The Paycheck Protection Plan (PPP) Explained by a Fellow Small Business Owner
Updated: Oct 5, 2020
Update as of April 1, 2020: The Treasury posted the Paycheck Protection Program (PPP) Information Sheet along with the draft application.
PPP Information Sheet | Paycheck Protection Program Application Form
The updated clarification provides 2 changes to initial guidance:
Due to likely high subscription, it is anticipated that not more than 25% of the forgiven PPP loan amount may be for non-payroll costs. This did not impact our example below but should be considered when sizing your loan.
The maximum term for the balance of the PPP loan is 2 years (vs up to 10 years as originally contemplated) and the interest rate is ½% vs the up to 4% as originally reported. The amortization in our example has been updated accordingly.
Starting April 3, 2020, small businesses and sole proprietorships can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
Starting April 10, 2020, independent contractors and self-employed individuals can apply for and receive loans to cover their payroll and other certain expenses through existing SBA lenders.
What is the Paycheck Protection Program (PPP) and how does it benefit small businesses?
By now you have probably heard of the CARES Act that was signed into law. You are probably asking “what does this all mean for me, the small business owner?”
Importantly the legislation includes a new loan program – the Paycheck Protection Program (PPP) administered through the SBA – that provides up to $349 billion in loans to eligible entities, with such loans being subject to forgiveness under certain circumstances.
I have read the Paycheck Protection Program and a bunch of thought leadership pieces. They are informative but fall short of answering three fundamental questions (below) for me and my fellow 30 million small business owners across the US:
Is my business eligible?
If so, for how much?
How much of the loan is forgivable and under what circumstances?
Is my business eligible?
Can you make a good faith certification that:
You are a small business, nonprofit or veteran’s organization that employs less than 500 people at a single location
The uncertainty of current economic conditions makes necessary the loan request to support your ongoing operations; and
The funds will be used to retain workers and maintain payroll or make mortgage payments, lease payments and utility payments
If so, for how much?
You are eligible for 2.5 times your average monthly payroll up to $10,000,000.
The average is computed based on payroll costs for the trailing 12 months beginning on April 1, 2019.
Computing Your Average Monthly Eligible Costs