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Quick guide to PPP loans

Table of Contents
Table of Contents

Where can I apply?

Unlike the disaster assistance loan, you cannot directly apply through SBA's website. You must apply through a lender that's eligible to originate SPA loans. To find an eligibly lender near you, you can use this tool provided by the SBA. The SBA also published a list of most active SBA lenders, all of whom are originating SBA loans, that you can view here.

Most banks are participating in the program, and you should check with your existing bank first. If they are not providing a satisfactory solution, some technology-forward lenders have seamless application processes and are accepting applications even if you are not an existing customer. A great example of this is Divvy (application link here, they are partnering with Cross Rivers Bank).

What is the Paycheck Protection Program (PPP)?

The Small Business Association (SBA) launched the Paycheck Protection Program (PPP) on April 3rd. It allows small businesses affected by COVID-19 to get low interest rate loans from most banks, SBA lenders, and a select group of other lenders approved by the Treasury Department. As a small business, you can apply for loan amounts up to 2.5 times your average monthly payroll. These loans are unlike other business loans in that loan will be forgiven if it is used to cover wages, rent, utilities and mortgage payments, and your current staffing levels are maintained for 8 weeks. The primary reason the SBA is offering this is for businesses to retain staff.

Who's eligible to receive this loan?

The loans will be available to all businesses with fewer than 500 employees (i.e., full-time, part-time, or seasonal). Sole proprietors, independent contractors, and people who are self-employed are also eligible to apply for a PPP loan on their own. Businesses with more than 500 employees are eligible in certain industries.

What do I need to do to apply?

You'll need to complete the following PPP application form that can be found here.

The most important field in the application is the 'average monthly payroll', as that determines the maximum loan amount your business can qualify for.

To calculate your average monthly payroll, add up payroll costs

  • Compensation to employees (whose principal place of residence is the United States) in the form of salary, wages, commissions, or similar compensation
  • Cash tips or the equivalent (based on employer records of past tips or, in the absence of such records, a reasonable, good-faith employer estimate of such tips)
  • Payment for vacation, parental, family, medical, or sick leave
  • Allowance for separation or dismissal
  • Payment for the provision of employee benefits consisting of group health care coverage, including insurance premiums, and retirement
  • Payment of state and local taxes assessed on compensation of employees
  • For an independent contractor or sole proprietor, wage, commissions, income, or net earnings from self-employment or similar compensation

And subtract any exclusions as defined by the CARES Act

  • Any compensation of an employee whose principal place of residence is outside of the United States
  • The compensation of an individual employee in excess of an annual salary of $100,000, prorated as necessary
  • Federal employment taxes imposed or withheld between February 15, 2020 and June 30, 2020
  • Qualified sick and family leave wages for which a credit is allowed under the Families First Coronavirus Response Act

What happens if I don't qualify or I get rejected?

Firstly, don't worry. There are many other options available if you are unable to get the SBA loan. Your state or city authorities may be offering loans for small businesses. You can also apply for SBA's Enhanced Debt Relief program, or SBA's disaster assistance loan directly through their website here.

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