcasting)
- Any business concern that is (1) majority owned or controlled by a business concern with a NAICS code beginning with 511110 (Newspaper Publishers) or 5151 (Television and Radio Broadcasting) and (2) employs not more than 500 employees (or 300 employees for second loans) or the applicable NAICS size standard per physical location of such business concern
Some religious organizations may also be exempted from applying SBA affiliation rules for certain relationships that are based on a religious teaching or belief or otherwise constitute a part of the exercise of religion.
Small businesses in certain industries that have over 500 (or 300, as applicable) employees but meet the Small Business Administration’s size standards may still be eligible for a PPP loan.
Ineligible businesses include, among others:
- 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
- Establishments that receive illegal gaming revenue
What qualifications do businesses need to meet?
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 operation on February 15, 2020, and either paid employees, paid independent contractors, or have been an eligible self-employed individual, independent contractor, or sole proprietorship with no employees
- Certify that current economic uncertainty makes the loan necessary to support ongoing operations
- Meet other eligibility requirements and make other necessary certifications
PPP borrowers with 300 or fewer employees that can show a reduction of at least 25% in revenue in 2020 compared to their 2019 revenue (though borrowers not in business in 2019 may be able to use a different comparison period) and that used or will use all of the first loan on eligible costs by the time the second loan is disbursed are eligible for a second PPP loan. Other requirements apply.
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).
What does my business need to certify?
As part of the application, the authorized representative will need to make certain certifications in good faith, including (but not limited to) the following:
- 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
- No more than 40% of the forgiven amount will be for eligible non-payroll costs, which include payments for mortgage interest, rent, utilities, covered operations expenditures, covered property damage costs, covered supplier costs, and covered worker protection expenditures
Note that there are additional required certifications, including certifications specific to second PPP loans. If your business meets the above qualifications, you may be eligible to apply for a PPP loan. Apply for free through a participating lender.
Regulations and guidance from the SBA and the U.S. Department of Treasury on the PPP are evolving rapidly and the above information may be outdated. Please refer to the latest guidance from SBA and Treasury to confirm current program rules. 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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