COVID-19: The Remarkable Paycheck Protection Program Is Now Available to All Small Businesses

The Paycheck Protection Program (PPP) is one of two loan programs established by the federal Coronavirus Aid, Relief, and Economic Security (CARES) Act to assist companies who employ fewer than 500 people to survive the COVID-19 economic downturn. We wrote about the second program, the Economic Injury Disaster Loan Program, in an earlier blog post.

PPP’s goal is to help small businesses in the 50 states and U.S. Territories keep their workers employed despite the downturn — and Congress was very serious about achieving this goal:

Both programs are administered by the U.S. Small Business Administration (SBA) but the loans will be distributed via SBA-approved banks. A business owner cannot obtain funds from both loan programs, so it’s best to figure out which program meets your needs the best. However, you can apply for both programs. Then, if you qualify for both, you can decide on which loan to close.

Loan Details – PPP Loan Terms Are Incredibly Generous

    • There are only two eligibility requirements: the business must be located within the 50 states or a U.S. Territory, and it must have 500 or fewer employees. “Business” includes non-profits, sole proprietors, self-employed individuals, and independent contractors who have employees
    • Any such business can apply for a loan of up to 2.5 times your average monthly payroll or $10 million, whichever is lower, to maintain your payroll and rehire employees
    • The loans are two-year loans at the low, low interest rate of 0.5%. (The funding bank may add a surcharge, for example, it may add on another 0.5% in interest, which would increase the final interest rate to, in this example, 1%)
    • The first loan payment is deferred for six months. There are no collateral requirements, personal guarantees, or SBA fees to be paid by borrowers. The SBA guarantees 100% of the loan
    • Even better, the SBA will forgive the portion of the loan proceeds that are used to cover the first eight weeks of payroll costs, rent, utilities, and mortgage interest

Details about eligibility and other useful information can be found here.

What Can I Use the Money For?

Payroll, rent, mortgage payments, and utility bills. Using it for anything else endangers your forgiveness. Some common items you cannot use this money for are: acquiring new inventory or equipment, paying down other debt, shareholder distributions, or attorney’s fees.

How to Apply – Easy and Simple

PPP is administered by the U.S. Small Business Administration (SBA), but the loans are originated by and funded through participating SBA lenders, banks, credit unions, and other lending institutions.

The PPP program launched on Friday, April 3, 2020 for small businesses and sole proprietorships. On April 10, independent contractors and self-employed individuals can apply. To apply, you complete the application form and submit it to your local approved SBA Bank. The application form can be found here. A short summary of SBA’s process can be found here.

A cautionary note: there are reports about delays caused by the fact that most banks’ computers don’t sync with the SBA’s computers. And, the demand for these loans greatly exceeds SBA’s historic operations. President Trump reported on Saturday, April 4, that the SBA had processed over

28,000 loans in the first 24 hours of the program. On Monday, April 6, the SBA said it had processed 100,000 loan applications. This is great, but it’s only a fraction of the total applications received on April 3. Participating lenders and the SBA are working overtime to speed up the process.

The loans will be available retroactive from February 15, 2020, so that employees can rehire recently laid-off employees and pay them through June 30, 2020. The current program ends on June 30, so you must apply well before then.

At least one member of Congress has said that the program will be extended past June 30 if necessary, but new legislation will have to be enacted, funded, and signed into law by the President to make this happen.

How to Obtain Loan Forgiveness

Generally, you will need to prove that you used the loan proceeds for purposes that qualify for forgiveness. The amount of the loan that will be forgiven may be reduced if the number of your full-time employees declines, or if your salaries and wages decrease.

Borrowers should expect to submit receipts for payroll, rent, mortgage, and utility bills that were paid with PPP loan proceeds. One SBA lender suggested to us that borrowers consider opening a separate checking account for their payroll (or, for the PPP loan proceeds) to simplify their record keeping requirements and minimize the risk of using PPP loan proceeds on unqualified spending.

So, Is This Free Money?

Close, but technically no. This is a loan. This law is very new, and it is always possible that the federal government will later adopt regulations that may impact your eligibility to have the loan amount forgiven. While it clearly will be necessary to prove the loan was spent on eligible expenses such as payroll and rent, we cannot guarantee that future administrations may not scrutinize whether the loan was needed “to maintain payroll and rehire employees,” or how. On the other hand, if you do have to repay this loan, the interest rate is unprecedentedly low.

We doubt there has ever been a loan program with such simple underwriting requirements, such low interest rates, a federal guaranty, and the prospect of loan forgiveness. Additional information about the COVID-19- loan programs can be found at and