Authorized under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), the Paycheck Protection Program (PPP) provides loans to small businesses impacted by the coronavirus (COVID-19) pandemic. The loans—which are fully forgivable—are intended to cover payroll and other operational costs for businesses forced to close or limit operations due to COVID-19.
You are eligible to apply for a PPP loan if you are:
In addition, you must make several certifications on your loan application, including that your business:
To determine how many employees you have, use the average number of employees for each pay period during the prior 12 months or from calendar year 2019. If your business has been operational for less than 12 months, use the average number of employees for each pay period that you were in existence. When counting the number of employees, part-time employees count the same as full-time employees.
An eligible nonprofit, veterans organization, or tribal business must have 500 or fewer employees whose principal place of residence is in the United States or, if bigger, meet the SBA employee-based size standards for the industry in which it operates.
The maximum amount of money you can borrow through the PPP is 2.5 times your average monthly payroll costs, up to a maximum of $10 million. That means, for example, if your average monthly payroll in the last 12 months was $100,000, you could borrow up to $250,000.
You can also add to your loan amount the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less any “advance” that is forgivable under an EIDL COVID-19 loan.
You should include in payroll costs:
If you are a sole proprietor, an independent contractor, or self-employed, your payroll costs include wages, commissions, income, or net earnings from self-employment, up to $100,000 per year.
To calculate your average monthly payroll, use the 12-month period prior to the loan date or the previous 12 months. Seasonal businesses can calculate their average monthly payroll costs based on the 12-week period beginning February 15, 2019 or March 1, 2019 and ending June 30, 2019; or any consecutive 12-week period between May 1, 2019 and September 15, 2019.
To calculate how much you can borrow, follow these steps.
Step 1: Add up your total payroll costs for the applicable 12-month period. Exclude any portion of compensation in excess of $100,000 per year.
Step 2: Calculate your average monthly payroll costs by dividing your total payroll costs (from Step 1) by twelve.
Step 3: Multiply your average monthly payroll costs (from Step 2) by 2.5.
Step 4: Add the outstanding amount of any Economic Injury Disaster Loan (EIDL) made between January 31, 2020 and April 3, 2020, less any “advance” that is forgivable under an EIDL COVID-19 loan.
The total amount you get based on these calculations is the maximum you can receive for a PPP loan, up to $10 million. Depending on your situation, there may be other factors that affect this number when you actually apply for your loan.
Your PPP loan will be forgivable—meaning you don't have to pay it back—if you spend the money on certain permitted expenses. To qualify for forgiveness, you must show that during the first eight weeks after disbursement of loan funds, you spent at least 75% of the loan proceeds on payroll (including benefits), and the remainder—up to 25%—on:
The amount that is forgiven will be equal to the amount that you spend during that eight week period on permitted expenses.
Your loan forgiveness will be reduced, however, if:
If any portion of the loan is not forgiven, you will have to pay that money back within two years at an interest rate of 1% with no prepayment penalties.