What Is the Paycheck Protection Program (PPP) Loan?

A Paycheck Protection Program (PPP) Loan is an unsecured personal loan that allows the borrower to pay back what they owe without giving up any of their cash or assets. It is a loan that is used by many state employees who have been impacted by the budget crisis. 

Paycheck Protection Program Loan Requirements

If you are employed in any of the following states, then you may be able to get a PPP loan: Alaska, California, Illinois, Minnesota, Missouri, New Jersey, and Texas. 

The requirements you need to prepare are:

1) The borrower needs to have a monthly salary that is $3000 or less to qualify for this loan. 

2) The borrower should be receiving a direct deposit since they can’t do an online application themselves when applying for the loan. 

3) Additionally, the borrower needs to have a bank account that has been open for at least six months.

How Do You Apply for One?

Before you start, you need to know that only four companies are offering PPP loans: ACE Cash Express, Check ‘n Go, Fort Worth Employees Credit Union, and First Investors Corporation. 

1) For a list of locations, visit the PPP website

https://www.sba.gov/funding-programs/loans/covid-19-relief-options/paycheck-protection-program

2) Submit list of requirements.

If your business is any of the following:

Corporation, Professional Corporation, General Partnership, LLC, Nonprofit

All businesses of this type should provide the following
  • Color copy of government issued ID (front and back)
  • Organizational Documents*
  • 2019 IRS Form W-3
  • 2019 IRS Form 940
If you have employees outside the US W-2s for employees living abroad
If you have employees making over $100,000 W-2s for employees making over $100K

*Examples of Organizational Documents include: Articles of Incorporation, Certificate of Existence, Certificate of Organization, State LLC Agreement, Certificate of Formation or Articles of Information

If your business is any of the following:

Sole Proprietorship, Independent Contractor, Self-employed, Single member LLC

If you have employees If you do not have employees
All businesses of this type should provide the following
  • Color copy of government issued ID (front and back)
  • 2019 1040 Schedule C**
  • 2019 IRS Form W-3
  • 2019 IRS Form 940
  • W2s for any employees earning more than $100,000
  • Payroll statement covering 2/15/2020
  • Color copy of government issued ID (front and back)
  • 2019 1040 Schedule C**
  • Substantiation of self employment
    • 1099-MISC for Independent Contractors
  • 2020 invoice, bank statement or book of record to establish you were operating effective
    2/15/2020

3) Once you have applied and been approved by one of these four companies, log onto your bank account to find the loan repayment information. 

In some cases, the funds are automatically deducted from your paycheck on a bi-weekly basis. Other times, you are required to repay them on a monthly schedule.

Difference Between PPP Loans and Other Unsecured Personal Loans

A PPP loan is much like any other unsecured personal loan in that it is taken out by an individual who needs to borrow money, but it is different because it’s for state employees. 

The main difference between a PPP loan and other unsecured personal loans is that it doesn’t require borrowers to give up any of their cash or assets. 

The reason why this loan has been offered is that many state employees have been impacted by the budget crisis in their states, so they can no longer give out paychecks to state employees. 

In some cases, the state has been late with payments to its employees. In other cases, state employees have been let go as their companies downsized and/or lost government contracts. 

Benefits of Getting a PPP Loan

A PPP loan is good for people who need short-term help with an emergency expense since the loans are paid back in just 90 days or less. 

1) The main benefit of getting this type of loan is that it doesn’t require any collateral and doesn’t require the borrower to give up any of their cash or assets.

2) The loan is unsecured, so it can be used for almost anything. 

3) No credit check and easy withdrawal.

4) It’s an easy way to obtain money quickly. 

5) Unlike some other types of loans, it has competitive interest rates that are fixed and there are no hidden fees or charges.

Benefits_of_Getting_a_PPP_Loan

Risks and Drawbacks of Getting a PPP Loan

1) Since this is an unsecured loan, you are required to repay the entire amount that has been borrowed even if you only need it for a short period. 

2) If you cannot repay the money when your next paycheck comes in, you could end up with late fees and other types of charges. 

3) You may need to provide pay statements or proof that you are employed to apply for this loan. If this information is not supplied, then the process will take longer than normal.

4) The interest rates for PPP loans can be higher than competitive loans.

5) In some cases, you will need to make a minimum number of direct deposits for this loan to be approved.

6) Your employer needs to agree to the loan before it’s processed, which can take longer than other loans. 

Is PPP Loan Right for You?

It is important to understand that this loan is not for everyone. 

1) The money comes out before your next payday, which means you need to budget the money differently.

2) If you are worried about whether you can pay off the entire amount then it’s probably not a good idea to get this type of loan. 

3) If you are concerned with the interest rates then compare them to other types of loans before accepting one, especially if the loan is only used for a short-term reason.

4) Always make sure to read everything that’s stated on the PPP website so you know all of your rights and responsibilities. 

5) Remember that this is a very short-term loan, so you should have a plan to pay off the entire amount as soon as possible. If you can’t, then you will face a lot of extra charges and/or penalties that will cost more than the original loan itself.

6) For those who qualify and are ready to apply for one of these loans, it’s a good option that can help you in a time of need. 

Key Takeaways

In conclusion, PPP loans are short-term loans that have been offered to state employees, so they do not have to worry about budget issues from their employers.

Since these workers receive paychecks on a bi-weekly schedule, the loan comes out before their next payday. 

They can use the money for almost anything, there’s no credit check, and it is unsecured. 

The most notable drawbacks are that there could be longer processing times than most other loans and the interest rates might be higher than competitive rates. 

However, these types of loans can be very helpful when someone faces a short-term emergency and needs the money quickly. 

If you qualify for one of these loans, then it can be a great option when in need.

A paycheck protection program loan is a type of personal loan offered to state employees.
The interest rate on these loans can be as low as 4.99%.
You must have been employed by your company or state for at least three months.
This loan is good for almost anything, but it's best if you have a plan to pay off the full amount as soon as possible.
You should be able to obtain funds from a PPP loan in as little as 24 hours.

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.