Note: if you’re looking for Womply PPP loan status definitions, please visit our PPP loan status FAQs.
Important PPP update for 2021
On December 22, 2020, Congress passed a bill renewing funding under the CARES Act, including an additional $284 billion earmarked for America’s struggling small businesses. The rules and application process for PPP loans and forgiveness have been modified, with more businesses eligible for PPP loans, more expenses forgivable, and a simplified application process.
In this article:
- The government updated its application form for the Paycheck Protection Program loans as of 4/3/2020
- What changed?
- Where you can find help submitting your updated PPP application to an SBA-approved lender
The CARES Act, passed on 3/27/2020 established an (initially) $350 Billion stimulus package for American businesses, including the Paycheck Protection Program which will provide up to $10M, potentially forgivable loans to small businesses with fewer than 500 employees.
IMPORTANT UPDATE: On June 5, 2020, President Trump signed into law new updates to PPP loan forgiveness requirements, extending the covered period to 24 weeks, reducing the minimum loan funding that must be spent on payroll to 60%, and easing the requirements for maintaining staffing and compensation levels. Please read the details here.
Many businesses have been scrambling to apply or to find an SBA-approved lender, but it’s VITAL to note that if you completed your PPP loan application prior to 4/3/2020, you need to apply again using the new PPP application form.
You can re-use many of your original answers, but if you’ve already filled out your application using the form that was available prior to 4/3/2020, you do need to do it again.
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How did the 2020 PPP application form differ from the previous one?
Early on 4/3/2020, the SBA issued a brand new PPP application form. It has new questions, clearer instructions, and new rules.
- The interest rate on all PPP loans went up from 0.5% per year to 1.0% per year.
- The SBA added a couple of new questions to the application on US residency for employees and franchise status
- The SBA reduced the lookback period that would trigger an automatic loan disqualification based on a business Owner’s criminal record. The rule moved from a 7 year lookback to 5 years. This is intended to increase eligibility.
How has the 2021 PPP application been simplified compared to the 2020 form?
For 2021 the rules have been simplified, and the application form has been made easier. Find out the full details and see the new PPP application forms here.
Click here for our full list of FAQs about the SBA’s Paycheck Protection Program.
10 things you should know about the Paycheck Protection Program loan
What documents do I need to get an emergency SBA loan for my business?
Please see new PPP application here. We recommend at a minimum:
-
- W-9 Tax ID document
- Proof of being operational by 2/15/2020 (You may be able to confirm this with the payroll records from a period that includes 2/15/2020 or a payroll summary.)
- 2018-2020 tax returns (or latest available)
- Legal documents for your business (Charter, state licenses, Articles of organization)
- Payroll records for Jan 1, 2019, to present (Forms 940 and/or 941)
- A list of all owners with greater than 20% ownership stakes in your business
- Online banking credentials. This will be used to verify ownership if you are approved for a loan.
- Clean up your books. To apply for loan forgiveness in the future, you’ll need to document the expenses you pay during the eight week period after you receive an SBA PPP loan. Make sure you’re prepared to document expenses, including payroll, mortgage interest, and/or rent and utilities.
Do I have to pay back Paycheck Protection Program (PPP) loans?
The Paycheck Protection Program provides forgivable emergency loans.
The program is designed to save American jobs, so businesses are heavily incentivized to keep and rehire employees (and yes, for independent contractors, sole proprietors, and eligible self-employed individuals, you count as employees).
As a result, if you spend your loan on approved business expenses such as payroll (and a percentage can also go toward rent, mortgage interest, and utilities), then the government will forgive your loan so you don’t have to pay it back.
Forgiveness is based on the businesses maintaining current employment levels and/or quickly rehiring employees they may have had to let go due to the COVID-19 crisis, as well as maintaining salary levels. Forgiveness will be reduced partially or fully if full-time headcount declines, or if compensation decreases.
Go deeper: Here’s how to get your Paycheck Protection Program loan forgiven
Are all small businesses eligible for PPP loans?
Small businesses with 500 or fewer employees—including nonprofits, veterans organizations, tribal concerns, self-employed individuals, sole proprietorships, and independent contractors—are eligible.
Businesses with more than 500 employees are eligible in certain industries.
For second-draw loans, you must have fewer than 300 employees and meet certain other criteria. See details about second draw PPP loans here.
What do I need to do to receive a Paycheck Protection Program loan?
You will need to complete the Paycheck Protection Program loan application and submit the application with the required documentation to an approved lender that is available to process your application by August 8, 2020. (This deadline has been extended to May 31, 2021.)
We recommend completing and submitting your application as soon as possible because there is a funding cap and lenders need time to process your loan.
Do I need to first look for other funds before applying for a PPP loan?
No. The government is waiving the usual SBA requirement that you try to obtain some or all of the loan funds from other sources (i.e., the Credit Elsewhere requirement).
What can I use PPP loan money for?
You should use the proceeds from these loans on:
- Payroll costs, including benefits
- Interest on mortgage obligations
- Rent
- Utilities
- IN ADDITION, PPP loans in 2021 will now cover additional expenses, including operations expenditures, certain property damage costs, supplier costs, and worker protection expenditures
For more details see our PPP FAQ or read our article about what types of expenses are approved under the PPP.
How much can I borrow under the Paycheck Protection Program?
Loans can be for up to two months of your average monthly payroll costs from the last year plus an additional 25% of that amount. That amount is subject to a $10 million cap for first-draw loans, and $2 million for second-draw PPP loans.
Important update for 2021: businesses that fall under NAICS category 72 (food and accommodations) can apply for 3.5X their monthly payroll costs for SECOND DRAW PPP LOANS ONLY. Read more here.
If you are a seasonal or new business, you will use different applicable time periods for your calculation. Payroll costs are capped at $100,000 annualized for each employee.
How much of my PPP loan can be forgiven?
You will owe money when your loan is due if you use the PPP loan amount for anything other than approved payroll costs, mortgage interest, rent, and utilities payments over the 8 weeks (now up to 24 weeks) after getting the loan. NOTE: For 2021 PPP loans will cover additional expenses, including operations expenditures, property damage costs, supplier costs, and worker protection expenditures. See our PPP FAQs for details.
As of June 5, 2020, no more than 40% (previously 25%) of the forgiven amount may be for non-payroll costs. You will also owe money if you do not maintain your staff and payroll.
- Number of Staff: Your loan forgiveness will be reduced if you decrease your full-time employee headcount.
- Level of Payroll: Your loan forgiveness will also be reduced if you decrease salaries and wages by more than 25% for any employee that made less than $100,000 annualized in 2019.
What is my interest rate and how long do I have to pay it back?
1.00% fixed rate. All payments are deferred until you receive approval from the SBA on your application for loan forgiveness, or for 10 months after the last day of your covered period, and the loan is due in 5 years (previously 2 years) unless it has been forgiven under the terms of the PPP.
Do I need to put up any collateral for a PPP loan?
No. No collateral is required.
For a complete list of FAQs relating to PPP loans, click here.
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