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Updated: January 26th, 2021
Update as of January 26, 2021: This article may no longer be up-to-date. Read this article for the most up-to-date information the most current round of the Paycheck Protection Program.
For small business owners, one of the most essential parts of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) may be the Paycheck Protection Program (PPP). The program provides up to $350 billion in new business loans, and unlike other emergency loans, much of the money you receive from the PPP could be forgivable in the future.
In many cases, these COVID-19 relief loans may act more like grants—money that you receive to help run your business and don’t have to repay.
Funding Circle, the largest small business lending fintech is one of a few non-depository online lenders in the United States that was recently approved to provide Paycheck Protection Program loans.
The Paycheck Protection Program (PPP) will serve as an extension of the Small Business Administration (SBA) 7(a) loan program. It will allow small businesses to apply for federally guaranteed, forgivable loans. The Small Business Association fully guarantees the PPP loans, and lenders across the country will distribute the funds to eligible businesses. The loan terms will be the same for every business:
You should receive the same terms from any lender, although the process and requirements may vary slightly. For example, some banks are only accepting applications from businesses that previously opened a business bank account.
The money will be distributed on a first-come, first-served basis. It is important to note, too, that there’s an expected high-demand for these COVID-19 relief loans.
Here’s how the Paycheck Protection Program works:
If you started your small business before February 15, 2020, and either paid yourself, employees, or contractors, you may qualify for a loan. The program is open to:
To qualify, you’ll need to have fewer than 500 full-time and part-time employees or meet the SBA’s size standards. However, the SBA is waiving the affiliation standards and counting employees on a per physical location basis for:
Unlike with many small business loans, you may be able to qualify regardless of your credit and income. Additionally, the loan provided under the Paycheck Protection Program doesn’t require collateral or a personal guarantee.
However, each person who owns at least 20% of the company must certify that:
There are also personal circumstances that could lead you or the business not to be eligible. For example, each owner must also certify:
The maximum amount you can borrow is the greater of 2.5 times your average monthly payroll from the last 12 months or $10 million. Please note- PPP loans taken through Funding Circle have a max of $500,000.
Seasonal businesses can alternatively use 2.5 times their average monthly payroll for the 12 weeks following either February 15 or March 1, 2019.
For example, if you spent $2.4 million on eligible payroll expenses last year, your average monthly expense was $200,000, and you can apply for up to $500,000 through the PPP.
If you received an Economic Injury Disaster Loan (EIDL) from the SBA after January 31, 2020, you can also add the remaining loan balance to your total loan amount and refinance the EIDL with the proceeds from your PPP COVID-19 relief loan.
To determine your average payroll costs, add up the payments you made for the following expenses during the previous 12 months, and divide the result by 12:
Do not include:
For sole proprietors, self-employed individuals, and independent contractors: You can add up the previous 12 months’ wages, commissions, income, and net earnings that you received, up to the $100,000 annual cap. Divide this amount by 12 to determine your average monthly “payroll” amount.
There is a limited list of uses for money provided through the Paycheck Protection Program:
Two clocks start ticking once you receive the loan.
The first is a deferment period, which can last six to twelve months. Interest will accrue during deferment, but you don’t need to make any payments.
The second is an eight-week period, which will be used to determine if and how much of your COVID-19 relief loan will be forgivable.
The loan proceeds that you spend on payroll, mortgage interest, rent, and utilities during the eight-weeks may be eligible for forgiveness.
If you spent all the money on these expenses, up to the full amount of the loan may be forgiven. Any forgiven amount also won’t be considered taxable income. However, your forgiven amount can be reduced if you have fewer employees or reduced employees’ pay.
If you let go of employees or reduced wages already, you can regain the forgivable portion by hiring employees and increasing wages by June 30, 2020.
To receive loan forgiveness, you’ll need to apply with your lender and include documentation to confirm how you spent the money, number of qualified employees, and their pay rates.
You’ll need to repay any amount that wasn’t forgivable. The loan will have a two-year term, which begins when you apply for the loan. It will have a low-interest rate (the maximum allowed is 1%), and there’s no prepayment penalty.
The PPP application is reasonably straightforward as the program aims to get money into the hands of small businesses quickly. A few important Paycheck Protection Program deadlines and dates are:
*subject to SBA approval, Funding Circle and our partners will start processing these applications on April 10.
In addition to filling out the application, you will be required to share or upload relevant tax and financial documents—such as your payroll records from the previous 12 months. The rough estimation is that it will take about eight minutes to complete the application, including gathering all the information you need.
No, each business entity is only allowed to take out one COVID-19 relief loan through the PPP.
Yes, each business may be eligible for a loan through the PPP if it meets all the requirements.
You can apply for both the Paycheck Protection Program and an EIDL from the SBA, but you can’t use the loan proceeds for the same expenses.
If you previously applied for an EIDL, you may also be able to roll that loan amount into your PPP loan, which could make it eligible for forgiveness. Otherwise, EIDLs generally aren’t forgivable, although up to $10,000 may be given as a grant rather than a loan if you use the money for payroll and operating expenses.
You may still be eligible for the PPP. If you pay yourself a salary, you could use that amount to determine your average monthly payroll. If not, you may need to use your net earnings to determine your average monthly payroll costs and apply as a self-employed person starting April 10.
The Paycheck Protection Program might not be a good fit for your business. The SBA offers other disaster assistance and loan programs that may be able to help.
The program and money is available to help businesses and their employees. Business owners must certify that due to current economic conditions, they need a COVID-19 relief loan to continue ongoing operations.
Jessica Holcomb is the Content Marketing Manager at Funding Circle, specializing in small business marketing and social media. She has a degree from the Fashion Institute of Design and Merchandising. Prior to Funding Circle, Jessica was a Marketing Manager at a successful social games company and a freelancer for many small businesses in the Bay Area. Her work can be seen in top retail, gaming, and financial small business resource sites.