Paycheck Protection Program


How Small Businesses Can Apply for Money You Don’t Have to Pay Back Ever with the Paycheck Protection Program

Last week, the President signed the CARES act (The Coronavirus Aid, Relief, and Economic Security Act).  Part of the CARES act includes the “Paycheck Protection Program” (PPP) for small businesses.  The PPP is a different program from the SBA Disaster Loans (EDIL) we wrote about earlier.  The PPP is truly an incredible program because it is a loan that doesn’t need to be paid back!

Below we will explain:

  • What are PPP loans?
  • How do I know if I qualify for the program?
  • What can the program be used for? (Qualified Costs*)
  • How do the PPP loans work?
  • What are the technical details of the loan?
  • How can this loan be forgivenL

What are Paycheck Protection Program Loans (PPP Loans or PPPLs)?

PPPLs are indeed loans, but when used for Qualified Costs*, you do not have to pay them back.

If you have a small business (or are self-employed), you may apply for a PPP loan. There is an 8-week period to apply the funds to Qualifying Costs*. As long as you do not reduce your staff or cut your staff’s salaries by 6/30/2020, then 100% of the loan can be forgiven.

For example, suppose your small business has an average of $100K in payroll every month. You receive a $250K PPP loan. During an 8-week period, suppose you use $200K for payroll and the other $50K for other Qualified Costs, equal to your PPPL. You will not have to pay back the loan!

PPPLs are made by lenders who are approved by the SBA and the Department of the Treasury. These are normally referred to a 7(a) Lenders, which includes most banks already offering SBA loans. There are hundreds of banks that are SBA lenders, so it could be a bank that you already use. You must apply directly with your bank and not with SBA.

How do I know I qualify for the program?

In order to qualify for a PPP Loan you must:

  • Be a Federally defined Small Business
  • If you are not a Small Business, you may qualify as an independent contractor, gig economy worker, and self-employed individual that is a US Citizen
  • Your business must have been in operation on February 15th, 2020
  • Application must be filed before 6/30/2020
  • You must make a good faith certification to the lender that “the uncertainty of current economic conditions makes necessary the loan request to support the ongoing operations”
  • Because the loan is from a bank, not SBA, they bank may have additional requirements
  • The first $349 Billion of loans are eligible for forgiveness

How do the PPP Loans work?

The bank will calculate your eligible loan amount by looking at  your average payroll costs over the last 12 months and then multiply that average by 2.5.  For example, if your payroll costs totaled $240,000, then $240K/12 = $20K average payroll per month. Then 2.5 * $20K = $50K, which would be your eligible loan amount. As long as you use those funds for payroll and Qualifying Costs* during an 8-week period, you will not have to pay the loan back.

What are the technical details of the loan?

  • ·         The  PPPL is calculated as 2.5 times the average monthly payroll costs of the business over the last year (with a maximum PPPL of $10,000,000)

  •    There are no prepayment penalties

  • Payments may be deferred for 6 months (and may be extended up to 12 months)
  • No collateral or personal-guarantee is required
  • Portions of the loan may be forgiven, as described belo

What can the program be used for? (Qualifying Costs*)

As long as the loan is only used for Qualifying Costs over an 8-week period, you do not have to pay back the loan. Qualifying Costs are:

  • Payroll costs (including payroll taxes)
  • Group health care and insurance premiums that are part of payroll
  • Rent
  • Utility payments (electric, gas, water, Internet, etc.)
  • Interest expense (on loans made before 2/15/2020)
Any portion of the loan not used for the above Qualifying Costs must be paid back

How can this loan be forgiven?

As long as the loan is used for Qualifying Costs over an 8-week period, you do not have to pay back the loan.  However, you must expressly request for forgiveness from your bank:

  • Forgiveness is based on the eight-weeks of qualified costs* you incurred after you received the loan.
  • Any amount of the loan that is forgiven will NOT be considered income
  • Forgiveness is NOT automatic, you must apply for forgiveness from your lender.
  • Any reduction in payroll or termination of your staff may result in losing part (or all) of the forgiveness.
  • Failure to maintain the average number of full-time employees may reduce the amount of loan forgiveness.

How do I apply?

Each bank has its own application process.  Most are using online application.

Others are requiring you to send in applications directly. 

You should check with your bank to see how each is handling the process.


If you own a small business and have payroll, it’s a no-brainer to apply for the Paycheck Protection Program loan.  It’s money that can be used to keep your staff paid during these uncertain times.