Paycheck protection program Application (PPP): All you need to Know

Covid 19 has changed the game for all size businesses. Though US government is helping out with reliefs, first paycheck protection program fund $350 billion is exhausted.  It is resume now on Monday, April 27, 2020 . If you don’t know about PPP, this article is for you.

What is Paycheck protection program application?

Paycheck protection program is the part of the CARES act. This is the cash flow assistant program in form of federal guaranteed loan. It is backed by SBA. This program is for Small businesses and to cover up the wages expense in the time of corona virus crises.

Who is eligible for Paycheck protection program?

You need to qualify as small business as per SBA guideline. Following persons can apply for PPP:

1. Sole proprietor
2. Independent contractor
3. Self employed persons.
4. Non profit organization
5. Veterans organization
6. Tribal company
7. Any company with A NAICS code and having more than one physical location and less than 500 people per location. SBA guidelines to qualify as small business:

Paycheck protection program explanation:

1. The loan has 2 years maturity period
2. Interest rate for PPP is 1%
3. No loan repayment is required during first six months.
4. There is no loan process fees
5. There is no guarantee or collateral required
6. If the fund is used as per conditions mentioned, loan can be forgiven and converted into grant.
7. Loan is for the eight weeks payroll and other expense.

How can I spend PPP loan?

You need to use 75% of the loan to pay the payroll. The remaining 20% can be used for

mortgage interest payment, rent and utility payment.

What is payroll cost ?

Payroll cost includes :

1. Salary wages, bonus, tips ( Up to $100,000 annual salary per employee)
2. Benefits such as benefits consisting of group health care coverage, including insurance premiums
3. State and local taxes assessed on compensation of employees.
4. Sick leave payment
5. Other non cash compensation

Paycheck protection program for self employed or independent contractor:

Even if you are self employed or independent contractor, you are eligible for PPP.

If you are self employed or independent contractor, you can consider your wages payment to yourself or profit from business as payroll. The $100,000 cap will apply on annual pay or profit.

What is $100,000 limit for PPP ?

It means that you can consider the maximum $100,000 annual salary while counting the loan amount. This amount is per employee. If you are paying any employee more than that, you should not consider it.

How many funds can you get from the Paycheck protection program?

You will get 2.5 times your monthly average payroll cost in 2019. The maximum is $10 million.

The seasonal employer and new business will be assessed differently.

How to calculate PPP loan amount?

Let say you have two employees. Rachel and Zoya. Rachel has $120,000 annual pay and Zoya has $80,000 annual pay.

To calculate the loan amount, you need to consider $100,000 ( Maximum of Rachel’s pay ) and $80,000 ( Zoya’s pay).

So you will get $180,000/12*2.5 = $37500 under PPP program.

How can I apply for PPP?

Currently, SBA is not accepting more application. However, PPP will be opened soon. It is advisable you prepare all the documents in advance and know the procedure of application.

You cant apply directly on the SBA site for this loan. You need to contact your nearby financial institution or bank to apply. On the SBA site, you will find the list of banks accepting application for PPP.

You need to enter your postal code and the search function generates a list of nearby banks. We suggest consulting the nearby bank personally to get prepared in advance for the loan.

How to fill Payroll protection program application?

Paycheck protection program application pdf

You can download the ppp form with this link.

Following information is required to enter in the PPP form:

1. Business legal status
2. EIN/SSN/TIN number
3. Business legal name
4. Business full address
5. Contact information
6. Average monthly payroll
7. Advance requested ( 2.5* monthly payroll or less)
8. No of employees
9. Purpose of loan
10. Ownership % of the applicant

Then you need to confirm that

1. you are not restrained to apply for this loan by the federal government
2. You do not default in repayment of SBA loan during the last 7 years
3. If you have another business, you are required to give detail with an additional form.
4. Have you received SBA EIDL loan? If yes, You need to give details of it.

Then you are required to answer below questions:

1. Whether all employees of the applicant are US residence?
2. Is applicant franchise?
3. Is the applicant or any owner under criminal charges?
4. Is the applicant or any owner guilty of probation during the last 5 years?

You may also be required to confirm that

1. You will not get another loan from this program
2. The loan will be utilized to pay or maintain employee
3. You confirm that the payroll and tax documents are true and identical you submitted to the department.
4. You are in need of a loan and your business got impacted due to the Covid19 crisis.

Documents you will need:

You will need documents regarding payroll.

1. Payroll tax filling proof
2. Payroll tax forms
3. Payroll records
4. Form 1099-MISC record
5. Schedule c for sole proprietorship

You can easily download your payroll records from system or ask your accountant to do so.

How can I get my PPP loan forgiven?

The main purpose of loan is to maintain the employee numbers and reduce the termination of employees due to Covid19.

You need to follow two conditions to get the loan forgiven:

1. Maintain the average monthly employee as previous year. You can hire more but don’t terminate.
2. Spend the 75% of the loan amount in payroll expense and another 25% in another expense.

The amount forgiven will be reduced in below cases:

1. The number of employees reduces than the previous year
2. Wage gets reduced by more than 25%

Note :

If you have terminated the employment before, you can restore it until June 20. In that case, you will not get a reduction in loan forgiveness.

FAQ on Paycheck protection program application :

1. Can I apply for this loan along with SBA disaster program?

Ans. Yes, you can certainly apply for both. There is no restriction on it.

2. is there any application charge?

Ans. No, there is no charge to apply. If you are in need of fund, this loan will be beneficial to you.

3. Currently the program is closed. When will it reopen?

Ans. The last date of application is 31st March 2021. Better is to get your books and taxes done and keep all the payroll data ready with you.

Wrap up: 

Paycheck protection program fund runs out very quickly due to large number of the applicant. Now, it is resumed Monday, April 27, 2020, so apply earliest.  In this tough phase, it is better to plan finance in advance and do the application on multiple fund sources. Don’t forget to share this post with your friends or family and make them aware of PPP.