Most businesses in the US took a nosedive when the COVID-19 crisis hit, prompting the Small Business Administration to provide a PPP loan to affected owners. This SBA-backed solution helps companies to stay afloat in these unprecedented times.

Paycheck Protection Program: Details on the PPP Loan

However, as of May 2021, the SBA no longer accepts applications for the Paycheck Protection Program. Borrowing businesses can instead opt for loan forgiveness under the program.

We at Booster Financial understand how small businesses need fast funding for short-term and long-term expenses. Our financing agency offers loan solutions that cater to your most pressing needs. From secured loans to alternative funding, we’re here to provide you with suitable loan products. Even without PPP loans, you can still find the best options that help you thrive.

What is a PPP loan?

The Paycheck Protection Program (PPP) is government-backed funding for small businesses. It’s a federal assistance package supporting the Coronavirus Response and Relief Supplemental Appropriations Act. Congress established the program, which the SBA and the US Treasury Department implemented.

Under PPP, entities can avail themselves of a low-interest private loan to cover payroll and other costs. This funding option allows businesses to pay as much as 8 weeks’ worth of payroll costs plus benefits. It ensures that employees could keep their jobs despite the pandemic. Additionally, the funds could also cover the interest on rent, mortgages, and utilities.

The SBA authorized around $659 billion of PPP loans to ensure job retention. Moreover, it helped business owners pay for overhead expenses despite financial constraints. It’s a timely program that enables many entities to operate and survive.

The program prioritizes small businesses, nonprofit organizations, tribal businesses, and Veterans organizations under the Small Business Act. The SBA also granted the PPP loan eligibility to self-employed individuals and independent contractors who meet the standards.

What are payroll costs?

The PPP is designed to cover payroll costs, which may include:

  • Compensation to employees residing in the US, whether by salary, commissions, wages, or other similar compensation. Record-based or good-faith estimate of cash tips or equivalent.
  • Payment for medical, family, vacation, parental, or sick leave. It excludes paid leave amounts that allow credit under FFCRA sections 7003 and 7001.
  • Dismissal or separation allowance
  • Payment benefits for insurance include health care, disability, vision, dental, retirement, and group life benefits.
  • State and local tax payments based on employee compensation

For sole proprietors and independent contractors, payroll consists of wages, income, commissions, or net earnings that do not exceed $100,000 in annual compensation.

Eligibility requirements

The SBA thru partnered lenders released PPP loans to qualified borrowers in batches: the preliminary PPP package, the first draw PPP and the second draw PPP. Each category has different eligibility requirements.

Borrowers who managed to secure PPP loans passed this set of criteria.

First, draw PPP loan Second, draw PPP loan
The business became operational before February 15, 2020 The business used up the first PPP loan
Still open for business and operational The business became operational before February 15, 2020
Business does not exceed 500 employees Still open for business and operational
No more than 500 employees for each location, if a business has multiple locations Business does not exceed 300 employees
No more than 300 employees for each location, if the business has multiple locations
The business can demonstrate a 25% or higher reduction in gross revenue

Qualified businesses showed gross income reduction in two ways. Firstly, borrowers can compare the tax returns for 2019 and 2020, which shows the annual gross revenue. Secondly, they can take any quarter’s gross revenue in 2020 and compare it with the same quarter of 2019.

Disqualifiers for the PPP

The following criteria disqualified a business for PPP loans:

  • The business was not operational on or before February 15, 2020
  • Individuals employing only housekeepers or nannies
  • Business owners with 20% of the share who has a criminal record related to fraud
  • Businesses owned or controlled by individuals who defaulted on loans from Federal agencies and the SBA within the last seven years, except for Federal student loans
  • The business is bankrupt or currently undergoing bankruptcy proceedings
  • Any employee, key officer of the lender they are applying with, as well as their close relatives
  • Private equity and hedge fund firms
  • Businesses in industries not eligible for an SBA 7(a) loan, including multi-sales distribution or speculation businesses

Borrowing enterprises that do not qualify for a PPP loan may still avail themselves of alternative financing from lenders like Booster Financial. Our agency aids small businesses that struggle due to the pandemic’s negative effects on the economy. We offer loan options that are quick, straightforward, and reliable.

You can be eligible for excellent loan products without worrying about your creditworthiness at our financing agency. We base financing on your business revenue and performance. Even if you failed to qualify for PPP, Booster Financial might be the best funding solution for you.

What’s next after PPP

Since the Paycheck Protection Program ended, business owners that availed of this loan can apply for loan forgiveness. This feature allows borrowers to request forgiveness once their PPP loan proceeds have been used up.

You can apply for loan forgiveness up to the loan’s maturity date. If you fail to apply within ten months following the covered period, your loan cannot be deferred. That means you need to pay back your loan to the lender.

First, draw loan forgiveness

Borrowers can apply for forgiveness about 8-24 weeks after loan disbursement. Qualified borrowers include:

  • Businesses that maintained their level of employee and compensation.
  • The loan proceeds were spent on eligible expenses such as payroll
  • At least 60% of the loan was spent on payroll

Second draw loan forgiveness

Eligible borrowers of the second draw PPP loan may apply for forgiveness as well. It covers 8-24 weeks after loan disbursement. The criteria are:

  • The business managed to maintain the same level of employee and compensation as the first draw PPP loan
  • The loan proceeds were spent on eligible expenses such as payroll
  • At least 60% of the loan was spent on payroll

Applying for loan forgiveness

If you managed to secure PPP loans, your next step would be to apply for loan forgiveness. This government-backed assistance allows you to cover eligible costs and defer your loan. Otherwise, you might need to repay the total amount you borrowed.

