How the PPP Loan is Calculated

The PPP loan is calculated by taking the average monthly payroll costs from the last 12 months and multiplying it by 2.5.

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What is the PPP Loan?

The PPP loan is a government-backed loan that is available to small businesses and self-employed individuals. The loan is intended to help businesses keep their employees on the payroll during the COVID-19 pandemic.

The loan amount is based on your average monthly payroll costs, and you can borrow up to 2.5 times your monthly payroll costs. The maximum loan amount is $10 million.

You will need to provide documentation of your payroll costs, such as pay stubs, tax forms, or bank statements.

The loan has a 1% interest rate and can be repaid over a period of two years.

How is the PPP Loan Calculated?

Gross Payroll

Thegross payrollfor your business is the total amount of money that you pay to your employees in a given period, before any deductions are made. This includes salaries, wages, tips, commissions, and bonuses. If you have any employees who are paid less than $100,000 per year, you can exclude them from this calculation.

Full-Time Equivalent Employees (FTEs)

To figure out how much your business can borrow through the PPP, you will need to determine your full-time equivalent employees (FTEs).

To calculate your FTEs, you will need to add up the total number of hours worked by all employees in a given week and divide that number by 40. You will then need to round this number down to the nearest whole number.

For example, if you have 10 employees who work a total of 30 hours each per week, your business would have 25 FTEs (10 employees x 30 hours each = 300 hours worked per week/40 = 25 FTEs).

If you have part-time employees who work fewer than 40 hours per week, you will need to use a more complicated calculation to determine their FTE status. The SBA has provided a PPP Loan Calculation Worksheet that can be used for this purpose.

What are the Eligibility Requirements for the PPP Loan?

In order to be eligible for a PPP loan, you must:

-Be a small business, nonprofit organization, veterans organization, or tribal business concern with 500 or fewer employees;
-Or be an individual who operates as a sole proprietor, an independent contractor, or is self-employed with no more than 500 employees;
-Have used or will use the loan proceeds to cover payroll and other eligible expenses;
-Have experienced economic injury from the coronavirus pandemic; and
-Make a good faith certification that the loan is necessary to support ongoing operations due to the economic uncertainty caused by the coronavirus pandemic.

How to Apply for the PPP Loan

To apply for the PPP loan, you will need to complete and submit the PPP loan application form. This form is available through your lender or the SBA. The Application Form 3508 or the Alternative PPP Loan Application Form 3508EZ must be used.

The PPP loan application form must be accompanied by supporting documentation, which may include:

-Your most recent tax return
-Your Personal Financial Statement
-Your business licenses or other permits
-Documentation of payroll costs, such as pay stubs or bank statements
-Documentation of other debts owed by your business

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