This article is part of our series on the Coronavirus Aid, Relief, and Economic Security Act. Make sure to also check out our guides to student loan relief and direct payments.

The coronavirus pandemic has already upended the American job market, resulting in the filing of over nine million first-time unemployment claims in the last two weeks alone. In response, Congress created the Paycheck Protection Program (PPP) to help small businesses keep workers employed. Here’s how you can benefit.

What is the Paycheck Protection Program?

The PPP was established as part of the CARES Act stimulus package and has greatly expanded loan eligibility with the Small Business Administration (SBA).

Loans may be used for a variety of qualified costs, including (i) payroll costs, (ii) continuation of health care benefits, (iii) employee compensation, (iv) mortgage interest obligations, (v) rent, (vi) utilities and (vii) interest on debt incurred before the covered period. The interest rate is 1% for a term of two years, and payments will be deferred for six months. 

These loans are 100% federally guaranteed, and can be forgiven through a process that incentivizes companies to retain employees.

Who is eligible?

Small businesses that employ fewer than 500 individuals are eligible for loans. For businesses in the accommodation and food services industries, the 500-employee limit applies per physical location. This includes both full-time and part-time workers. 

Private nonprofits, veterans organizations, and tribal business concerns will also be eligible if they employ fewer than 500 people. Businesses with more than 500 employees may qualify if they otherwise meet the SBA’s size standards.

Sole proprietors, independent contractors, and self-employed individuals qualify for the program, as well.

What are the other qualifications?

To qualify, a business must have been operational on February 15, 2020.

Borrowers will have to certify that the current economic conditions make the loan request necessary to support ongoing operations, and that the loan proceeds will be used to retain employees.

You may not apply for the PPP if you have already received, or currently have an application pending for, another loan to be used for the same purposes.

No collateral or personal guarantee is required.

How much can I borrow?

The maximum amount that may be borrowed is 2.5 times the borrower’s average monthly payroll costs (including wages and benefits), not to exceed $10 million. There is an additional cap of $100,000 per employee. 

The rules for calculating average monthly payroll costs have already caused some confusion. Forbes published a useful guide you can use to determine your maximum loan amount.

How do I make sure my loan is forgiven?

Loans will be forgiven up to the amount spent on the following items during the eight week period beginning on the date the loan is received: Payroll costs, mortgage interest obligations, rent, utilities payments, and additional wages for tipped employees. At least 75% of the loan amount must be used for payroll costs. 

Forgiveness will be reduced if the number of employees declines, or if salaries and wages decrease by more than 25%. Borrowers that have reduced employees or wages between February 15 and April 26 have until June 30, 2020 to eliminate these reductions and still qualify for full loan forgiveness.

How do I apply?

Borrowers can apply through any existing SBA 7(a) lender or any participating federally insured depository institution, credit union, or Farm Credit System institution. You should consult with your local lender to see whether it has enrolled in the program.

Small businesses and sole proprietors can apply for benefits now, while independent contractors and self-employed individuals will have to wait until April 10. To begin preparing your application, you can download the form available here.

The program is open until June 30, 2020, but you should apply as soon as possible given the $349 billion lending cap. President Trump has already asserted his willingness to expand the program if money runs out.

Final thoughts

If the PPP runs smoothly, small businesses around the country will obtain the emergency funds needed to maintain employees and salaries. Unfortunately, the program has already been plagued by technical failures as the SBA systems are overwhelmed. Wells Fargo, for example, stopped accepting PPP applications on Monday.

The CARES Act has created other programs to provide relief to small businesses, including disaster assistance and enhanced debt relief. If you’re struggling with debt, or just looking for new ways to optimize your personal finances, Debtly can help. Check out our website!

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