PPP Basics

Basics on the Payroll Protection Plan (PPP)

While the Payroll Protection Program application process may seem overwhelming, there are some PPP basics that can help you through the process.

What is the Payroll Protection Program (PPP)?
The PPP is a brand-new loan program created by the CARES Act in response to the COVID-19 crisis.

How much money is available for loans under the PPP? (Or, when does the PPP program run out?)
The CARES Act funded the PPP with $349 billion. The window to apply for the PPP closes either when the $349 billion runs out (on a first-come-first-served basis) or on June 30, 2020—whichever happens first.

(Note: At the time of this writing, some Congressional leaders are advocating additional dollars toward the PPP, but that proposal has not been enacted into law.)

What interest rate applies to PPP loans?
The interest rate is 1.0%.

(Note: This figure changed several times as the PPP was being rolled out, but it has settled on 1.0%.)

What is the maturity date for PPP loans?
The maturity date is two years, beginning when a PPP loan is made.

(Note: This figure changed several times as the PPP was being rolled out, but it has settled on two years.)

Does the business owner need to guarantee the PPP loan personally?
No personal guarantee is required.

Does the business owner need to provide collateral for a PPP loan?
No. The Small Business Administration (SBA) has waived the traditional collateral requirement for PPP loans.

Does an applicant need to have tried and been unsuccessful in obtaining credit elsewhere?
No. The SBA has waived the traditional requirement that an applicant has been unsuccessful in obtaining credit elsewhere.

What businesses are eligible to obtain PPP loans?
Generally, businesses that employ no more than 500 employees. This includes sole proprietorships, self-employed individuals, and most non-profit organizations.

However, some businesses can be eligible even if they have more than 500 employees, as long as they satisfy the existing statutory and regulatory definition of a “small business concern” under section 3 of the Small Business Act, 15 U.S.C. 632. A business can qualify if it meets the SBA employee-based or revenue-based size standard corresponding to its primary industry. Go to www.sba.gov/size for the industry size standards.

Additionally, a business can qualify for the Paycheck Protection Program as a “small business concern” if it met both tests in SBA’s “alternative size standard” as of March 27, 2020: (1) maximum tangible net worth of the business is not more than $15 million; and (2) the average net income after Federal income taxes (excluding any carry-over losses) of the business for the two full fiscal years before the date of the application is not more than $5 million.

If in doubt, contact your SBA-approved lender.

Can independent contractors apply for PPP loans?
Yes. While the PPP regulations clearly state that businesses cannot include independent contractors in their payroll calculations, it also states that independent contractors can apply separately for their own PPP loans starting on April 10, 2020.

How do you calculate the number of employees to determine the employee-based size limits?
Borrowers may use their average employment per pay period over the 12 months prior to the loan application date, or during calendar year 2019, to determine their number of employees.

(Note: Some lenders seem to be emphasizing using calendar year 2019 data.)

Can companies that have private equity or venture capital ownership/investments obtain loans under the PPP?
Potentially. The answer will depend on the type of investment and the degree of control held by the PE or VC organization. Contact your SBA-approved lender.

How do the $10 million cap and affiliation rules work for franchises?
If a franchise brand is listed on the SBA Franchise Directory, each of its franchisees that meets the applicable size standard can apply for a PPP loan. (The franchisor does not apply on behalf of its franchisees.) The $10 million cap on PPP loans is a limit per franchisee entity, and each franchisee is limited to one PPP loan. Franchise brands that have been denied listing on the Directory because of affiliation between franchisor and franchisee may request listing to receive PPP loans. SBA will not apply affiliation rules to a franchise brand requesting listing on the Directory to participate in the PPP, but SBA will confirm that the brand is otherwise eligible for listing on the Directory.