What The Paycheck Protection Program Means For Your Small Business

An illustration showing small businesses supported by the CARES act's paycheck protection program

min read
March 4, 2021


  • “This article is originally posted on Hourly.io

Updated March 2, 2021 at 5:22 PDT

On February 22, President Biden announced important updates to the Paycheck Protection Program (PPP).

Beginning Wednesday, February 24th—and until March 9—only businesses with less than twenty employees may apply for a loan. This gives banks and lenders time to work with small businesses, which tend to get overlooked.  The changes also allow sole proprietors to receive aid.

To take advantage of this two-week window, contact your financial institution.

What is the Paycheck Protection Program?

The Paycheck Protection Program is an emergency lending initiative administered by the U.S. Small Business Administration (SBA) designed to assist small business owners keep their workers employed and their operations moving forward during this economic slowdown.

The Paycheck Protection Program will oversee the roughly $350 billion in loans available to small businesses through the CARES Act. In order to keep up with demand, a wide network of lenders not traditionally authorized to make SBA-guaranteed loans will be able to process applications and service loans through the Paycheck Protection Program.

(Need a lender? You search for eligible lenders in your area with the SBA’s eligible lender tool).

How does the Paycheck Protection Program work?

The Paycheck Protection Program provides federally insured loans to businesses with 500 or fewer employees, including any eligible nonprofit organization, Veterans organization, Tribal organization, sole proprietorship, self-employed individual, and independent contractor as described in the Small Business Act. (According to the Small Business Administration, certain companies may have more than 500 employees, if they’re in an industry that has a higher SBA size standard.)

Eligible businesses can borrow up to 250 percent of their average monthly payroll costs over the prior 12 months, which include wages, employee salaries, healthcare costs (including group health care benefits and insurance premiums), retirement contributions, and other expenses), up to a maximum loan amount of 10 million dollars.

The loans are designed to cover short-term operating expenses and help small businesses keep their doors open and their employees (both full-time and part-time) on payroll. As a way to incentivize businesses to maintain their headcount and avoid layoffs, SBA will forgive portions of the loan used for payroll, rent, mortgage interest, or utility payments during the eight-week period following loan origination—up to 100% of the total loan amount.

While the Paycheck Protection Program does offer loan forgiveness (essentially turning the loans into small business grants), there are requirements to qualify. Employers must maintain their pre-coronavirus levels of full-time employees. If they don’t, the amount of forgiveness will be reduced in proportion to the loss of employees. If companies were forced to reduce their workforce prior to receiving a loan through the program, they have until June 30 to rehire laid-off employees and get their headcount back to pre-coronavirus levels without being penalized.

What are the benefits of applying for a loan through the Paycheck Protection Program?

Loans through the Paycheck Protection Program aren’t like traditional loans—and they offer some serious, unprecedented benefits to small business owners.

Some of the major benefits of a Paycheck Protection Program loan include:

  • Low barrier to entry. There’s no need to prove economic hardship due to COVID-19 or put up collateral or a personal guarantee; the SBA is purposefully making the barrier to entry low to make it easier for small businesses to get the assistance they need.
  • No fees. There are no participation or prepayment fees associated with securing a loan through the Paycheck Protection Program.
  • Deferred payments. Loan payments are automatically deferred for at least 6 months—and that deferment period can be extended to up to 1 year.
  • Low interest rates. Interest rates for PPP loans are set at 1%—which is significantly lower than other types of small business loans.
  • Loan forgiveness. As mentioned, all portions of your loan to cover payroll expenses, rent, mortgage interest, and/or utility payments in the eight-week period following your loan origination—up to 100%—will be fully forgiven, which means, if you use the funds for the aforementioned expenses, you won’t increase your business’ debt obligation.

Clearly, PPP loans offer a number of benefits to small business owners. Arguably the largest benefit of securing a loan through the Payment Protection Program? It gets you the capital you need to retain your employees, avoid layoffs, and continue operations in the midst of the COVID-19 crisis.

