The Paycheck Protection Program is a program administered by the Small Business Administration. The purpose of the program is to help businesses in the United States avoid layoffs by providing them with loans to cover their payroll costs.
The Paycheck Protection Program is part of the CARES Act). The government has budgeted $350 billion for the program. Unlike other SBA loans that are only available to incorporated businesses, Payment Protection is available to sole proprietors, independent contractors, and self-employed individuals.
How Paycheck Protection Works:
The Paycheck Protection Program allows businesses to obtain guaranteed loans of up to $10 million dollars to cover their payroll costs so that employees can be retained during the COVID-19 crisis. The money can also be put towards other operational costs, such as rent, mortgage interest, or utilities.
Paycheck Protection loans cover the period ranging from February 15, 2020 to June 30, 2020. Businesses can obtain a Paycheck Protection loan through their existing financial institution if that institution is an SBA lender. Allowable uses of funds from a Paycheck Protection loan include:
- Payroll costs.
- Premiums for group health or insurance plans.
- Employee's salaries.
- Interest on mortgages.
- Rent/utility payments.
- Interest payments on any other debts existing before February 15, 2020.
How much can I borrow?
The maximum loan amount is $10 million per business. Your business's maximum loan amount is determined by multiplying your average monthly payroll costs by 2.5. Therefore, if your average monthly payroll costs are $10,000, you are eligible for a $25,000 paycheck protection loan.
However, there a number of payroll costs that are not included in this calculation:
- payroll/income taxes.
- employees paid over $100,000 per year.
- wages paid to any employees residing outside of the United States.
- sick leave wages.
Paycheck Protection Forgiveness:
If businesses are able to keep the same number of employees on their payroll between February 15 and April 26, 2020, 100% of their loan will be forgivable. If the headcount declines, only a portion of the loan may be forgiven.
Loan origination expenses eligible for forgiveness:
- Mortgage interest (mortgages existing before Feb. 15, 2020).
- Payroll costs.
- Rent from lease agreements in force before Feb. 15, 2020.
- Utility payments for utilities in service before Feb. 15, 2020.
Paycheck Protection Eligibility:
In order for a business to be eligible for a Paycheck Protection loan, it must meet the following criteria:
- Have fewer than 500 employees (includes sole proprietorships, independent contractors, and other self-employed individuals).*
- Be in operation on or before February 15, 2020.
- Have independent employees or contractors for whom the employer was paying wages and employment taxes.
*Some exceptions for businesses with more than 500 employees will be made according to the SBA's prescribed sizes for certain industries. View the full table of size standards.
How to Apply for the Paycheck Protection Program:
- Determine if your business is eligible based on the eligibility requirements.
- Gather documents that detail your payroll expenses and other operational costs.
- Contact your existing financial institution or another qualified SBA lender who can work with you to complete the application.
In order to apply for an SBA Paycheck Protection Program loan through your lender, you will need to present the following:
- A good faith certification that the requested amount is necessary due to economic uncertainty caused by COVID-19 stating that payroll will be maintained and that the borrower will be able to keep up with their required payments.
- The borrower must also certify that they are not similar funds for the same purpose from another SBA program.
Your financial institution may have additional documentation requirements to complete an application.
Is a Paycheck Protection loan the same as an SBA disaster loan?
No. Both programs are administered by the Small Business Administration, but disaster loans are for general business use in a variety of disaster situations and require collateral in order to qualify.
What is the Paycheck Protection limit?
The loan limit is 250% of your business' average monthly payroll up to $10 million.
Is a Paycheck Protection loan forgiveable?
Yes. Paycheck Protection loans can be forgiven up to 100% if there has not been a decline in the size of your workforce between February 15 and April 26, 2020.
Will I need to pay interest if my Paycheck Protection loan is forgiven?
No. Businesses with Paycheck Protection loans that qualify for loan forgiveness will not be held responsible for interest payments.
When can I apply for a Paycheck Protection loan?
Applications will be accepted until June 30, 2020.
How long does it take to receive a Paycheck Protection loan?
As the program is still being established, we do not yet know what the timeline may be for receiving Paycheck Protection loans. In the meantime, talk to someone at your financial institution as soon as possible and assemble all of your financial documents so that you do not encounter a delay once the funds are available.
What banks are Paycheck Protection lenders?
Paycheck Protection loans are available from all qualified SBA lenders. You can see a full list of SBA lenders in your state on the SBA website.