Three Things Your Small Business Needs to Know About PPP Loans

On Monday, January 11th, the Paycheck Protection Program relaunched to provide aid to small businesses that have been impacted by the ongoing COVID-19 pandemic. The $900 billion COVID-19 stimulus package that Congress authorized in December included $284 billion in funding for small businesses aid under the program.

If you are a small business owner, here are three things you need to know.

1. Existing Paycheck Protection Program borrowers may apply for a second loan

Existing PPP borrowers are eligible in some cases for additional aid. However, the program re-opened with the priority given to first-time borrowers on January 11th, followed by second-time borrowers on January 13th.

To be eligible small businesses must have 300 or fewer employees and have experienced a 25% reduction in gross receipts during a quarter in 2020 compared to the same quarter in 2019.

For the second-time borrower, it is required that the full amount of the initial PPP loan be used or will be used.

2. Aid is provided to small businesses as forgivable loans

As long as small businesses follow the program rules, their loan can be forgiven, consistent with the program’s first round.

To qualify for loan forgiveness, at least 60% of the loan must go to paying employees. The remaining 40% must be spent on qualifying expenses such as utilities, mortgage, rent, and other expenses.

For loans that do not qualify for forgiveness and require repayment, the loan’s typical term is five years and carries a 1% interest rate.

For borrowers that receive a loan of $150,000 or less, the loan forgiveness application will be a one-page certification, including basic information about the company and loan. This simplified forgiveness application is aimed to make it easier on qualified borrowers.

3. The maximum loan amount is 2.5x the average monthly payroll costs

Consistent with the first round of the Paycheck Protection Program loans, the maximum amount a first-time and second-time borrower is eligible for is 2.5 times their average monthly payroll costs. This amount is capped at $100,000 per year per employee.

The maximum loan amount for a first-time borrower is capped at $10 million, and for second-time borrowers, the loan is capped at $2 million.