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 and how they apply to your particular situation.The information contained in this article only applies to small businesses and other eligible organizations. If you are an individual with self-employment income who filed or will file a 2019 IRS Form 1040 Schedule C, other rules apply.
The Paycheck Protection Program (PPP) is a cornerstone of the $2 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act. The first round of funding for the PPP authorized $349 billion in Small Business Administration (SBA) loans for small businesses and other eligible applicants. These funds were depleted within two weeks of the PPP’s announcement. The second round of funding, announced on April 24, authorized an additional $310 billion for the PPP. The third round of funding, released on January 6, 2021, appropriated an additional $284.45 billion to the program. The goal of this loan program is to encourage businesses to keep workers employed and cover certain operating expenses during the coronavirus pandemic.
Under the PPP, small business owners and other eligible applicants can apply for low-interest SBA loans up to $10 million to cover eligible payroll costs , rent, and utilities, among other allowable uses. These loans may be forgiven, in whole or in part, if borrowers meet certain criteria, including but not limited to spending at least 60% of the forgiveness amount on eligible payroll costs (and no more than 40% on eligible nonpayroll costs).
While other SBA loans generally require a personal guarantee and collateral, PPP loans require neither. The PPP also waives the Credit Elsewhere requirement that limits SBA guaranteed loans only to borrowers who are unable to obtain credit elsewhere on reasonable terms from non-federal sources.