Who Qualifies for a PPP Loan?

If you’re wondering who qualifies for a PPP loan , you’re not alone. With the Paycheck Protection Program being a key part of the CARES Act, many small businesses are wondering if they will be eligible for this life-saving funding.

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Eligibility

To be eligible for a PPP loan, you must be a small business, nonprofit organization, veteran organization, or Tribal business concern with less than 500 employees, or the individual equivalent, as determined by SBA size standards.

Businesses must have been operational on February 15, 2020

To qualify for a PPP loan, businesses must have been operational on February 15, 2020. This means that businesses that started after this date are not eligible. Additionally, businesses that are part of a group that includes companies that started after February 15, 2020 are also not eligible.

Must have paid employees

In order to be eligible for a PPP loan, you must have paid employees on your payroll. This is true regardless of whether those employees are full-time, part-time, or seasonal. You will also need to show that your business has been negatively impacted by the pandemic.

Self-employed individuals, sole proprietors, and independent contractors

If you are self-employed, a sole proprietor, or an independent contractor, you may be eligible for a Paycheck Protection Program (PPP) loan. The PPP is a loan program established by the CARES Act to help small businesses and self-employed individuals weather the economic impact of the COVID-19 pandemic.

To be eligible for a PPP loan, you must:

-Be self-employed, a sole proprietor, or an independent contractor
-Have filed a federal tax return for 2018 or 2019
-Have earned income from your business in 2019
-Have your principal place of business in the United States
-Have fewer than 500 employees

Loan Amount

Loan amount is based on 2.5 times your average monthly payroll costs

The amount of your loan is based on 2.5 times your average monthly payroll costs from the last 12 months. If you have seasonal employees, you may use either your last 12 months of payroll costs or a 12-month average.

Maximum loan amount is $10 million

The maximum loan amount is $10 million, with interest rates not to exceed 4%. Loan payments will be deferred for six months and loans will be forgiven if all employee retention criteria are met. Borrowers can apply through any existing SBA 7(a) lender or through any federally insured depository institution, federally insured credit union, and Farm Credit System institution that is participating.

Forgiveness is based on the employer maintaining or quickly rehiring employees and maintaining salary levels. Forgiveness will also be available for any uncompensated sick or family leave, and expenses related to workplace safety requirements related to COVID-19.

Use of Loan Proceeds

Proceeds must be used for payroll costs, mortgage interest, rent, and utilities

The proceeds of a Paycheck Protection Program (PPP) loan must be used for certain qualifying expenses in order to be eligible for loan forgiveness. Those expenses include payroll costs, mortgage interest, rent, and utilities.

Payroll costs are defined as salaries, wages, tips, vacation pay, parental leave, health insurance premiums, and retirement benefits. payroll costs also include state and local taxes assessed on an employee’s compensation.

Mortgage interest is defined as interest paid on any loan secured by real property (i.e., a mortgage). This includes interest on loans used to acquire business property (i.e., business mortgage loans).

Rent is defined as payments made under leases for real property. This includes lease payments for computer software, office equipment, and vehicles.

Utilities are defined as payments for electricity, gas, water, transportation, telephone, or internet service that began before February 15th of 2020.

at least 60% of the loan must be used for payroll

Under the new guideline, at least 60% of the loan must be used for payroll. Borrowers can apply for forgiveness for other expenses, but they’ll have to prove that they spent the money on eligible costs.
The list of eligible expenses has also been expanded to include certain property damage costs, costs related to preventing the spread of COVID-19, and worker protection expenditures.
The SBA says that borrowers can use the loan proceeds for:
-Payroll support, including salaries, wages, employee benefits, leave, and severance pay
-mortgage interest
-rent payments
-utility payments
-Interest on any other debt obligations incurred before February 15

Loan Forgiveness

The Paycheck Protection Program (“PPP”) loan forgiveness application is now available on the Small Business Administration’s (“SBA”) website. Businesses that have already submitted their PPP loan forgiveness application to their lender may check the status of their application on the SBA’s website.

Loan forgiveness is based on the amount of money used for payroll, mortgage interest, rent, and utilities

Loan forgiveness is based on the amount of money used for payroll, mortgage interest, rent, and utilities. If you use less than 60% of the loan for these expenses, then the amount of loan forgiveness will be reduced. You must apply for loan forgiveness with your lender. The SBA will then review your application and notify your lender whether you qualify for loan forgiveness.

Loan forgiveness is capped at $10 million

Loan forgiveness is capped at $10 million. Borrowers can have their loan forgiven if they use the loan proceeds for payroll costs, mortgage interest, rent, and utilities (utility expenses incurred before February 15, 2020 are eligible for forgiveness if necessary to continue business operations at the same level as before February 15, 2020).

At least 60% of the forgiven amount must have been used for payroll. Up to 40% of the forgiven amount may be used for mortgage interest, rent, and utilities.

Borrowers who do not use the entirety of their PPP loan on these expenses may still have a portion of their loan forgiven. These borrowers will have their loan forgiveness amount reduced by an amount proportional to the reduction in employees or wages/salaries.