How to apply

Find out if your lender offers direct forgiveness

Not all lenders are qualified to offer loan forgiveness. If they do, the lender will then ask you to fill up relevant forms. The SBA 3508S form must be duly complied with and submitted. The lender can then provide further instructions throughout the application process.

Compile the documents

Typically, you need not submit other documentation showing calculations after you submitted the SBA form 3508S. However, the SBA may still request additional documents and information to review your application. These papers are part of the audit process or loan review. They are divided into payroll and non-payroll documents.

Included in the list of payroll documentation are bank account statements and tax forms that detail the compensation paid to employees. It also includes payment receipts, account statements, and canceled checks related to retirement plans and health insurance. These expenses must be accounted for in the forgiveness amount.

For non-payroll documents, the eligible paperwork includes business mortgage interest payments and lease payments. It also covers utility payments and operational expenses. If your property is vandalized during the covered period, you can also include the damage costs.

Additionally, non-payroll documentation includes supplier costs and worker protection expenses related to COVID-19 guidance compliance.

Submit all the necessary documentation to your lender or the SBA

You may submit all the relevant documents to your lender if they participate in direct forgiveness. Otherwise, you can also use SBA’s direct forgiveness portal at https://directforgiveness.sba.gov/. Depending on the lender, you might have to prepare requests for additional information or documents.

Monitor your application

Applying for loan forgiveness does not necessarily mean that you automatically qualify. The SBA will perform a review and inform you directly or through your lender whether you are eligible. If qualified, your lender will notify you of the loan forgiveness amount that the SBA paid.

Thereafter, you will know the due date of the first payment for your PPP loan.

Frequently asked questions

What if I applied for the PPP loan but did not receive the amount?

Since the Paycheck Protection Program already ended, not receiving the amount means that you did not qualify for the loan. It would be best to seek other funding options. Booster Financial offers different loan products that you can afford. We offer suitable financing solutions tailored to meet your most pressing business needs, especially in this time of crisis.

What if I did not get to apply for the PPP?

Seeking alternative funding is your next step if you failed to apply for PPP. You can discuss with your accountant or lender for options. For example, the Economic Injury Disaster Loans or IEDL is available for business owners affected by the pandemic. This loan is also offered by the SBA through partnered lenders.

Online lending agencies can also provide immediate access to the cash that you need. If you need to keep up with your expenses or stabilize your cash flow, a small business loan could be the answer for you.

How are PPP loan amounts calculated?

Paycheck Protection Program loan calculation follows this formula: 2.5 multiplied by your monthly payroll costs. The maximum loanable amount under this program is $2 million.

How can I utilize this loan?

The government designed PPP loans to support the financial needs of small businesses. Qualified borrowers should spend 60% of the loan proceeds for eligible expenses, mainly for compensation. It includes wages, commissions, salaries, and other similar compensation. The loan also covers cash tips or equivalent.

Borrowers can also allocate the loan for healthcare costs and other related expenses like insurance premiums for group healthcare benefits. It also covers life, dental, vision, and disability insurance.

Borrowing businesses can then spend the remainder of the loan proceeds (40%) on non-payroll expenses. The list includes mortgage and utilities interest payments, as well as operational expenses. If the business suffers from property damage perpetuated in 2020, the PPP loan can also cover related expenditures. If the borrower has debt incurred before February 15, 2020, they can use the loan to pay for the due interest.

Can I have another loan aside from PPP?

Yes, any business can have existing loans other than PPP loans. However, you cannot use them simultaneously for the same purpose. For example, if you have the loan advance or EIDL to pay for a month’s worth of rent, you cannot apply for a PPP to cover that same expense.

I have paid off the PPP loan. Can I still apply for loan forgiveness?

Yes, the SBA allows borrowers to apply for loan forgiveness, given they meet the eligibility requirements. You can discuss with your lender or authorized SBA representatives about loan forgiveness and the criteria you need to pass before qualifying.

What if I failed to qualify for loan forgiveness?

The lender may request additional documentation if you fail to get approval for loan forgiveness. If, after you submitted the documents, you still cannot qualify, then you are expected to repay the full loan amount.

The outstanding PPP balance accrues a 1% interest over the term of the loan. You will also not be liable for prepayment penalties if you decide to pay your dues early.

The takeaway

Small businesses took a huge dip following the COVID-19 crisis. Luckily, the government and private lending agencies provide financial assistance to those severely affected by it. The PPP loan’s low interest and simplified qualification requirements allowed owners to cope with the struggle and stay afloat in the market today.

However, if you didn’t manage to secure PPP loans, you still have many options provided by Booster Financial. We offer attractive loan products with favorable terms and rates for you. From term loans to credit lines to alternative funding, our agency has the right package fit for your exact business need.

Understand Your Options

Find out more about the different finance opportunities available in your area and get funded today!

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