Paycheck Protection Program (PPP) Loan Guide

The Paycheck Protection Program Loan (PPPL) is a loan from the Small Business Administration created to help small businesses keep their employees on their payrolls during mandated closures and social distancing orders.

The program offers relaxed requirements and a simple application in order to provide quick liquidity to small businesses.

The federal government has stated that the loans are forgiven if borrowers use the money as intended. 

The recently passed Paycheck Protection Program Flexibility Act (PPPFA) changed many of the rules, largely to be more flexible. It is now possible for individuals to refinance their PPPL loans because of PPPFA.

Refinancing PPP loans enable borrowers to save money because the new, lower 1.0% annual interest rate applies to existing loans. 

Thus, for borrowers who can refinance their existing PPP loans, it’s likely that they will receive more value than what they paid for the loan in the first place.

Paycheck Protection Program Loan Qualifications

The Paycheck Protection Program Loan (PPPL) is only available to small businesses that meet certain criteria:

Businesses with 500 or fewer employees.

The PPPL was created to help small businesses keep their employees on their payrolls during mandated closures and social distancing orders. Businesses with more than 500 employees are not eligible for the loan.

Small businesses, S corporations, C corporations, LLCs, private nonprofits, faith-based organizations, tribal groups, and veteran groups.

The loan is available to a variety of business types that may not have access to traditional financing. 

Restaurants and hospitality businesses may qualify if they have 500 or fewer employees per location. 

Restaurants and hospitality businesses are eligible for the loan if they have 500 or fewer employees per location. This clarification was added in response to the PPPFA, which loosened certain restrictions on employers.

What Can You Spend a PPP Loan On?

The Paycheck Protection Program Loan (PPPL) is designed to help small businesses keep their employees on their payrolls during mandated closures and social distancing orders. Thus, borrowers can use the money for any of the following purposes:

Payroll

Payroll is one of the primary purposes for which the PPPL was designed. Thus, businesses can use the loan to pay their employees’ salaries, even if they are not currently working. 

Businesses can utilize the loan to pay their employees’ salaries for the weeks leading up to and following a mandated closure or social distancing order.

Mortgage interest

PPPL loans can also be used to pay mortgage interest. This is helpful because it allows businesses to continue making their mortgage payments, even if they are not generating income from their business.

Rent

Businesses can also use the PPPL to pay rent. This is important because it allows businesses to keep their office or storefront open, even if they are not currently generating income.

Utilities

Businesses can also use the loan to pay for utilities. This is helpful because it allows businesses to continue using essential services, even if they are not generating income.

The key is that the money is used for one of the four approved purposes to apply for the loan forgiveness.

PPP Loan Forgiveness Criteria

The following are the criteria under which a PPPL loan can be forgiven:

Borrowers have 24 weeks after receiving their loans to spend the loan proceeds.

  • You must make sure at least 60% (down from 75%) of your loan proceeds go toward payroll.
  • Wages are limited to annual salaries of $100,000 per employee.
  • Loans cannot be used to repay debt from other government programs.
  • You must maintain your full-time equivalent workforce for the entire term of the loan.
  • The salary limit applies only to cash compensation, which means it does not include non-cash benefits such as retirement plan contributions or health insurance.
  • If less than 60% of proceeds go towards payroll, then eligibility will reduce significantly and may not qualify at all.
  • To calculate employee payroll costs accurately, do not include independent contractors who are eligible for their own PPP loans.
  • Employees who live outside the U.S. are not included.

The Benefits of Paycheck Protection Program Loan

The Paycheck Protection Program Loan offers a number of benefits for small businesses. Some of these benefits are:

  • The loan offers guaranteed business continuation.
  • The loan allows businesses to continue providing for their employees, even if they are not generating income
  • The PPP Loan is designed to help small businesses keep their employees on their payrolls during mandated closures and social distancing orders
  • The loan can be forgiven under certain criteria
  • The loan has low-interest rates and no fees

Final Thoughts

The Paycheck Protection Program Loan is an important resource for small businesses during these difficult times. 

It offers guaranteed business continuation, allows businesses to continue providing for their employees, and has low-interest rates and no fees. Forgiveness criteria are also lenient, making it easier for businesses to qualify.

Further, the PPP Loan can be a vital tool for businesses struggling to make ends meet. If your business is having problems financially and you are not currently generating income, the Paycheck Protection Program Loan may be a good option for you.

Paycheck Protection Program Loan FAQs

The Paycheck Protection Program Loan is a loan that small businesses can take out. The funds from the loans are intended to help small businesses during mandated closures and social distancing orders, and other periods of economic hardship.
Small businesses that the COVID-19 pandemic has impacted are eligible for the loan. The business must not be more than 500 employees.
A Paycheck Protection Program Loan can be used for several purposes. These include payroll, mortgage interest, rent, and utilities.
The following are not eligible for the loan: businesses with more than 500 employees, independent contractors who are eligible for their own PPP loans, and employees who live outside of the United States.
The amount of money that a business can borrow varies depending on the size of the business.

Disclaimer: The above references an opinion and is for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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.