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How Do I Apply For A Paycheck Protection Loan

The Paycheck Protection Program or PPP is a loan that is designed to provide an incentive for small businesses and others to keep their employees on the payroll. Some borrowers are even eligible for PPP loan forgiveness, depending on their circumstances. 

This loan program is a $953-billion business loan program that the United States federal government established through the Coronavirus Aid, Relief, and Economic Security Act, also known as the CARES Act. How Do I Apply For Paycheck Protection Program Loan

The CARES Act Provides Assistance to Small Businesses

The Paycheck Protection Program allows entities such as small businesses, self-employed workers, and nonprofit organizations to apply for low-interest private loans. These loans are to cover the cost of their payroll as well as certain other costs. The loan amount is approximately equal to 2.5 times the applicant’s average monthly payroll costs. In some cases, some applicants may receive a second draw.

The loans can be used for several things, including payroll. Other bills paid using the loan could include rent and utilities. The loan may be forgiven if the business can keep its employee count and wages stable. The Small Business Administration implemented it.

 SBA Paycheck Protection Program (PPP) Loans

The SBA is working to ensure that everyone who is eligible has fair and equitable access to its programs and the loan. The SBA is currently offering the PPP loans until May 31, 2021. The SBA also provides free counseling and training events to help those interested in the Paycheck Protection Program. 

Once your loan is approved, meaning the SBA assigns you a loan number, you should have your funds within ten business days. In general, the timeline for a PPP loan is about two weeks from when you submit an application to the time the lender disburses the funds to you. 

PPP Loan Info

A quick breakdown of the loan, if you spend the funds on the approved expenses such as payroll, operating expenses, you can have 100% of the loan forgiven if you apply within the first ten months. There are no fees or a cost to apply for the PPP loans. It is 100% free to apply and get the funding. There is no personal guarantee collateral, credit check, or criminal check required to receive the loan for most loans. However, credit history can help lenders with determining a loan. The interest rate for all PPP loans is set at 1% and matures in 2 years. The average PPP loan amount is about $107,000

 Businesses with Employees

The Paycheck Protection Loan was established for a business with employees to cover their payroll costs during the COVID outbreak. Business owners can apply for loans through SBA-approved private lenders, credit unions, and fintech companies. 

It is essential to remember the PPP loan’s primary purpose is to maintain and rehire employees. With this being said, you must show that you spent at least 60% of the loan doing this.  A small business is considered a business with 500 or fewer employees. Some businesses with over 500 employees are eligible, depending on the industry. 

 Contractors and other Businesses without Employees

Independent Contractors and self-employed individuals may still be eligible for the PPP loans.

You are eligible to apply if:

  • You were in operation on February 15, 2020
  • United State is your primary residence
  • You filed a Form 1040 Schedule C for 2019 taxes showing self-employment income.
  • If you are a contractor or self-employed, you can use the PPP loan funds to replace your compensation based on your 2019 income.
  • Pay interest payments on a mortgage or auto loan that you use to perform your business.
  • Make rent payments for your business
  • Make utility payments for your business
  • Make interest payments on debts made before February 15, 2020, but this will not be eligible for loan forgiveness. 

Ineligible Borrowers

The following borrowers can be ineligible for the PPP loans:

  • If they are engaged in illegal activity under federal, state, or local law
  • Individuals who employ household members such as nannies and housekeepers
  • If 20% or more of the employer’s owners are incarcerated, on parole, or subject to a criminal indictment. This includes conviction of a felony within the last five years or one year if non-financial.
  • Business not in operation on February 15, 2020
  • A business that has received or will receive a grant under the Shuttered Venue Operator Grant Program.
  • A direct or indirect controlling interest in a business is held by the president, vice president, head of executive departments, congress members, or any of these individuals’ spouses.
  • Publicly held company
  • A business that is closed permanently.

If you have any questions about if you are eligible or not, ask your lender, and they can have more guidance on your situation.

 First and Second Draws

Initially, the paycheck Protection Program was intended for only one loan per EIN. However, revisions have been made, and if you have already received PPP funding and can qualify, you may be eligible for a “second” draw loan. The first draw for all applicants will have the same term regardless of what lender or borrower is used. Borrowers can apply for the first draw until March 31, 2021, through any SBA lender, credit union, or non-bank lender. 

Existing PPP loan borrowers that did not meet loan forgiveness by December 27, 2020, may reapply for a first draw loan. They must a- return some or all of the PPP funds, and b- under some circumstances, they can request to modify their loan amount if they did not accept the total amount. The second draw or the round of PPP loans is meant for harder-hit businesses that received the first draw in 2020. Businesses are eligible for a second draw if they meet specific criteria that we will discuss later. 

 First Draw Applicants

If you have not received a PPP loan before, the First Draw PPP loans are available. When applying for the first draw on the PPP loan program, you must be eligible. Eligible applicants are small entities that have 500 or fewer employees. This includes nonprofits, veteran organizations, tribal concerns, self-employed, sole proprietorships, and independent contractors.

 Second Draw Applicants

If you have previously received a PPP loan, you can look into the second draw. When applying for a second draw, the business should have done the first draw of the PPP loan funding in 2020. The business may not employ more than 300 employees. They should have used or will use the total amount they received from the first draw. Must also demonstrate at least a 25 percent reduction in gross receipts in the 1st, 2nd, and 3rd quarter of 2020 compared to 2019. 

