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What Are PPP Loans? And How Do They Help Small Businesses?
The Paycheck Protection Program, or as we popularly call it, PPP, was a colossal federal program that paid a total of $790.0 billion US dollars in the form of small business loans during the pandemic period.
The PPP Act was the instigation of the program and allows for this huge amount of money to be forgiven so those businesses that receive it don?t have the burden to pay it back. Since the end of the program on 31st May 2021, almost $661.5 billion has been forgiven as a whole.
If you received a PPP loan as well and you have yet to apply for forgiveness, the option is still open. Though there are certain boundaries on exactly what expenses the Fed will forgive, most of the businesses will still be able to write off some of their debts from the PPP loans.
If you want to know more about what are PPP loans, stay with me till the end of the article as I disclose some of the intricate details about the Paycheck Protection Program loans.
Key Takeaways
- The Paycheck Protection Program is a federal program that was designed to support smaller businesses during the COVID-19 pandemic.
- If you are one of the recipients of a PPP loan, you may still be able to apply for forgiveness. If they grant it, you will not have to repay the loan.
- You may check if you fall under the eligibility criteria for PPP forgiveness and then apply for it as soon as you can.
- All recipients of PPP loans may apply for forgiveness through their lenders.
- If your PPP loan was less than $150,000, you may request the SBA for the forgiveness of the loan amount.
What Are PPP Loans And What Is It Used For?
PPP loans came as a blessing during a time when businesses were facing one of the toughest times in history. The PPP loan was a loan for small businesses that were affected by the COVID-19 pandemic.
The PPP loan acted as a helping hand to recover the lost costs of the businesses. You may also use it for payroll. This was the primary goal of the Paycheck Protection Program.
The PPP loans have three funding categories at the time of the third and ultimate PPP loan rollout.
First Draw Loans
This means that the applicant did not receive any funding during the initial two rounds of the existing PPP. This may be because the business did not qualify during that time. Or maybe the business did not even submit the PPP application. The draw was an opportunity for those businesses that missed out on the first chance of applying.
Second Draw Loans
These are what they call the double dippers! Certain businesses gathered funding during the first or the second rounds. However, that was not enough. The businesses that suffered terribly throughout the whole year were able to apply for the extra funding when the second draw came up. There was a limited loan amount of $2 million for the applicants of the second draw, as most of the funding was concentrated on the first draw. Everyone had the opportunity for a second chance.
Special Cases
The third category, or the special cases, was for those applicants who returned or did not get the full amount of their first PPP loan.
Terms And Conditions For PPP Loans
Here are the terms and conditions that applicants had to abide by in order to apply for a PPP loan:
Every PPP loan comes with a 1% fixed rate of interest.
If the applicant receives the loan before 5th June 2020, it will mature within two years. If it was given after 5th June 2020, it will take five years to mature.
You would not need any personal guarantee or collateral for the loan.
These loans are forgivable.
The government and the lenders may not charge the small businesses any fees. This comes as a guarantee.
Who May Apply For The PPP Loans?
Every funding category has to meet these given requirements to be able to secure funding:
- The business has to be functioning before 15 February 2020.
- The business has to belong to any one of these categories:
- Small-medium sized businesses with fewer than 500 employees
- Food services with fewer than 500 employees, e.g. cafes and restaurants
- Accommodation services with fewer than 500 employees, e.g., hotels
- Independent contractors
- Self-employed individuals/solopreneurs
- Sole proprietors of limited companies
- Gig workers
- Tax-exempt non-profit organizations
- Independent franchises, and not conglomerates
- Independent news organizations with fewer than 500 employees
- Housing co-ops with less than 300 employees
Additional requirements for the second draw were:
- The business must have less than 300 employees.
- The business must be able to prove a total of 25% decrease in their revenue generation during the first quarter of 2020.
PPP Loan Forgiveness Through SBA
If you got a PPP loan before the end of the program on 31st May 2021, you may apply for forgiveness of the PPP loan till the maturity date of your business. The maturity date for the loans that were generated before 5th June 2020 is two years, while the same is five years for those loans that were generated after that date.
However, you may apply beforehand or as soon as the cover period ends. It is best to apply as early as possible, as you may have to start paying back the loan 10 months from the end of the cover period.
The vast portion of these loans were for amounts less than $150,000. If the loan you received falls under this category, you may apply for forgiveness through your lender or directly from the Small Business Association of the United States if the lender was among the 1,400 lenders that were a part of the Direct Forgiveness Program of the SBA.
If you want to apply for forgiveness via SBA, you must visit the PPP Direct Forgiveness Portal of the SBA. During the process of forgiveness, you will have to fill out the SBA Form 3508S. You will not have to tell SBA where you spent these funds, and if this was your first loan, you will not even need to submit any other documentation.
Eligible Expenses For The PPP Loan Forgiveness
While most of the expenses will be forgiven, here are some of the eligible expenses where you must spend the PPP loan.
- Operating costs
- Payroll costs
- Supplier costs
- Worker protection
- Property damage
The Bottom Line
By now, I am hoping you know what are PPP loans and how they operate. The Paycheck Protection Program was primarily a federal program that was designed to back small businesses during the COVID-19 pandemic. If your business is one of the receivers of a PPP loan, you may still be able to apply for loan forgiveness.
Upon the grant of forgiveness, you will not have to repay the loan. Therefore, you must apply for a PPP loan forgiveness as soon as you can.
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