If you’ve worked for a small business, you’ve probably heard the term “PPP loan” thrown around and are curious how they affect you or the business you work for. What is it? Why would anyone want one? The short answer is that they have helped many businesses stay afloat. But how?
What is a PPP loan?
The place to start is with PPP, which is the Paycheck Protection Program. It is funded by the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), which was passed in 2020 to combat the economic hardships facing businesses due to COVID-19.
Through the PPP, the United States Government provides low-interest loans with the hopes of preventing layoffs and business closures by helping businesses compensate their workers and cover costs associated with functioning.
What Are the Terms?
Calling them low-interest is no joke, as the interest rate clocked in at 1%. No collateral was necessary to apply, and it was against the rules for lenders to charge fees for processing the loans.
Those eligible for PPP loan application could apply for a loan tailored to cover two and a half times their average payroll costs, up to $10 million (reduced to $2 million on the second round of loan applications). Payroll costs included things like taxes, benefits, and paid leave.
Who Are PPP Loans For?
The little guy, essentially. As long as they were open for business before February 15, 2020, and met size and associated financial restrictions, eligible applicants were: small business owners, tax-exempt nonprofits, indigenous-owned businesses, proprietorships (businesses that consist of a single person), and other self-employed individuals. During the second round of loan applications, businesses in hospitality and food service were allowed to apply, so long as they had fewer than 300 employees.
There were several restrictions, but those most pertinent to small business owners were if they had been charged with a crime, had been going through bankruptcy before February 15, 2020, or if they were an undocumented citizen they were ineligible for a PPP loan.
Can You Still Enroll?
Unfortunately, no. The program closed down on May 31, 2021.
Can They Be Forgiven?
Yes! Many businesses had their loans forgiven entirely by:
- maintaining the size of their pre-pandemic workforce
- spending 60% or more of the loan on payroll expenses
- spending 40% on rent and other business-related expenses
Business-related expenses aren’t weekly pizza parties or new cars for the owners, but costs related to property damage acquired during shuts downs or periods of protest, building utilities and costs associated with operation, pre-existing payments on a mortgage and to suppliers, and PPE (personal protective equipment) for employees.
The catch here is that to be eligible for forgiveness, the loan couldn’t be hoarded or saved for a rainier day. It had to be spent during the first 24 weeks of borrowing, and documentation of spending had to be provided.
PPP loans have helped many businesses keep their doors open in uncertain times. While they can be a lot to take in at first, they have made the future a little bit brighter for small businesses and their workforces.