What is a Paycheck Protection Program (PPP) Loan?

Even though the Paycheck Protection Program closed to applications on August 8, 2020, you may still be in search of information.

For example, if you took out one of these loans, you may have questions about the terms and conditions. Or if you’re interested in a PPP loan in the future – should it be available – it’s always good to have an idea of how to take advantage.

There are two primary details of a PPP loan that you should become familiar with:

  • The Paycheck Protection Program is designed with the idea of giving companies incentive to keep workers on their payroll.
  • The U.S. Small Business Administration (SBA) will forgive the loan if employee retention meets the predetermined criteria and funds are used on eligible expenses.

Loan Details

Now that we have the basics out of the way, let’s dive into some of the more important details associated with the Paycheck Protection Program.

Here’s an excerpt direct from the SBA website:

The loan will be fully forgiven if the funds are used for payroll costs, interest on mortgages, rent, and utilities (due to likely high subscription, at least 60% of the forgiven amount must have been used for payroll).

The above is what made PPP loans so popular.

It’s one thing to offer a small business loan with excellent terms. It’s another thing entirely to create a loan program that offers forgiveness if all requirements are met.

Here are the details of a PPP loan:

  • PPP loans have an interest rate of one percent
  • Loans issued after June 5, 2020 mature after five years
  • Loans issued before June 5, 2020 mature after two years
  • No personal guarantee or collateral is required
  • There are no fees (not imposed by the lender or the government)

Qualifications

Not every business qualifies for a Paycheck Protection Program loan. One or more of these criteria must be met:

  • A small business that meets the SBA’s predetermined size standards, based on either its industry or an alternative method of calculation.
  • Self-employed individuals, independent contractors, and sole proprietors.
  • Any business, 501(c)(3) non-profit organization, 501(c)(19) veterans organization, or Tribal business with either 500 or more employees or less than 500 but still meets the minimum industry size.

Final Thoughts on Paycheck Protection Program Loans

At this time, applications for PPP loans are closed. However, you never know what the government will decide to do in the future, so you may qualify for a loan at some point down the road.

For those who secured a PPP loan the first time around, pay close attention to everything you must do to obtain forgiveness.

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