In 2020, the CARES Act introduced the Paycheck Protection Program (PPP). This loan program was intended to provide small businesses throughout American with eight weeks of funds. Businesses could continue to pay their employees and keep their doors open thanks to PPP loans, and it helped alleviate some of the financial struggles small business owners faced. But many business owners don’t realize that PPP loans are available once again – and it’s easy to qualify. Search online to see if you’re eligible for a PPP loan.
The Paycheck Protection Program was refreshed and refunded in December 2020, meaning more loans are available. 4.9 million loans were approved and over $521 billion dollars were given out in the first round.1 Now, with about $132 billion remaining, more business owners can take advantage of PPP loans. If your business needs some financial aid, search online to learn more about the eligibility requirements you need to qualify for a PPP loan.
Vitalii Vodolazskyi / ShutterstockWhat is the Paycheck Protection Program?
The Paycheck Protection Program was packaged within the larger CARES Act passed by Congress in 2020. The program began as a $350 billion effort to provide small businesses with cash flow assistance loans, which were backed by the Small Business Administration (SBA) and 100 percent federally guaranteed.2
In April 2020, the PPP was expanded through the Paycheck Protection Program and Health Care Enhancement Act, which added $310 billion more in funding.3 This gave even more small businesses the chance to apply for PPP loans. And thanks to the Paycheck Protection Program Flexibility Act, PPP loans became even better. This act made it easier for businesses to get their PPP loans fully forgiven, and it offered business owners more time to spend the funds they were given.
On December 27, 2020, the PPP opened up another round of applications for loans thanks to the second stimulus package passed by Congress. This added $285 billion in funding and allowed businesses who’d received PPP loans back in the spring to apply for a second loan.4
So, why are so many businesses taking advantage of PPP loans? The Paycheck Protection Program allows any small business to apply. And there are a number of benefits to a PPP loan, including:
- Interest on PPP loans is just 1 percent.
- Loans have a five-year repayment period.
- PPP loan funds will cover expenses for 24 weeks.
- Business owners don’t have to start repaying the loan until the 24 week period ends.
- There’s no collateral required.
- No loan fees.
- A PPP loan can be forgiven.5
Unlike a bank loan, a PPP loan lowers your borrowing costs and can potentially be completely forgiven. If your small business is struggling, those funds can be critically important and help you stay in business.
How a PPP Loan Can Be Used
If you’re granted a PPP loan, you do have to use the funds in certain ways. There are a few important stipulations and requirements you’ll have to meet too.
Once you receive the funds for your PPP loan, you must use at least 60 percent of the money on payroll and your employees’ benefits costs. The remaining 40 percent can only be spent on the following expenses:
- Mortgage interest payments.
- Rent or lease payments.
- Utility costs.
- Operations expenses, like software and accounting.
- Property damage costs caused by public disturbances that aren’t covered under insurance.
- Supplier costs, like the cost of goods sold.
- Any worker protection expenditures needed to be compliant with new regulations.6
Each business that applies is eligible for a loan that totals the monthly average cost of payroll in 2019 or 2020. The maximum amount that can be given is $2 million.
According to the SBA, the average loan size is $107,000.7
Businesses Can Really Benefit From a PPP Loan
If you’re wondering whether you and your small business should apply for a PPP loan, you should know there are many benefits of the program. A single PPP loan could help offset some of your biggest financial burdens. And if your business has been struggling in the current economy, there’s no better option than to take advantage of funds that can keep you open.
The following are some of the best benefits of a PPP loan.
You Can Turn the Loan Into a Grant With Loan Forgiveness
If you follow all of the guidelines and requirements of your PPP loan – and spend the funds from the loan appropriately – you’ll be eligible to have the loan 100 percent forgiven.8 That means your loan can actually become a tax-free grant, giving you free money to keep your business operating and your employees employed. You’ll just need to certify that you’ll spend the loan funds appropriately during the application process.
You Can Hire New Employees
With a PPP loan, you’ll be able to hire new workers – and you don’t have to worry about jeopardizing your potential loan forgiveness. Since some small business owners can’t have their former employees return to work, the PPP loan allows you to hire new employees and use the funds for their payroll costs.9 It ensures your business needs are covered whether you’re hiring or hoping to rehire former employees
You Can Offer Employees Hazard Pay
Another perk of a PPP loan is its ability to be used to help offer employees more confidence and more money. If you have employees who are worried about the risks of returning to their jobs with your small business, you can use your PPP funds to offer them hazard pay or other bonuses.10 That additional compensation won’t disqualify you for loan forgiveness; it’s considered normal payroll.
How to Qualify for a PPP Loan
If you’re interested in getting a PPP loan for your business, you can apply right now. It’s important to take action before funds run out – there’s no guarantee that the program will have additional funding for a fourth time.
Here’s what you need to know if you’re qualifying for your very first PPP loan (also called a “first draw” loan):
- Your business has been open since before February 15, 2020.
- Currently, your business is open and operational.
- You have fewer than 500 employees.
- If you have multiple locations, you have no more than 500 employees per location.11
If you’ve already gotten a PPP loan in the past, you may be eligible to get a second loan. To qualify for a “second draw” loan, you’ll need to meet the following requirements:
- You’ve used up the funds from your first PPP loan.
- Your business has been open since before February 15, 2020.
- Currently, your business is open and operational.
- You employ no more than 300 employees.
- If you have multiple locations, you have no more than 300 employees per location.
- You can show proof of a reduction in gross revenue totaling 25 percent or more.12
To find out more about qualifying for the Paycheck Protection Program, search online. Many small businesses can benefit from this program’s funds, and it could be a smart financial move in an uncertain economy.
