The Paycheck Protection Program (PPP) is nothing but a loan program that originated under the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Its intention is to help businesses with less than 500 employees that keep working on the payroll during the COVID-19 pandemic. It extends loans up to $10 million that can be forgiven if employers keep paying to their workforce.
The funds are primarily for payroll purposes but can also be used to cover rent, mortgage interest, or services. A part of the funds $60 billion distributed to lenders who don’t have an established banking partnership so underserved areas aren’t left out. An additional $60 billion is given by Economic Injury Disaster Loans (EIDL).
Highlights of Paycheck Protection Program
- All small businesses are eligible
- The loan has a 2-year maturity period and a 1% interest rate.
- Any need to make the first six months of loan payments.
- The loan may be repaid and may effectively become a non-taxable grant.
- No collateral or personal guarantees required
- No fees
- The loan covers expenses for eight weeks starting from the loan origination date (if obligations began before February 15, 2020)
In order to avail of the PPP loan benefits, there are certain preparations required. The below-mentioned tips help you to navigate and prepare includes:
What to do and don’t for the Paycheck Protection Program process
Do prepare now and can apply early
Funds are likely to be rapidly exhausted again.
- If you have already applied for a PPP loan and you have not obtained an SBA approval number, continue working on the next steps with your current lender. Those applications may be kept by your lender until the additional funding is provided, so you may not require applying again.
- Determine your eligibility if you have not yet applied as well as determine your PPP loan amount and then apply (preferably to a lender with whom you have an established banking relationship).
Gather all the items that are likely required for the application
Here are some of the important items that lenders require and these include:
- For companies with employees: You may require payroll records or IRS Form 941 for 2019, and health insurance premiums of 2019
- For sole proprietors or self-employed: You may need IRS Form 1040 Schedule C as well as Profit/loss statement
- For independent contractors: You require IRS Form 1099-MISC.
Work through your existing bank relationship
Banks prefer to first target their current clients and it’s the best chance to get sponsored. Stay in regular touch until your loan has been accepted, and try not to miss out on credit calls or emails.
Need to Understand the Program Loan Terms
PPP loan applicants are required to auto-certify that they genuinely need the loan “in good faith.” This shouldn’t present a problem for small businesses but could be problematic for large corporations operated by public entities and subsidiaries with sufficient resources to fund continuing operations.
As part of your application, you may also be asked for verification includes:
- Present economic instability necessitates the loan to finance your continuing activity.
- The funds would be used to attract employees and manage salaries, or make payments for mortgages, rentals, and services.
- Under this program you have not received or not allowed to receive any other loan.
- Documentation confirming the number of full-time equivalent workers on payroll and payroll dollar amounts, covering mortgage interest payments, covering rent payments, and covering services for eight weeks after receiving this loan.
- Once you acknowledged the tax documents that the lender determines the amount of the qualifying loan using the tax documents you have submitted. You affirm that the tax records are the same as those you send to the IRS.
Keep good records of how funds from all programs under the CARES Act are used
Proceeds from the services PPP and EIDL have to be used for various expenses. There are concerns as to how all the various services under the CARES Act communicate with one another. Company owners must be careful of double-counting expenditures.
Consider applying for a PPP and EIDL loan
If the proceeds are to be used for various purposes, as EIDL funds are more versatile, this should be relatively easy to accomplish. They can be used for general work resources, and come with the option of a forgivable bonus of up to $1,000 per employee (up to $10,000).
Don’t accept multiple loans
You are only allowed to have one Paycheck Protection Program loan. Once your loan is approved then you must withdraw the other application that you have with multiple lenders.
Loans from the Paycheck Protection Program are quite extensive than loans from the SBA recovery program. Small companies, sole ownerships, independent contractors, and people who are self-employed may all apply. But there are certain things required to prepare for the Paycheck Protection Program as well as terms that should meet.