How Much Money Can Your Business Get From the Paycheck Protection Program (PPP)?

Learn how to calculate PPP loan amounts and new loan forgiveness rules under the Paycheck Protection Program Flexibility Act.

By , J.D. · New York University School of Law

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 certain other operational costs for businesses forced to close or limit operations due to COVID-19.

On June 5, 2020, another law—the Paycheck Protection Program Flexibility Act (PPPFA) —was enacted giving small businesses more time and flexibility to use PPP loan funds without losing loan forgiveness. The PPPFA rules are covered below.

A new stimulus bill (Consolidated Appropriations Act of 2021) was enacted in December 2020. This bill provides additional funding for PPP loans. It also allows businesses that have already secured a PPP loan to obtain a second round of PPP funding. For more information on how to obtain a second PPP loan (the rules are slightly different), see Second Stimulus Package's Relief for Small Businesses.

Can I Apply For a PPP Loan?

You are eligible to apply for your first PPP loan if you are:

  • a small business with 500 or fewer employees whose principal place of residence is in the United States
  • a sole proprietor, an independent contractor, or a self-employed individual
  • a small business concern that meets the SBA's size standards -- either employee size standards or alternative size standards (tangible net worth of less than $15 million as of March 27, 2020 and average net income of $5 million or less after federal income taxes and excluding carry-over losses for the two fiscal years prior to the application)
  • a Section 501(c)(3) non-profit
  • a Section 501(c)(19) veterans organization
  • an SBA-designated tribal business entity, or
  • a hospitality or food service business (with a NAICS code beginning with 72) with 500 or fewer employees per location.

In addition, you must make several certifications on your loan application, including that your business:

  • was in operation on February 15, 2020
  • was affected by Coronavirus (COVID-19), and
  • needs the funds to "support . . . ongoing operations."

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.

What Is the Maximum Amount of a PPP Loan?

The maximum amount of money you can borrow as a first-time PPP borrower 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.

How Do I Calculate Average Monthly Payroll Costs?

You should include in payroll costs:

  • salary, wages, commissions, and tips, up to $100,000 per employee per year (don't include payments to independent contractors)
  • employee benefits including vacation, parental, family, medical, or sick leave costs; allowance for separation or dismissal; payment for group health care coverage benefits, including insurance premiums and retirement, and
  • state and local taxes on compensation.

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.

How Much Can My Business Borrow?

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.

How Do I Qualify for Loan Forgiveness?

Your PPP loan will be forgivable—meaning you don't have to pay it back—if you spend all the money exclusively on permitted expenses in the first 24 weeks (the covered period) after you receive the loan. Under the original PPP rules, the time period in which the money had to be spent was eight weeks. This was extended to 24 weeks or December 31, 2020 (whichever is earlier) under the PPPFA.

If your loan was disbursed before June 5, 2020, you can use either the 24-week period or the eight-week period that was in effect when you obtained your loan. If you use the eight-week period, you can choose to have it begin on the date you received the loan funds, or the first day of the first bi-weekly (or more frequent) pay period after you get the loan.

To be forgivable, at least 60% of the loan proceeds must be spent on payroll, which includes benefits. The original PPP rules required at least 75% of the PPP loan money be spent on payroll. This was changed to 60% under the PPPFA to give businesses more flexibility on how to use the money.

The remainder of the money—up to 40%—can be spent on the following permitted expenses:

  • interest on mortgage obligations incurred before February 15, 2020
  • rent under lease agreements in effect before February 15, 2020, and
  • utilities, for service that began before February 15, 2020.

The money cannot be used for any other purpose or it will not be forgivable. The amount that is forgiven will be equal to the amount that you spend during the covered period on payroll and other permitted expenses.

Maintaining Employee Headcount and Salary Levels

Your loan forgiveness will be reduced if:

  • you decrease salaries and wages by more than 25% for any employee who made less than $100,000 in 2019, or
  • you decrease your full-time employee headcount and don't restore your full-time employment and salary levels by December 31, 2020.

Under the original PPP rules, wage and employment levels had to be restored by June 30, 2020 to avoid a reduction in loan forgiveness amounts. This safe harbor was extended to December 31, 2020 under the PPPFA.

The PPPFA also provides that the employee headcount for loan forgiveness purposes will not be reduced if you can document your inability to:

  • rehire people who were employees on February 15, 2020, or hire similarly qualified employees for unfilled positions by December 31, 2020, or
  • return to your pre-February 15, 2020 level of business activity due to COVID-19 regulations or guidance issued by 1) the Department of Health and Human Services, 2) Centers for Disease Control and Prevention, or 3) Occupational Safety and Health Administration between March 1 and December 1, 2020.

You also can exclude from your employee headcount reduction anyone who:

  • was fired for cause
  • voluntarily resigned, or
  • voluntarily requested and received a reduction in hours.

Loan Repayment

If any portion of the loan is not forgiven, you must pay the money back within five years at an interest rate of 1% with no prepayment penalties. If you obtained your loan prior to June 5, 2020, the loan term is two years (instead of five) under the original PPP rules (although banks may be willing to extend this in accordance with the new PPPFA rules).

The deferral period for repayment was extended under the PPPFA to six months from the time the Small Business Administration makes it loan forgiveness determination. If you don't apply for loan forgiveness, then you must begin making payments ten months after the last day of the 24-week covered period.

Payroll Tax Deferral

If you obtain loan forgiveness, you will be able to delay payroll taxes through December 31, 2020. The original PPP rules didn't allow deferral of payroll tax after any portion of the PPP loan was forgiven.

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