Paycheck Protection Program is a credit scheme established by the Coronavirus Aid, Relief, and Economic Security Act (CARES). The Small Business Administration (SBA) funds the loans. PPP offers loans to help companies retain their workers during the Coronavirus crisis.
It was initially a $350-million initiative, to help small enterprises with federally assured cash-flow assistance for 8 weeks. However, an additional $310 billion funding was added. Some changes made in the program include the extension of time to spend the funds.
Later, Funding expanded by $285 billion more, and the qualifying expenses were revised. The second stimulus package includes these amendments to complement the initiative. The updation also opened a second PPP loan for companies that exhausted their first PPP loan and saw a drop in revenues of 25% or more.
Second draw PPP loans, including incentives, allows supporting payroll expenses. It also approves for payment of mortgage rent, electricity, COVID-19 costs of worker safety, costs incurred by looting or vandalism in 2020 for uninsured property losses, and costs for some suppliers and operating activities.
Qualifiers for the Paycheck Protection Program
- Companies that started their operations on February 15, 2020, and require loans due to current economic instability.
- Companies that did not earn any financial assistance from PPP in the last round. This particularly includes women and minorities, as well as non-profit and cultural centers.
- Although the requirements of the qualification for first-time applicants remain unchanged. The companies applying for credit again only qualify for the second loans if they operate with 300 or fewer workers. Or can demonstrate substantial losses.
- Businesses in the food and hospitality industry are eligible for the loan only if they have 500 employees or less per physical location.
- Sole proprietors, independent contractors, private non-profits, and veteran organizations also need 500 employees or less.
Those not eligible for PPP:
- Multi-level marketers – A company that sells products and services in a pyramid-like commission system through an unemployed workforce.
- Lobbyists in politics and strategy – Lobbyists are special advocates working on behalf of individuals and organizations to influence government decisions.
- Religion-promoting businesses – Businesses that encourage any particular religion or community.
- Those which limit patronage – Patronage is the support, encouragement, privilege, or financial support to another by an organization or person. Eg: health clubs for men only.
- Gambling and marijuana firms
- Enterprises that loan, invest, or speculate– Examples of such enterprises are banks and investment companies.
- Passive firms – Examples of these firms are landlords or businesses that do not manage their operations.
- Employers in households – People who hire help for household purposes. Eg- those employing housekeepers and nannies
- Companies engaged in prurient sexual goods
Loan Terms under Paycheck Protection Program
- There is no need for personal assurances or collateral.
- No “other credit testing”.
- The loan interest rate is 1% and will commence on receipt of your loan.
- No costs or fines for prepaid payment.
- Loans against owners/shareholders are non-recourses if only used for permitted purposes.
- PPP Flexibility Act defines the loan maturity period of 5 years.
Dates to apply for the loan
From 13 January 2021, until 31 March 2021, a loan of the Second Draw PPP may be requested. SBA currently accepts applications from participating lenders for Second Draw PPP credit.
Loan Forgiveness Application
Loans obtained by PPP beneficiaries may be liable for loan forgiveness in an equal amount of the costs and payments made within the coverage period. Submission of PPP Loan Forgiveness Application to your lender is necessary. Loan principal payments, interest, and fees may be deferred until the lender receives the loan forgiveness amount.
Lending made after 5 June 2020 will include a five-year loan term. Whereas, the loans made before 5 June 2020 have a two-year limit. But the borrower can renegotiate the maturity period up to 5 years. You must apply to the same lender loan for the forgiveness of the loan that approved your loan before.
Borrowers must apply for redemption within 10 months of the end of the covered period. So that, they do not need to start repayment of any unforgiven portion of the PPP loan. Moreover, at least 60% of the loan’s proceeds must be used for payroll to maximize loan forgiveness.
The federal government provides opportunities to small businesses to apply for financial relief. The chaos and loss caused by the COVID-19 pandemic led to the closing of businesses, reducing employees. The maximum debt amount of a Second Draw PPP Loan for most borrowers is 2.5 times the average monthly payroll expense of up to $2 million in 2019 or 2020. The maximum loan sum for a Second Draw PPP Loan for borrowers in the food and accommodation services sector (use NAICS 72 to confirm) is 3.5 times the total monthly payroll costs of up to $2 million in 2019 or 2020.
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