Is my small business eligible—and how do I apply?

While the barrier to entry for PPP loans is low, there are certain eligibility requirements, including:

  • Businesses must have less than 500 employees (or meet the applicable industry size standard per the SBA), or;
  • Be a sole proprietor, independent contractor, or self-employed individual; and
  • Businesses must have been in operation on February 15, 2020

As mentioned, PPP loans will be processed through individual banks, credit unions, and other lenders. Small businesses will be able to apply for a Paycheck Protection Loan starting on April 3, 2020.  (Independent contractors and self-employed individuals can apply starting on April 10, 2020).

If you were planning on applying for a Paycheck Protection Loan through Wells Fargo, it’s important to note that due to high demand, as of Monday, April 6, Wells Fargo has stopped accepting new applications for PPP loans.

In order to apply, fill out the SBA’s sample application and submit your completed paperwork to an SBA-approved lender. (Contact your bank to see if they’re working with the SBA on the Paycheck Protection Program; if not, they should be able to refer you to another approved lender that can process your application.)

In addition to your application, you’ll also need to supply the following documentation to your lender:

  • Articles of incorporation and by-laws or operating agreement for each borrowing entity
  • Copies of each owner’s driver’s license
  • Payroll expense verification documents (including IRS Forms 940 and 941, payroll summary reports, and corresponding bank statements)
  • Breakdown of payroll benefits (including retirement benefits, healthcare benefits, and PTO)
  • 1099s (only applicable for independent contractors)
  • Certification that all employees live in the United States
  • A detailed list of any employees living abroad/outside the United States with corresponding salaries
  • Most recent mortgage or rent statement
  • Additional proof of expenses (including most recent utility bills and interest payments on debts)
  • Trailing 12-month profit and loss statement (as of date of application)

While the Paycheck Protection Program will be available through June 30, 2020, a huge number of applications are expected—so the sooner you can complete your application and submit the required documentation, the better.

Paycheck Protection Program Q+A

Is my business eligible for the Paycheck Protection Program?

If you’re a small business with under 500 employees (or, in industries with a higher SBA size standard, under the applicable number of employees), sole proprietor, independent contractor, or self-employed individual, you should qualify to participate in the Paycheck Protection Program.

What costs will my PPP loan cover?

Technically, you can use your PPP loan as you choose. But if you want the loan to be forgiven, you need to use the funds to cover specific operating expenses, including:

  • Salary, wages, commissions, and/or tips (capped at $100,000 per year per employee)
  • Employee benefits (including health insurance, retirement plans, and paid vacation time)
  • Mortgage interest payments
  • Rent and lease payments
  • Utility payments

What terms do I need to follow in order for my PPP loan to be forgiven?

In order to qualify for loan forgiveness, you’ll need to spend 75 percent of your loan on payroll costs (the remaining 25 percent can be spent on mortgage interest, rent, and/or utility payments). If you keep to that ratio and maintain (or exceed) your average number of full-time employees over the past year, your loan is 100% eligible for forgiveness.

If you decrease your number of employees or wages, the amount of the loan eligible for forgiveness will decrease proportionately.

How can I find an eligible lender for the Paycheck Protection Program?

The SBA recently launched a tool that allows you to search for eligible lenders in your area; just enter your location, and the tool will pull information on all eligible lenders nearby (including location, distance, and contact information).

If my PPP loan isn’t forgiven, how long do I have before I have to start paying it back?

You don’t need to start making payments on PPP loans for six months. If you need more time, you can extend that deferment period to a full year.

Additional Paycheck Protection Program and COVID-19 Resources

Keep in mind this situation is evolving—and may continue to evolve

While this information is current at the time of writing, the Paycheck Protection Program is a new initiative that’s continuing to evolve by the day. We’ll continue to update this post as new information is released to ensure you have the most up-to-date information on PPP loans, eligibility, and how to apply.


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