First-Draw vs. Second-Draw Loans

You can see the most significant difference between the first and second draw is you have to receive the first draw to apply for the second draw. The other difference is with the first draw you needed less than 500 employees with the second draw this has been decreased to 300 employees. 

Another significant difference is that first draw PPP loans were capped at $10 million per borrower based on the payroll costs in 2019. With the second draw of PPP loans, a cap of $2 million per borrower is based on the 2019 or 2020 payroll. First draw loans were also subject to a $20 million maximum for businesses that were part of a single corporate group. In comparison, the second draw is subject to a maximum of $4 million. 

 PPP Round 3 General Terms and Conditions

The passing of H.R. 133 authorized a third-round of the Paycheck Protection Program loans: Consolidated Appropriations Act, 2021 into law on December 27, 2020. The administration team made changes to President Biden, and the changes provide some assistance to very small businesses and previous individuals who were underserved. Round 3 funding of $284 billion expands the PPP goals for providing loans to businesses for payroll and other costs to help the company remain viable. 

 Applying For A New PPP Loan

When applying for a new Paycheck Protection Program loan, you should apply with a lender. Some lenders have websites where you can fill the application out online, or you may have to go into a local office and meet with a lender. 

The application process should be pretty easy but may seem overwhelming at times. You first need to complete the Paycheck Protection Program application and any required information your lender may need. A list of forms required include:

  • Drivers license for all business owners
  • Tax returns from 2018 or 2019
  • Form 941
  • 1099 Misc Form
  • Form 4506
  • Schedule of Liabilities
  • Start date of your business
  • NAICS code for a business applicant
  • Your bank account information, including account number and routing number
  • Payroll records from January 1, 2019- present
  • Proof of your business activity in 2020
  • Legal documents for your business.
  • if you have employees, you may need to show:
  • 2019 IRS Form 940 to show unemployment costs
  • 2019 IRS Form 941 to show quarterly salary, wages, and commission
  • 2019 IRS Form 944
  • 2019 IRS Form 1099-Misc
  • 2019 IRS Form 1040-C
  • 2019 IRS Form W-3
  • Monthly payroll statements

If you have any questions about your loan application or the required documents, it is best to speak to your lender directly about what they need to process your loan.

Notice: PPP ends March 31, 2021

The closing date for the Paycheck Protection program’s second draw ends on March 31, 2021. This date could change and be extended under the PPP extension Act. 

 Reapplying and Loan Increase

Some businesses may want to reapply or request an increase on the first draw of their PPP loan. There are some requirements for these businesses that include:

  • Loan increases or reapplications are prohibited if the SBA has remitted a loan lender’s forgiveness payment. These borrowers are then eligible for a second draw loan.
  • The lender can only make increases to the first draw of the loan.
  • Borrowers that have returned or repaid a first draw loan are eligible to reapply for that loan if the lender reported to the SBA before December 27that the borrower had paid or canceled the loan.
  • Borrowers that returned or repaid part of the first draw loan may request a loan increase. This increase can be equal to the difference between the amount not paid back and the amount previously approved.
  • Borrowers that did not accept before December 27 the total amount of the first draw for which they were approved may apply for an increase in the loan.

Loan Forgiveness Details & Reports

The Paycheck Protection Program Loan can be forgiven if the correct terms are met. This can get tricky, so it is best to ask your lender if you have any questions. First Draw PPP Loans can qualify for loan forgiveness if during the 8-24 week covered period following the disbursement :

  • the employee and compensation levels are maintained
  • loan proceeds are spent on payroll and other eligible expenses and 
  • at least 60% of the proceeds were spent on payroll.
  • Second term PPP loans can qualify for loan forgiveness if during the 8-24 week covered period following the loan disbursement:
  • Employee and compensation levels are maintained at the same level as the first PPP loan
  • The loan proceeds are spent on payroll costs and other eligible expenses
  • at least 60% of the proceeds were spent on payroll.  

A borrower can apply for forgiveness once all the loan proceeds have been used. They can also apply for forgiveness up until the maturity of the loan. If a borrower does not apply within ten months after the last day of the covered period, then the PPP payments are no longer deferred, and the borrower will begin making payments to the lender.

 Loan Forgiveness FAQs

Some common questions we have seen about forgiveness include:

  • Can part of my loan be forgiven? – Yes, part of the loan or the whole loan may be forgiven depending on the terms.
  •  Will a borrower’s PPP loan forgiveness amount be reduced if the borrower laid off an employee, offered to rehire the employee, and the employee declined the offer? – No, this will not affect the loan forgiveness if you made a good faith attempt to rehire the employee.
  • Can PPP Lenders use scanned copies of documents, E-signatures for loan forgiveness applications, and documentation? – Yes, all PPP lenders can use scanned copies. If an electronic signature is not feasible, an ink signature can not be obtained; the lender will appropriate the document.

Loan Forgiveness Checklist

If you are looking to apply for loan forgiveness, you should contact the PPP lender and complete the correct form. You will need to compile your documentation, including Payroll records and non-payroll expenses you used the funds for. Once you have the form and documentation, return it to your lender. Should you need to submit any additional documentation, your lender will let you know. It is best to follow up with them on this process.

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